Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What is the purpose of the Aggregate Limit under the Commercial General Liability policy?

1. To increase the overall policy limit

2. To restrict the amount of coverage available

3. To define the types of covered damages

4. To provide insurance against all liability claims

The correct answer is: To restrict the amount of coverage available

The purpose of the Aggregate Limit under a Commercial General Liability (CGL) policy is to restrict the amount of coverage available over the policy period. This limit specifies the maximum amount the insurer will pay for all claims during a designated coverage period, which is usually one year. This means that if multiple claims are made during that period, the total payouts cannot exceed the aggregate limit, regardless of the number of individual claims. Essentially, it serves to cap the insurer's liability, ensuring they do not exceed exposure beyond the stated limit. This design is critical in helping insurers manage risk and maintain financial stability while providing coverage to businesses. In contrast, other options relate to increasing limits, defining damage types, or broad coverage against all claims, which do not accurately represent the function of the Aggregate Limit.