Property and Casualty Insurance Practice Exam

What is the penalty for exceeding the aggregate limit in insurance claims?

1. Insurance company may refuse to pay any claims

2. The insured must pay the excess from pocket

3. Claims may be reduced proportionally

4. Coverage is voided for the policy term

The correct answer is: The insured must pay the excess from pocket

The correct answer indicates that when an insured exceeds the aggregate limit on their insurance policy, they must cover the excess amount out of their own pocket. Aggregate limits specify the maximum amount an insurer will pay for all covered losses during a specified period, usually a policy year. If claims filed by the insured surpass this limit, any costs beyond this threshold are the responsibility of the insured. When an individual or business exhausts their aggregate limit, it means they've reached the maximum payout available under their policy for that period. As a result, any further claims made will not be compensated by the insurer, placing the financial burden back on the insured to cover those additional costs without any assistance from their insurance policy. This understanding is crucial in insurance management, as policyholders need to be aware of their coverage limits and the potential financial implications should they exceed those limits. Additionally, it highlights the importance of evaluating one’s insurance needs accurately to ensure adequate coverage is in place.