What is the typical structure of aggregate limits in liability insurance?

The correct answer reflects the standard approach to aggregate limits in liability insurance policies. Typically, aggregate limits provide a dual-layer structure: one limit establishes the maximum payout for each individual claim, while another limit sets the overall cap on total claims made during a specified policy period, such as an annual term. This arrangement allows insurers to manage their exposure to financial risk by clearly defining the maximum amount they will pay out for all claims combined, as well as specifying a per-claim limit to prevent excessive payouts for any single incident.

In contrast, the other options do not align with the typical structure of aggregate limits. For instance, having one unlimited liability cap would lead to potentially unchecked financial exposure for insurers. Flexible payouts depending on the claim type suggest variability that is not standard across aggregate limits, which typically maintain fixed thresholds. Lastly, a maximum payout for only physical damage overlooks the comprehensive nature of liability insurance, which extends beyond just physical damage to include other liability exposures.