Final answer:
The correct answer to the question is that when a General Liability Policy is written with Aggregate Limits, it implies that payment under the policy reduces the amounts of insurance available to pay additional claims in the policy year. Insurance premiums must cover claims, operational costs, and profits, and coinsurance is a method of sharing risk.
Step-by-step explanation:
When a General Liability Policy is written with Aggregate Limits, it means that the payment under the policy reduces the amount of insurance available to pay additional claims in the policy year. This is in contrast to per occurrence limits, where each claim is subject to its own limit, irrespective of other claims.
Insurance companies operate with the understanding that premiums must cover the insured's claims, the costs of running the company, and also allow for company profits. This balance is crucial in maintaining the company's financial health and ability to pay out when claims are filed.
Coinsurance is another concept related to how claims and costs are shared between the policyholder and the insurer, emphasizing the shared risk model of insurance policies.
During the policy year, if a claim is made and the insurer pays, that amount is deducted from the aggregate limit for that year, potentially leaving less coverage for any subsequent claims. This shared pool of funds must be managed to account for all potential claims without compromising the insurance firm's ability to operate profitably.