What is meant by 'aggregate exposure' in life insurance?

The term 'aggregate exposure' refers to the total amount of coverage an insurer has across all policies within a specific risk category. This is essential for insurers to assess their overall risk and ensure that they do not exceed acceptable limits for any particular type of risk. By understanding aggregate exposure, insurers can manage their capital more effectively and protect themselves against potential large-scale losses that may arise from concentrated risks.

The concept is critical in underwriting and risk management because it provides a comprehensive view of the insurer's potential liability to claims. For instance, if an insurer has issued numerous life insurance policies within the same demographic category, understanding the total aggregate exposure helps assess the vulnerability to significant claims, especially in the case of unforeseen catastrophic events.

In contrast, the other options refer to different aspects of insurance practices: the total amount of coverage in a single policy pertains to individual policy limits; the number of applicants under a single insurer speaks to market share and client base without indicating risk exposure; and the amount of claims paid out in a year relates to claims management and financial metrics rather than the concept of aggregate exposure. Thus, the focus on aggregate exposure is specifically about the cumulative risk associated with a particular category of coverage.