What is an 'Aggregate Limit'
An aggregate limit is a contract provision used in insurance to limit the amount that can be paid in the policy period. An aggregate limit is the maximum dollar amount your insurer will pay to settle your claims. Often, the limit is referred to as an annual aggregate limit, which is the total amount your insurer will pay in a single year.
BREAKING DOWN 'Aggregate Limit'For example, if your annual aggregate limit is $20 million, and you have $25 million worth of claims that occurred in the period, then the company would only pay up to $20 million. "Aggregate" means you can have multiple claims in one period, but any sum exceeding the limit would not be paid out.
Types of Limits
Insurance companies set limits on individual claims and on the aggregate of claims during a period of time. Many policies have both types of limits in force. For example, a public liability policy might have a limit of $25,000 per accident or claim and an aggregate limit of $100,000. If you make a claim of $50,000 for a single accident, your insurer pays only half the claim, or $25,000, even though the total claim amount is lower than the aggregate limit. A subsequent $50,000 claim in the same period results in another $25,000 being paid out. At this point, you are $50,000 from reaching its aggregate limit. This amount may be paid out in additional claims made before the end of the period, but at no more than $25,000 per claim. Once you reach the aggregate limit of $100,000, you may no longer submit claims, no matter how small, to your insurer for payment until a new period begins.
Protecting Against Aggregate Limits
A catastrophic claim that greatly exceeds your aggregate limit can produce financial dire straits unless you have adequate protection in place. Many insurers offer supplemental plans that provide coverage in excess of the base plan's aggregate limit. You would pay a separate premium for supplemental coverage that only comes into play when you make a claim beyond your aggregate limit. Depending on the terms of the plan, it may have its own limit in place, or it may provide unlimited coverage.
Employers that self-fund employee healthcare plans turn to stop-loss insurance to protect against catastrophic claims. In a self-funded plan, the employer agrees to cover its employees' healthcare costs but only receives coverage up to a certain amount, which is its aggregate limit. If an employee makes a large claim in excess of the aggregate limit, the employer, absent a stop-loss policy, is responsible for paying this claim out of pocket.