The aggregate limit is the maximum amount an insurer will pay for covered losses during a policy period. The annual aggregate limit is the total amount an insurer will pay in a given single year.
Breaking Down an Aggregate Limit
For example, if your annual aggregate limit is $20 million, and you have claims totaling $25 million in a policy period, your insurance company will only pay up to the $20 million limit.
Types of Limits
Insurance companies set limits on individual claims and the aggregate of claims during a policy period. Some insurance policies may contain both claim limits and aggregate limits.
For example, consider a public liability policy with a $25,000 per claim limit, which also has an aggregate limit of $100,000. If the insured makes a single claim for $50,000, the insurance company pays only $25,000, the per claim limit, even though it is less than the aggregate limit. The aggregate amount is now $75,000 ($100,000 limit less the $25,000 paid claim). A subsequent $50,000 claim in the same period results in another $25,000 payout and a reduced aggregate limit of $50,000. After reaching the aggregate limit, the insurer pays no additional claims during the policy period. Most policy periods run for one year.
Health Care Aggregate Limits
Many healthcare plans carry aggregate limits. As in the example above, these plans will often have a cap on per claim payment and a limit for annual claims payments. As an example, a family dental plan will pay a set amount for each filling, cleaning, or crown claimed by the family as a whole. The policy will also hold the family to an annual aggregate limit of claims which they will pay. If the family should exceed the annual limit, they will not receive payment for additional claims until the next policy term begins.
Protecting Against Aggregate Limits
A catastrophic claim that exceeds an aggregate limit can create financial strain unless additional protection is in place. For an additional cost, many insurers offer supplemental plans that provide coverage above the base plan's aggregate limit. Some may have a specific limit or no limit, at all.
Employers that self-fund employee healthcare plans will use stop-loss insurance to protect against catastrophic claims. In a self-funded plan, the employer pays the claims presented by its employees up to an aggregate limit. If employees make claims that exceed the aggregate limit, the employer, absent a stop-loss policy, is responsible for paying out of pocket. Under a stop-loss policy, the stop-loss insurer will reimburse the employer for the amount that exceeds the stop-loss deductible or aggregate limit.