What Is an Aggregate Limit?
An aggregate limit is a maximum amount an insurer will reimburse a policyholder for all covered losses during a set time period, usually one year.
Insurance policies typically set caps on both individual claims and the aggregate of claims. For example, if a company's annual aggregate coverage limit is $20 million, and claims totaling $25 million are filed in a policy period, the insurance company will pay only $20 million.
Health insurance plans often carry aggregate limits.
This is a contractual clause and may also be referred to as a general aggregate limit.
Understanding the Aggregate Limit
As noted, insurance policies often set limits on the amount that is paid on an individual claim and the total paid to the policyholder over a year.
- An aggregate limit caps the total amount that an insurer will pay a policyholder for a set time period.
- Insurance policies often place limits on both the size of individual claims and the aggregate claims reimbursed.
- Some businesses purchase stop-loss insurance in addition to their regular plans in order to cover any catastrophic losses.
For example, a liability policy may have a $25,000 per claim limit and 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 under the aggregate limit. The aggregate limit is now $75,000. A second $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.
An insurance policy may also have "sub-limits." That is, there might be caps on claims for a specific type of loss, such as flood or earthquake damage.
Health Care Aggregate Limits
As in the example above, health insurance plans often have a cap on per claim payments and a cap on annual claims payments.
A policy may also have sub-limits that cap the amount that will be reimbursed for particular types of loss or damage.
A family dental plan will pay a set amount for each filling, cleaning, or crown claimed by the family. The policy will also hold the family to an annual aggregate limit for payment for claims. If the family exceeds the annual limit, they must pay the expenses out of pocket until the next policy term begins.
Coping with Aggregate Limits
Some policyholders obtain insurance specifically to cover any catastrophic loss that exceeds the aggregate limits on their regular policies. For an additional cost, many insurers offer supplemental plans that provide coverage above the base plan's aggregate limit. These may have a specific but much higher limit or no limit.
Employers that self-fund employee healthcare plans may use similar 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. This standard policy may leave the employer responsible for paying out-of-pocket for costs that exceed the aggregate limit.
Similar stop-loss coverage is available for workers' compensation claims.
The employer may obtain a stop-loss policy that reimburses the employer for the amount that exceeds the aggregate limit.