When you suffer a loss to your business, or your home, etc., you file a claim with your insurance company to receive reimbursement or payout to cover some of the cost towards your loss.
There are limitations on the amount your insurer will pay towards your claim, and this is called the aggregate limit.
An aggregate limit, also referred to as the annual aggregate limit, is the maximum amount of money an insurance company will reimburse a policyholder for all losses covered by the policy over a set period, typically one year.
Aggregate limits differ from that of per-occurrence or per-claim limits. This type of insurance limit refers simply to the amount an insurer will pay for a single incident or claim.
If the value of your total claim surpasses your aggregate limit, you as the insured will have to pay the outstanding amount using personal funds.
Insurance companies set caps on individual claims and the aggregate of claims. For example, suppose a companies yearly aggregate coverage limit is $40 million, and the filed claims within the policy period total $45 million. In that case, the insurance company will pay the $40 million, leaving the insured to pay the remaining $5 million.
Key Fact: Health insurance plans often include aggregate limits.
Why have an Aggregate Limit?
The policy feature helps to meet the requirements of both the insurance customers and insurance carriers.
By providing the ability to update and personally customize your insurance policy, it allows you to reflect your budget, as well as your exposure to risks.
For example, if you have low-level risks and have a tight budget, you can set out a low-limit policy with your provider to protect your items while decreasing your premiums.
Likewise, if you have high risk and have an adequate budget, you can organize a high limit plan that offers more protection, but bear in mind that your premiums will increase.
Insurance companies use aggregate limits ultimately to lower their exposure to catastrophic customer losses. Adopting this method allows companies to keep their premiums at an affordable level while ensuring their finances remain strong.
Per Occurrence Policy vs. Per Claim Policy
Your insurance company labels your policy as per occurrence or per claim policy. These are two different category types and reimburse policyholders in different ways and the aggregate limits vary depending on your policy type.
Aggregate limits for a per-occurrence policy
If your insurance policy is operated with the per occurrence form, your insurer will pay for every claim filed by your business from one event.
If multiple risks are caused and multiple claims are raised from one event, the insurance company treats the occurrence as one claim and you only have to pay one deductible.
With this insurance type, the aggregate limit will restart at the start of a new policy term, regardless of if you reach your limit in the previous period.
Aggregate limits for a per claim policy
Unlike per occurrence policies, per claim policies pay for every loss separately even if they result from one accident, and the insured is required to pay a deductible for every claim.
With a per claims policy, the insured sets their aggregate limit at the beginning of the policy, and the limit remains the same for the entirety.
Once the aggregate limit has been reached, the policyholder is no longer covered by the insurance company. The only way coverage can be restored, is if the policyholder increases their limit.
Round-Up: Per-occurrence policies allow multiple risks and claims to be raised and filed as one claim with only one deductible; their policies also reset at the start of a new policy term. Per claim policies file, each loss as a separate claim meaning policyholders has to pay multiple deductibles. Limits are set at the beginning of the policy and remain for the duration of cover.
Insurance Limits and Sub Limits
An insurance policy limit can also be called the limitation of risk. Essentially, the two mean the same thing and refer to the total amount of losses permitted to be paid by the said insurance policy.
Simply put, it’s the largest amount of money an insurer, will put forward to contribute to cover a claim. Most policies have different limits, and many policies will put limits on the number of occurrences, incidence, or accidents permitted in a yearly policy period.
It’s common amongst professional liability policies to have a $1 million limit to pay per occurrence and a $3 million aggregate limit for each policy year.
It is important to understand the sub-limits and aggregates. Sub-limits place caps or on claims for certain types of losses like fire or earthquakes.
An insurance company may limit the number of times per policy year that they payout for particular damages
Several carriers will limit certain perils like fire, to one occurrence per policy year. These limitations your insurance policy includes will reduce coverage as if a second incident happens and the root cause is fire, your insurance company will not payout.
Or concerning health care, there may be caps on the amount that will be reimbursed for particular areas of dental work.
Dental plans organized for families, will set out amounts they will pay for each crown, filling, or cleaning work claimed by family members. The policy will also make the family aware of their annual aggregate limit for claim payments.
In the event that the family surpasses the yearly limit, they will have to pay dental expenses from the personal cash until the new policy term begins.
Remember: Understanding your sub-limits, limits, and aggregate limits is essential to picking out the most suitable coverage for your needs.
Conclusion: Aggregated Limits
An aggregate limit refers to the amount an insurance provider will pay towards a covered loss detailed in the insurance policy.
Remembering that many insurance policies include several limits, like the number of times incidents can occur in a policy year will give you clear guidelines on the type of cover you need.
Understanding that aggregate limits work differently for per-occurrence or per claim policies is essential to help you decide which policy is ideal for you.
Look through your policies declaration pages to fully grasp your sub-limits, limits, and aggregate limits. These pages will help you to identify what’s covered.
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