UPDATED: Mar 13, 2020
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An aggregate limit is a defined threshold showing the maximum payout of a policy over the lifetime of the policy.
With car insurance, the aggregate limit is typically one year. That means the limit gets reset every year.
However, aggregate limits rarely play a role in the car insurance world. They’re more common with health insurance policies.
The aggregate limit exists regardless of the number of claims made during the period. Once the aggregate limit is exceeded, however, there will be no further eligible claims under the policy.
Let’s say you have a car insurance policy where your aggregate limit is $100,000. Under this policy, you can make five claims of $20,000 or ten claims of $10,000 or any other combination of claims. However, if you made three claims of $40,000, then the first two claims would be paid in full, while you would only receive half of the final claim.
What is a Per-Claim Limit?
In some cases, the per-claim limit is the same as the aggregate limit. In other cases, they’re different.
Let’s say our policy has a $100,000 aggregate limit and a $30,000 claim limit. If we made the same three $40,000 claims mentioned above, then the insurance company would only pay $30,000 on each claim, leaving us with a total leftover value of $10,000 on our aggregate limit.
What’s the Point of an Aggregate Limit?
Why do insurance companies have aggregate limits?
The primary purpose of an aggregate limit is simple: aggregate limits protect insurance companies from exposure to significant risk and financial loss.
If an insurance company’s customer has an unlucky year with multiple accidents or surgeries, then the insurance company isn’t on the hook for millions of dollars when they’re only charging $1,000 per year for the policy. Aggregate policies help guarantee the profitability of the insurance company – often at the expense of the policy.
Can I Raise My Aggregate Limit?
You can raise your aggregate limit by paying higher premiums to your insurance company. Sometimes, you can pay an extra fee per month to avoid aggregate limits entirely.
The higher premiums offset the additional risk absorbed by your insurance company. Typically, the price hike isn’t large.
Some risk-averse policyholders find they would rather pay higher insurance premiums today than face exposure to higher personal liability risk in the future.
Aggregate Limits Are Most Common with Health Insurance Policies
We don’t usually hear about aggregate limits in the car insurance world. Instead, aggregate limits are particularly common in the American health insurance industry.
Many healthcare plans carry aggregate limits to prevent insurance companies from covering costly claims. If your family exceeds its annual aggregate limit – say, if multiple members of your family each had a major surgery in a one year period – then your insurance company may refuse to cover future claims, and you may need to pay for additional medical expenses out of pocket.
Check your Aggregate Limit to Make Sure You’re Covered
Insurance companies can be sneaky. You might assume you have a car insurance policy that covers up to $100,000 per accident in personal liability. However, because of low per-claim limits or aggregate limits, your insurance company may never be required to pay the full $100,000 amount.
That’s a problem for more serious accidents. You might collide with a minivan and seriously injure an entire family. Their medical bills total $95,000. You think that’s okay because your insurance policy covers up to $100,000. However, your insurance policy also has a per-claim limit of $50,000. That means your insurance company will cover the first $50,000 you owe, while you must pay the remaining expenses out of pocket.
Check your policy’s aggregate limit to make sure it provides the protection you need. A low aggregate limit or per-claim limit can expose you to significant risk.