Aggregate Deductible

Aggregate deductible is the limit deductible a policyholder would be required to pay on claims during a given period of time. Aggregate deductibles are most likely to be features of product liability policies, or policies that may result in a large number of claims during a certain time period.

The draw of an aggregate deductible policy feature is that it puts a cap on the amount the insured has to pay. Manufacturers purchase product liability insurance in order to protect themselves from claims resulting from damages caused by their products. It is especially valuable for products that can cause significant damages if not manufactured correctly, such as medicines and automobiles, and with products that are sold in high volumes, such as toys.

While policyholders may have product liability insurance batch clauses, not all states will allow the policyholder to treat all claims as if they were part of the same occurrence. If each claim is considered independent then the policyholder will have to pay the deductible for each claim, even if the deductible is greater than the claim amount. This essentially creates a situation in which the policyholder is not insured.

For example, a canning company is notified that some of its products are making the consumers sick. The company’s per occurrence deductible is $10,000, but it also has an aggregate deductible that designates that it does not have to pay more than $100,000 in deductibles in a given year. Several states where the consumers live do not allow multiple claims to be considered as part of the same occurrence. The total number of claims reaches 1,000 and each claim valued at $5,000. Without an aggregate deductible the company would be responsible for the entire claim, and would ultimately have to pay out $5,000,000 ($5,000 claim value x 1,000 claims). The aggregate deductible, however, limits the company’s total deductible to $100,000.

Aggregate deductibles are also used in family health insurance policies. Under an aggregate deductible family health insurance plan, the total family deductible must be paid out-of-pocket before health insurance starts paying for the health care services incurred by any family member. With an aggregate deductible, there is no embedded deductible for each individual family member to meet. Aggregate deductible family health insurance may carry a lower monthly premium, but the coverage doesn't take effect until the full family deductible is paid out of pocket, which can be much higher than individual embedded deductibles for each family member.

 In some cases an aggregate deductible can enhance individual health coverage, according to the Center for Health Insurance Reform at Georgetown University. If an individual family member incurs a significant amount of medical expenses, the individual will fulfill their deductible sooner because it is lower than a family deductible would be. This could save a family thousands of dollars.