Aggregate Limits Reinstatement

Aggregate Limits Reinstatement is an insurance policy clause that allows the policy limits to be returned to their maximum amount during the policy’s extended reporting period. These reinstatements are used when the original limits of the policy have been impacted by claims paid, or by any other impairment that reduces the limit.

Companies that purchase insurance hope that they are not subject to an insurance claim, especially if the losses associated with that claim exceed the limits outlined in the policy contract. They must choose the coverage limits before the contract is finalized, which can be difficult because estimating the costs associated with potential risks depends on a lot of factors. If claims are made against the policy its limits will be eroded, ultimately leading to the potential of additional claims exceeding the limit entirely. The limit may also be reached through a single, substantial claim.

To protect against this possibility, companies may seek out a policy provision allowing limits to be reinstated. The policy language will indicate that aggregate limits may be reinstated when exhausted, with the premium based on a predetermined formula. For example, it may be calculated by multiplying the expiring premium by a factor. In some cases, the limit reinstatement may occur automatically, while in other cases it may only be reinstated if requested by the insured party.

For example, a local government’s transportation authority may purchase a general liability policy to protect itself from injury claims made by passengers, pedestrians, or other parties. The policy has a pre-determined limit, but has an option to reinstate aggregate limits. At the beginning of the policy year, a bus accident resulted in a claim that reached the limit of the general liability policy. Because of the retention clause, the authority reinstates the limits on the policy, providing it with coverage for a fee.

Some policies will allow more than one reinstatement of the limit during the policy period, and some may even allow unlimited reinstatements. It's wise to check a policy to see how many times limits can be reinstated.

Keep in mind that an aggregate limit is not the same thing as a reinstatement. An insured  can have many reinstatements until the aggregate limit is exhausted.  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.