What is Aggregate Indemnity?

Aggregate indemnity is a term used in insurance. It is the most money an insurance company will pay for all the claims from one policy, usually during a set period, like a year.

The word “aggregate” means the total sum or whole amount. “Indemnity” means protection against loss or damage by paying money. So, “aggregate indemnity” refers to the total amount of protection.

Why it Matters

Aggregate indemnity is essential because it puts a cap on what the insurance company has to pay. This cap limits their risk. It also lets the person buying the insurance know their maximum coverage.

For example, let’s say a company has a liability insurance policy with a $1 million aggregate indemnity limit. During the policy year, the company faces several lawsuits. The insurance company will pay for the costs of these lawsuits, up to $1 million in total. If the costs exceed $1 million, the company must pay the extra amount themselves.

How Does Aggregate Indemnity Work?

When you get an insurance policy, the insurer agrees to pay for certain losses up to a set limit. This limit can apply to each claim. It can also apply to all claims during the policy period. That total limit is the aggregate indemnity.

Aggregates Can Apply to Different Things

Aggregate limits can apply to different parts of an insurance policy. Here are some common ones:

Policy Aggregate

This is the total limit for any claims during the policy period. It’s the maximum the insurance company will pay, no matter what.

Coverage Aggregate

Some policies have separate limits for different types of coverage. For example, a policy might have one limit for property damage and another for bodily injuries. Each of these coverages would have its aggregate limit.

Per-occurrence or Per-Claim Aggregate

This sets a limit on how much the insurer will pay for any one event or claim. Although many of these events may occur during the policy period, each one has a maximum payout.

Aggregate Indemnity in Different Types of Insurance

Aggregate indemnity applies to many kinds of insurance. But it works a bit differently for each one. Here’s how it usually works for a few common types:

General Liability Insurance

This type of insurance covers a business if it is sued for injuries, property damage, or advertising issues. The aggregate is the maximum the insurer will pay for all these claims combined during the policy period.

Professional Liability Insurance

They are also known as errors and omissions (E&O) insurance. This is for professionals like doctors, lawyers, or consultants. It covers them if they’re sued for mistakes or negligence in their work. The aggregate applies to all such claims.

Health Insurance

For health insurance, the aggregate indemnity is the maximum the insurer will pay for all one person’s medical costs. Depending on the policy, this might be over a year or over a lifetime.

The Difference Between Aggregate and Per-Occurrence Limits

It’s essential to understand the difference between aggregate and per-occurrence limits. The per-occurrence or per-claim limit is the most the insurer will pay for any incident. The aggregate is the most they’ll pay for all incidents combined.

Here’s an example. Let’s say a company has a liability policy with a $500,000 per occurrence limit and a $2 million aggregate. If they face a lawsuit that costs $600,000, the insurer will only pay $500,000. The company has to pay the other $100,000. However, the insurer will pay for it if they face several minor lawsuits totaling $1.5 million. That’s because it’s under the $2 million aggregate, even though it’s more than any occurrence.

How Aggregates Can Affect Your Coverage

Aggregate limits can affect whether a policy provides enough coverage. Here are some things to consider:

Likelihood of Multiple Claims

A higher aggregate limit provides more protection if there’s a good chance of facing many claims. For example, a company in a high-risk industry might want a higher aggregate limit.

Size of Potential Claims

The per-occurrence limit should be high enough to cover the likely cost of any one claim. But even many small claims can add up to more than the aggregate. It’s essential to consider both.

Policy Renewal

Aggregates usually apply to a set policy period, like a year. When the policy renews, the aggregate limit resets. Any claims from the previous period don’t carry over.