What Does Aggregate Annual Deductible Mean?
An aggregate annual deductible is the maximum amount policyholders need to pay within a policy period before their insurer pays for covered losses. In other words, if a policyholder files several claims or one large claim, they must pay out of pocket up to a certain dollar sum. Subsequently, coverage kicks in, and the insurer starts making payments.
Insuranceopedia Explains Aggregate Annual Deductible
As a general rule of thumb, the higher the policyholder’s deductible, the lower the cost of premiums for the insured. In essence, an aggregate annual deductible puts a cap on how much a policyholder must pay out on claims over the course of the policy period. In this way, the insured need not pay a deductible for each individual claim. This is especially valuable in product liability cases.
For example, an insured company sells dried food products that have made several buyers sick, which results in 100 consumer claims valued at $3,000. Following a successful lawsuit against the company, the latter must pay $300,000 in damages. Because their $1 million liability insurance has an aggregate deductible of $50,000, they would have to pay only that amount, while the insurer would cover the remaining $250,000.