Aggregate deductible term refers to the limit placed by a policyholder, which indicates the mandatory responsibility to pay on the reported claims in specified timeframe. Most often considered as one of the features included in liability policy dedicated for a product. Aggregate deductible normally refers to the period of time equal to one year.
Albert Amato in his scientific work defines, that the “aggregate deductible is sometimes placed in an excess of loss treaty to protect the reinsurer from claims it otherwise would be responsible for within the treaty. It should also assist in keeping reinsurance costs down. The amount of the deductible is determined in advance by the parties”. It provides the additional protection to the insured, especially in the situations linked with e.g. high frequency losses .
The aggregate deductible level is to be determined by the particular entity. It does not apply to amount of the charitable contribution, which under standard conditions tends to remain at stable level.
How to dedictable?
Jay A. Soled indicates the criteria for deductibility .
- Contribution of cash and nonappreciated property are in aggregate, deductible up to 30 percent of the donor’s contribution base,
- Capital asset contributions that are eligible for long term-treatment are, in aggregate, deductible up to 20 percent of the donor’s contribution base,
- Ordinary income items and capital asset contributions that are eligible for short-term treatment are, in aggregate, deductible up to 30 percent of the base.
Manufacturer in order to reduce risk of mass production can purchase product liability insurance. If the problem occurs, the claims are first covered by manufacturer to the level of aggregate deductible and then by insurer. The deductible is called aggregate because it is aggregated along all the claims related to insured product.
Aggregate deductible is the highest sum paid out-of-pocket for covered expenses that has to be paid before insurance company will pay the remaining costs. Aggregate deductible is usually related to product liability policy .
From the corporate and risk perspective, the aggregate deductible and its limits are being defined as “numbers to cover the firm’s desired retention on a portfolio basis and thus reflect the recognition that all risks will not results in losses at the same time” . In such conditions, coverage gaps do not occur, hence some specific cases may refer rather to efficiency enhancements. Such reinforcement can “prevent capital from being parked idly in one risk silo when it could be covering a loss in another (or returned to shareholders)” .
- A.P. Amato, 2010, p.18
- J.A.Saled, 2002, p.187
- E.G. Baranoff, 2010, p.265-280
- D.H.Chew, 2008, p.53
- Amato A.P., (2010), Reference Guide to Reinsurance Reference Guide to Reinsurance 2010 Edition, New York p.18
- Baranoff, E. G. (2010). Determinants in risk-financing choices: the case of workers compensation for public school districts. Journal of Risk and Insurance, New York 265-280.
- Chew D.H., (2008), Corporate Risk Management Columbia University Press, Chicago p.53
- Saled J.A., (2002), Estate Planning Strategies, American Bar Association, London, p.187
Author: Dominika Tatoń