what is an aggregate deductible how does it work

DEFINITION of ‘Aggregate Deductible’

A limit to the amount of deductible a policyholder will 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.

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.

The draw of an aggregate deductible policy feature is that it puts a cap on the amount the insured has to pay. 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.