A claim limit specifies the maximum amount that can be claimed from an insurance policy for particular benefits or the plan as a whole.
This helps an individual determine if a particular policy would be suitable for his or her coverage needs.
For example in a typical travel insurance policy, there might be a loss baggage claim limit of $1,000, and a total claim limit for the whole policy of $200,000. This means that if there are other claims within the policy that amounts to $200,000, the $1,000 loss baggage claim would not be enforced as the policy limit of $200,000 has already been reached.
Such information might also deter a traveller from bring luggage that is worth more than $1,000 on a trip since it won’t be fully covered by a basic travel policy. One would have to purchase a better plan to get fully covered.
Claim limits can be basically be placed on each:
- Illness
- Injury to specific body parts
- Annual limit
- Lifetime limit
- etc
Almost anything that you think can be itemized can have a limit to how much one can claim.
Putting such limits on coverage prevents insurers from facing unlimited claims from clients with severe medical conditions.
Differentiating different plans for the same policies
The claim limits also serve as a way for insurers to differentiate between basic and premium policies that they offer.
For example, a hospitalization policy might provide a $100,000 cover in a basic plan, and $200,000 limit on a plus plan. And claim limits for treatments in the latter might be double that of the former.
The higher the claim limit, the higher the premiums that a client has to pay.
In any case, insurers usually calculate the claim limit of entry-level policies to be sufficient for the medical expenses of the average person for common illnesses.
But as there would always be people who’d feel safer with higher coverage or wants to enjoy the best private hospital facilities when sick, higher end plans are always in high demand.
People generally implicitly understand the benefits of having sufficient or comprehensive insurance coverage. So spending money on them is often deemed worthwhile.
But the decision on whether to upgrade to better plans with higher claim limits is often down to value.
How much value does increased premiums bring?
If a 10% increase in premiums would bring a 50% increase in claim limits, it should be reason enough to be a strong selling point for someone to sign up.
But that is seldom the case despite the low probability of someone making claims that would exceed the limits of a basic plan.
When we keep in mind that medical insurance only reimburse the actual medical expenses that has been billed to the patient, and nothing more, the more reasonable it can seem that basic plans are more than sufficient to the average person.
It must also be noted that while insurance companies would want to maximize revenue by selling as many expensive policies as possible, they’d also want to avoid having clients who are over-insured as that can be a precursor to fraud.
