A Business Owner, a Captive, an RRG, or an Insurance Company can elect to retain risk or to Self Insure for Property, Casualty, Workers Compensation (where authorized) or Employee Benefits, up to a pre-determined amount, called the Stop Loss limit, and purchase excess insurance to cover the losses that exceed that level, either individually or on the aggregate.


The Business entity that purchases Stop Loss insurance remains responsible for all of the losses, even those that exceed the Stop Loss limit, however the entity is reimbursed by the Stop Loss insurance carrier for the claims that exceed the Stop Loss limit.  It is important that the insurance be called Stop Loss or excess insurance and not reinsurance.  State Guarantee Funds may cover insolvent stop-loss and excess insurers, but they do not cover insolvent reinsurers.


Stop-loss coverage can be purchased as specific stop-loss or aggregate stop-loss.  The term retention is frequently used in place of stop-loss because the insured entity retains the risk of loss up to that point.


Specific stop-loss coverage provides protection for the losses relating to a “specific” claim, once it has exceeded the pre-determined level, such as $50,000, during the plan year.   Claims for specific stop-loss reimbursement can be submitted to the insurance company as soon as the claims exceed the self-funded level, which is sometimes referred to as the deductible.


Aggregate stop-loss coverage provides coverage only if the combined losses for all claims exceed the attachment point selected by the Insured entity at the time aggregate coverage was purchased.  This amount is usually 125 percent of the expected losses for the group.   These claims are generally submitted at the close of the contract period.  It is possible to negotiate a monthly stop-loss or retention with an insurance carrier, which usually apportions the annual retention over the 12-month period according to the level of claims anticipated each month.


The amount selected by an organization for a specific and an aggregate stop-loss requires careful consideration. The organization will be “self-insuring” the losses of the group up to these points.  These amounts, along with the claims experience of the group, will also be scrutinized carefully by the underwriting department of the insurance company to determine the stop-loss coverage the carrier is willing to write.

                                                                         F. Darrell Lindsey

                                                                         State Approved Captive/RRG Manager

                                                                         U.S. State Licensed Agent/Broker