What Is Aggregate Stop-Loss Insurance?

Aggregate stop-loss insurance is a policy designed to limit claim coverage (losses) to a specific amount. This coverage ensures that a catastrophic claim (specific stop-loss) or numerous claims (aggregate stop-loss) do not drain the financial reserves of a self-funded plan. Aggregate stop-loss protects the employer against claims that are higher than expected. If total claims exceed the aggregate limit, the stop-loss insurer covers the claims or reimburses the employer.

Understanding Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance is held for self-funded insurance plans for which an employer assumes the financial risk of providing healthcare benefits to its employees. In practical terms, self-funded employers pay for each claim as it is presented instead of paying a fixed premium to an insurance carrier for a fully insured plan. Stop-loss insurance is similar to purchasing high-deductible insurance. The employer remains responsible for claim expenses under the deductible amount.

Stop-loss insurance differs from conventional employee benefit insurance. Stop-loss only covers the employer and provides no direct coverage to employees and health plan participants.

How Aggregate Stop-Loss Insurance Is Used

Aggregate stop-loss insurance is used by employers as coverage for risk against a high value of claims. Aggregate stop-loss insurance comes with a maximum level for claims. When a maximum threshold is exceeded, the employer no longer needs to make payments and may receive some reimbursements.

Aggregate stop-loss insurance can either be added to an existing insurance plan or purchased independently. The threshold is calculated based on a certain percentage of projected costs (called attachment points)—usually 125% of anticipated claims for the year.

An aggregate stop-loss threshold is usually variable and not fixed. This is because the threshold fluctuates as a percentage of an employer’s enrolled employees. The variable threshold is based on an aggregate attachment factor which is an important component in the calculation of a stop-loss level.

As is the case with high deductible plans, most stop-loss plans will have relatively low premiums. This is because the employer is expected to cover over 100% of the value of claims they receive.

Aggregate Stop-Loss Insurance Calculations

The aggregate attachment associated with a stop-loss plan is calculated as follows: 

Step 1

The employer and stop-loss insurance provider estimate the average dollar value of claims expected by employee per month. This value will depend on the employer’s estimate but often ranges from $200 to $500 per month.

Step 2

Assume the stop-loss plan uses a value of $200. This value would then be multiplied by the stop-loss attachment multiplier which usually ranges from 125% to 175%. Using a claims estimate of $200 and a stop-loss attachment multiplier of 1.25, the monthly deductible would be $250 per month per employee ($200 x 1.25 = $250).

Step 3

This deductible must then be multiplied by the employer’s plan enrollment for the month. Assuming that an employer has 100 employees in the first month of coverage, their total deductible would be $25,000 for the month ($250 x 100).

Step 4

Enrollment can potentially vary per month. Due to enrollment variance, aggregate stop-loss coverage may have either a monthly deductible or an annual deductible.

Step 5

With a monthly deductible, the amount an employer must pay could change every month. With an annual deductible, the amount the employer must pay would be summed for the year and usually based on estimates from the initial month of coverage. Many stop-loss plans will offer an annual deductible that is slightly lower than the summation of deductibles over 12 months.

What Is Actuarial Science?

Actuarial science is a discipline that assesses financial risks in the insurance and finance fields, using mathematical and statistical methods. Actuarial science applies the mathematics of probability and statistics to define, analyze, and solve the financial implications of uncertain future events. Traditional actuarial science largely revolves around the analysis of mortality and the production of life tables, and the application of compound interest.

Understanding Actuarial Science

Actuarial science attempts to quantify the risk of an event occurring using probability analysis so that its financial impact can be determined. Actuarial science is typically used in the insurance industry by actuaries. Actuaries analyze mathematical models to predict or forecast the reasonableness of an event occurring so that an insurance company can allocate funds to pay out any claims that might result from the event. For example, studying mortality rates of individuals of a certain age would help insurance companies understand the likelihood or timeframe of paying out a life insurance policy.

Actuarial science became a formal mathematical discipline in the late 17th century with the increased demand for long-term insurance coverage. Actuarial science spans several interrelated subjects, including mathematics, probability theory, statistics, finance, economics, and computer science. Historically, actuarial science used deterministic models in the construction of tables and premiums. In the last 30 years, science has undergone revolutionary changes due to the proliferation of high-speed computers and the union of stochastic actuarial models with modern financial theory.

Applications of Actuarial Science

Life insurance and pension plans are the two main applications of actuarial science. However, actuarial science is also applied in the study of financial organizations to analyze their liabilities and improve financial decision-making. Actuaries employ this specialty science to evaluate the financial, economic, and other business applications of future events.

Insurance

In traditional life insurance, actuarial science focuses on the analysis of mortality, the production of life tables, and the application of compound interest, which is the accumulated interest from previous periods plus the interest on the principal investment. As a result, actuarial science can help develop policies for financial products such as annuities, which are investments that pay a fixed income stream. Actuarial science is also used to determine the various financial outcomes for investable assets held by non-profit corporations as a result of endowments. 

In health insurance, including employer-provided plans and social insurance, actuarial science includes analyzing rates of

• Disability in the population or the risk of a certain group of people becoming disabled
• Morbidity or the frequency and the extent to which a disease occurs in a population
• Mortality or mortality rate, which measures the number of deaths in a population that result from a specific disease or event
• Fertility or fertility rate, which measures the number of children born

For example, disability rates are determined for veterans that may have been wounded in the line of duty. Certain percentages are assigned to the extent of the disability to determine the payout from disability insurance.

Actuarial science is also applied to property, casualty, liability, and general insurance–instances in which coverage is generally provided on a renewable period, (such as yearly). Coverage can be canceled at the end of the period by either party.

Pensions

In the pension industry, actuarial science compares the costs of alternative strategies with regard to the design, funding, accounting, administration, and maintenance or redesign of pension plans. A pension plan is a defined-benefit plan, which is a type of retirement plan involving contributions from the employer to be set aside and paid out to the employees upon retirement.

Short-term and long-term bond rates greatly influence pension plans and their investment strategies. Bonds are debt instruments issued by governments and corporations that typically pay a periodic interest rate. For example, in a low-interest-rate environment, a pension plan might have difficulty earning income from the bonds that it has invested in, which increases the probability that the pension plan could run out of money.

Other factors impacting a pension plan’s viability include benefit arrangements, collective bargaining, the employer’s competitors, and changing demographics of the workforce. Tax laws and the policies of the Internal Revenue Service (IRS) regarding the calculation of pension surpluses also impact the finances of a pension plan. Additionally, economic conditions and trends in the financial markets can impact the probability of a pension plan remaining funded.

Universities and Professional Certifications

According to the Bureau of Labor Statistics, the number of actuaries employed is expected to grow 21% from 2021 to 2031. For this reason, many universities offer educational degrees and courses on actuarial science. In addition, there are professional designations for those interested in pursuing the field.

Universities

The Society of Actuaries identifies and reports colleges that meet one of three levels of recognition:

• UCAP-Introduction Curriculum: Universities that maintain course requirements for two professional actuarial exams in addition to having met other approved course requirements.
• UCAP-Advanced Curriculum: Universities that maintain course requirements for four professional exams in addition to having met other approved course requirements.
• Center of Actuarial Excellence: Universities that maintain eight specific requirements in connection with a variety of matters. This is the highest tier of competency identified by the SOA for a university.

As of December 2022, there are roughly 25 Center of Actuarial Excellence schools across the United States, Canda, Australia, Singapore, the United Kingdom, and China. Within the U.S., these schools include but are not limited to Brigham Young, Georgia State, Purdue, Connecticut, and Michigan.

Professional Designations and Credentials

There are a number of different professional designations an actuary can pursue to further gain credibility and proficiency in their field. The Casualty Actuarial Society offers the Associate (ACAS) and Fellow (FCAS) membership levels, each of the two with escalating requirements. For example, the ACAS credential can be achieved after passing six exams, while the FCAS is earned after nine exams. Areas of focus for the FCAS exam include:

• Probability
• Financial Mathematics
• Financial Economics
• Modern Actuarial Statistics
• Basic Techniques for Ratemaking and Estimating Claim Liabilities
• Regulation & Financial Reporting
• Policy Liabilities, Insurance Company Valuation, and Enterprise Risk Management
• Advanced Ratemaking

The Society of Actuaries promotes several different actuarial exams to demonstrate competency in the field.

• An Associate of the Society of Actuaries (ASA) demonstrates knowledge of fundamental concepts of modeling and managing risk. The examination requirements are changing as of Spring 2023, and the list of required examinations includes topics on predictive analysis, economics, probabilities, and financial markets.
• A Chartered Enterprise Risk Analyst (CERA) specializes in having knowledge in identifying, measuring, and managing risk in risk-bearing enterprises. Similar to the ASA requirements, the CERA requirements include a professional course covering code of conduct.
• A Fellow of the Society of Actuaries (FSA) demonstrates knowledge of financial decisions involving pensions, life insurance, health insurance, and investments. FSAs also must demonstrate in-depth knowledge and the application of appropriate techniques to these various areas.

The Bottom Line

Actuarial science is the study of mathematically predicting the probability of something happening in the future and assigning that outcome a financial value. Companies, pension funds, and insurance agencies rely on actuaries to develop models to assess areas of risk and devise policies to mitigate potential future challenges.

What Is an Account Statement?

An account statement is a periodic summary of account activity with a beginning date and an ending date. The most commonly known are checking account statements, usually provided monthly, and brokerage account statements, which are provided monthly or quarterly. Monthly credit card bills are also considered account statements.

Understanding Account Statements

Account statements refer to almost any official summary of an account, wherever the account is held. Insurance companies may provide account statements summarizing paid-in cash values, for example. Statements can be generated for almost any type of accounts that represent ongoing transactions where funds are repeatedly exchanged. This can include online payment accounts such as PayPal, credit card accounts, brokerage accounts, and savings accounts.

Utility companies, as well as telephone and subscription television service providers, usually generate account statements for their customers detailing their usage and any overages during the payment cycle. Such statements typically list debits paid, incoming funds or credits received by the account holder, and fees associated with maintaining the account. For example, certain types of savings accounts might incur regular maintenance fees unless a certain minimum balance of funds is maintained in the account. Cable television subscriptions may include state taxes and other surcharges that are included in providing regular service.

How Account Statements Are Used

Account statements should be scrutinized for accuracy, and historical statements are critical for budgeting. A credit or loan account statement, for example, may show not only the outstanding balance due but the interest rate charged on that debt and any fees that have been added during the payment cycle. This can include late charges for payments not received by their due date as well as overdraft fees when bank account holders overspend. Your account statements are a window into your finances.

The statement may also list financial information that relates to the account holder such as their credit score, or the estimated time it will take to completely pay off a debt via installment payments. Alerts and notices to the account holder may also appear on these statements, calling attention to matters with the account that need to be addressed, such unusual charges that should be reviewed and verified.

Red Flags on Account Statements

Anomalous items on an account statement may be a sign the account has been compromised, perhaps through a stolen credit or debit card or through identity thieves who gained access to account information. For example, an account holder or the financial institution might spot a charge for concert tickets or a luxury item that seems out of the ordinary. Account-holders may be able to dispute such out-of-place charges and file a claim that they did not make the purchase themselves. Reviewing your account statements as they come in is a good financial habit that can catch these red flags before they become a financial disaster.

What Is Adjustable Life Insurance?

Adjustable life insurance is a hybrid of term life and whole life insurance that allows policyholders the option to adjust policy features, including the period of protection, face amount, premiums, and length of the premium payment period.

Adjustable life policies also incorporate an interest-bearing savings component, known as a “cash value” account.

Understanding Adjustable Life Insurance

Adjustable life insurance differs from other life insurance products in that there is no requirement to cancel or purchase additional policies as the insured’s circumstances change. It is attractive to those who want the protection and cash value benefits of permanent life insurance yet need or want some flexibility with policy features.

Using the ability to modify premium payments and face amounts, policyholders may customize their coverage as their lives change. For example, a policyholder may want to increase the face amount upon getting married and having children. An unemployed person may want to reduce premiums to accommodate a restricted budget.

As with other permanent life insurance, adjustable life insurance has a savings component that earns cash value interest, usually at a guaranteed rate. Policyholders are permitted to make changes to critical features of their policy within limits. They may increase or decrease the premium, increase or decrease the face amount, extend or shorten the guaranteed protection period, and extend or shorten the premium payment period.

Adjustments to the policy will alter the guaranteed period of the interest rate, and changes in the length of the guarantee will change the cash value schedule. Decreasing the face amount is done upon request or in writing. However, increasing the face amount may require additional underwriting, with substantial increases requiring full medical underwriting.

Factors That Can Be Adjusted

Three factors can be changed in an adjustable life insurance policy. These are the premium, cash value, and death benefit. All three elements can be adjusted because this policy is a permanent life insurance policy and does not expire, like a term life policy.

Premiums can be changed by frequency or amount of payments, as long as you pay above the minimum cost. The policy’s cash value can be increased by upping your premium payments. You can decrease your cash amount if you withdraw funds or use the cash in the policy to pay the premiums.

Finally, you can adjust your death benefit by decreasing or adding to the amount. If you decide to add a significant amount to the death benefit due to a life event like the birth of a child, your premiums may go up based on the new benefit amount. In some cases, your policy will have to undergo additional underwriting.

Advantages and Disadvantages of Adjustable Life Insurance

Adjustable life insurance gives policyholders more flexibility than term life insurance, but it is more expensive than a simple 20- or 30-year term policy. If you plan on using adjustable life insurance as an investment vehicle, you may be better off with a tool that earns more interest. Adjustable life insurance only provides modest amounts of interest growth.

Guidelines for Life Insurance Policies and Riders

Internal Revenue Code (IRC) Section 7702 defines the characteristics of and guidelines for life insurance policies. Subsection C of this section provides guidelines for premium payments. The policyholder may not adjust the premiums in a manner that violates these guidelines. Increasing premiums may also increase the face amount to the point that it requires evidence of insurability.

However, many life insurers set parameters to prevent violations. Adjustable life insurance policies typically have optional riders. Familiar ones include the waiver of premium and accidental death and dismemberment riders.

The Bottom Line

Adjustable life policies provide the flexibility that most traditional policies do not. However, the frequency of allowable adjustments is restricted within set time frames. Requests must be made within an allotted period and meet the guidelines set by the insurer.

The variability in adjustments can create a policy that mirrors either term life insurance or whole life insurance. Effectively, adjustable life insurance policies allow policyholders to customize their life insurance to meet current or anticipated needs.

As with any kind of permanent policy, it’s critical to research every firm that’s being considered to ensure that they’re among the best life insurance companies currently operating.