What is the purpose of a stop-loss limit?

The purpose of a stop-loss limit is to cap the total amount of out-of-pocket expenses that a policyholder has to pay for covered services during a specific period, typically a year. This feature provides financial protection to insured individuals by ensuring that once they reach a certain spending threshold, the insurance company takes over and pays all further costs for covered claims.

This is particularly important in health insurance, where medical expenses can accumulate rapidly. By implementing a stop-loss limit, insurers help safeguard individuals from catastrophic financial burdens, allowing them to seek necessary medical care without the fear of excessive out-of-pocket costs after reaching the designated limit.

In contrast, other options do not align with the primary role of a stop-loss limit. Eliminating all out-of-pocket expenses is not a function of a stop-loss; rather, it simply limits expenses to a certain figure. Increasing the deductible amount would not serve to protect against high costs but would increase the financial burden on the insured before coverage kicks in. Preventing insurance fraud is an important aspect of insurance management but does not directly relate to the concept of a stop-loss limit and its function in managing costs for the insured.