What is the nature of an aggregate stop loss excess insurance policy for an employer?

An aggregate stop loss excess insurance policy is a legal mechanism that employers can use to manage their risks in workers' compensation. This type of policy provides coverage for claims that exceed a certain aggregate amount, thereby protecting the employer from high unforeseen costs in a given period, typically a policy year.

The correct answer highlights that such a policy is legal and does not require credit against the security deposit because it serves a specific function in limiting the employer's financial exposure to claims while ensuring compliance with regulatory requirements. In many cases, this kind of policy helps employers maintain solvency and ensure that they can meet their obligations to injured employees without overextending their resources.

This contrasts with the incorrect options that suggest illegality, potential for unlimited liability, or reduced benefit payments, which do not accurately characterize the nature or purpose of an aggregate stop loss excess insurance policy in this context.