What Is a General Aggregate Limit and How Does It Work?

Insurance policies incorporate various limits that determine the maximum financial responsibility an insurer will assume for covered losses. These limits are a fundamental aspect of any policy, defining the extent of protection provided. Understanding these boundaries is important for policyholders to accurately assess their potential financial exposure.

Understanding the General Aggregate Limit

The general aggregate limit represents the absolute maximum amount an insurance company will pay for all covered losses occurring within a specific policy period, typically one year. This overarching cap applies regardless of the number of claims filed during that term. Once the total payments for claims reach this limit, the insurer will not provide any further coverage for subsequent losses within that same policy period.

This limit is most commonly found in commercial general liability (CGL) insurance policies, which protect businesses from various claims such as bodily injury, property damage, and personal or advertising injury. It acts as an overall spending cap for the insurer. The general aggregate limit is a fixed amount agreed upon when the policy is initially issued.

General Aggregate Limit vs. Per-Occurrence Limit

In contrast to the general aggregate limit, a per-occurrence limit specifies the maximum amount an insurer will pay for a single incident or claim. The general aggregate limit, however, is a cumulative cap for all such individual claims over the entire policy duration.

For example, a common CGL policy might have a $1 million per-occurrence limit and a $2 million general aggregate limit. If a business experiences an incident resulting in a $700,000 claim, the insurer would pay up to the per-occurrence limit, and this $700,000 would then reduce the remaining general aggregate limit. Even if an individual claim does not reach the per-occurrence limit, the amount paid still contributes to depleting the overall aggregate.

How the Limit Applies and Affects Coverage

Each time a covered claim is paid, the amount disbursed, up to the per-occurrence limit, reduces the remaining balance of the general aggregate limit. This includes not only the direct costs of damages or settlements but often also the legal defense costs incurred by the insurer on behalf of the policyholder. Payments for legal fees can therefore exhaust the aggregate limit more quickly than anticipated, even if claim payouts are modest.

When the general aggregate limit is exhausted before the policy period concludes, the policyholder becomes solely responsible for any further covered losses that occur during the remainder of that term. Understanding this potential financial exposure is important for businesses, as reaching the limit effectively leaves them uninsured for the rest of the policy year.