What Is a General Liability Aggregate Limit?
Understand how the general liability aggregate limit impacts your business's total insurance protection throughout a policy period.
General liability insurance protects businesses from common risks like bodily injury, property damage, and advertising injury. These policies mitigate financial losses from unexpected incidents during business operations. Understanding policy components is important for appropriate coverage. This article explains a significant element: the aggregate limit.
Defining the General Liability Aggregate Limit
The general liability aggregate limit is the maximum amount an insurer will pay for all covered losses within a specific policy period, typically one year from the policy’s effective date. It functions as a total cap on payouts, meaning the insurer’s total financial obligation for that period will not exceed this predetermined sum, regardless of the number of individual claims filed.
This aggregate limit is distinct from a “per-occurrence limit,” which defines the maximum amount the insurer will pay for any single incident or claim. While a per-occurrence limit restricts payouts for individual events, the aggregate limit encompasses the cumulative total of all such payouts over the policy term. Once the aggregate limit is reached, the insurer’s responsibility for covering further claims under that policy period ceases. Businesses become effectively uninsured for additional covered events until a new policy period begins or the limit is reinstated.
How Claims Impact the Aggregate Limit
Each covered claim, up to its per-occurrence limit, directly reduces the available amount within the aggregate limit. For instance, if a business has a general liability policy with a $1 million per-occurrence limit and a $2 million aggregate limit, any single claim paid up to $1 million will be subtracted from the $2 million aggregate. This process continues with each subsequent claim throughout the policy period.
Consider a business with a $1 million per-occurrence limit and a $2 million aggregate limit. If a $700,000 claim occurs, the insurer pays this, leaving $1.3 million. A second claim for $800,000 reduces the aggregate to $500,000. If a third claim is $600,000, the insurer pays only the remaining $500,000, leaving the business responsible for the additional $100,000. Once the aggregate limit is exhausted, the policy no longer covers new liability claims, and further costs must be borne by the business directly.
Annual Reset and Importance for Businesses
The general liability aggregate limit typically resets at the beginning of each new policy period, which is usually an annual renewal. This means that at the start of a new term, the full aggregate limit is restored, providing businesses with a fresh maximum coverage amount for the upcoming year. This annual reset is a standard feature designed to provide continuous protection without requiring the purchase of a new policy after each claim.
Understanding the aggregate limit is important for businesses to effectively manage their risk exposure. If a business exhausts its aggregate limit before the policy period ends, it could face substantial out-of-pocket expenses for any subsequent claims. Reviewing and selecting adequate limits based on the nature of business operations, potential for incidents, and overall risk profile is a practical step. Businesses with higher foot traffic, more customer interactions, or operations involving increased risk may consider higher aggregate limits to ensure sufficient protection throughout the entire policy term.