What Is General Aggregate Limit on Insurance Policy?

Defining the General Aggregate Limit

An insurance policy’s general aggregate limit represents the maximum dollar amount an insurer will pay for all covered losses during a single policy period. This period typically spans twelve months, beginning on the policy’s effective date. Regardless of the number of individual claims or occurrences, the insurer’s total payout for that specific period will not exceed this predetermined sum. Once this limit is exhausted, the insurer is no longer obligated to pay for any additional covered losses that arise within the same policy period.

For example, a commercial general liability policy might have a general aggregate limit of $2,000,000. This means that over the entire year, the insurance company will not pay out more than $2,000,000 for all covered claims combined, such as property damage, bodily injury, or advertising injury. This limit serves as a financial ceiling, protecting the insurer from unlimited liability over a defined timeframe.

How the Limit Functions

The general aggregate limit operates as a diminishing balance for covered claims throughout the policy term. Each time a covered claim is settled and paid by the insurer, the amount of that payment directly reduces the remaining available balance of the general aggregate limit. This process continues until the limit is fully depleted or the policy period concludes. The remaining balance represents the maximum an insurer will still pay for any subsequent covered incidents within that same policy year.

Consider a business with a $2,000,000 general aggregate limit. If the business incurs a covered claim that results in a $500,000 payout, the available aggregate limit immediately decreases to $1,500,000. Should another covered incident occur later in the policy period, leading to a $700,000 payout, the remaining limit would then be reduced to $800,000. This mechanism ensures that the insurer’s total financial exposure for the policy year remains capped at the initial aggregate amount, resetting only when a new policy period begins.

What Happens When the Limit is Reached

When the general aggregate limit on an insurance policy is fully exhausted within a policy period, the insurer’s financial obligation for covered losses ceases entirely. From that point forward, for the remainder of that specific policy term, the policyholder becomes solely responsible for the financial burden of any further claims that would have otherwise been covered. This can lead to substantial out-of-pocket expenses for the business, potentially impacting its financial stability.

To mitigate this risk, businesses may consider proactive measures such as negotiating higher aggregate limits or exploring additional insurance products like commercial umbrella policies. An umbrella policy can provide an extra layer of liability coverage that extends beyond the limits of underlying policies, including the general aggregate limit. This additional coverage would typically activate only after the primary policy’s limits are exhausted, offering broader financial protection.

Understanding Different Policy Limits

The general aggregate limit is distinct from other limits found within an insurance policy, most notably the “per occurrence” limit. While the general aggregate limit caps the total amount an insurer will pay for all covered losses over the entire policy period, the per occurrence limit specifies the maximum amount the insurer will pay for any single incident or claim. These two limits work in conjunction to define the scope of coverage.

For instance, a policy might have a $1,000,000 per occurrence limit within a $2,000,000 general aggregate limit. This arrangement means that no single claim can exceed $1,000,000, even if the general aggregate limit has plenty of funds remaining. Additionally, some policies may include specific aggregate limits, such as a Products-Completed Operations Aggregate Limit, which applies solely to claims arising from products manufactured or operations completed by the insured.