What Is the General Aggregate Limit in Insurance?

A general aggregate limit is a fundamental concept within business insurance, particularly in Commercial General Liability (CGL) policies. This limit represents the maximum amount an insurance provider will pay out for covered claims during a specific policy period. Understanding this limit is important for businesses to effectively manage their potential financial exposures and ensure adequate protection against various liabilities that may arise from their operations.

Defining the General Aggregate Limit

The general aggregate limit in a Commercial General Liability policy establishes the highest sum an insurer will disburse for all covered losses occurring within a single policy term. This financial cap applies to the total of payouts for claims related to bodily injury and property damage. It also frequently extends to claims involving personal and advertising injury, encompassing issues like libel, slander, or copyright infringement.

For example, a business might have a general aggregate limit of $2 million. This means that throughout the policy year, the insurance company will not pay more than $2 million in total for all eligible claims combined.

How Claims Affect the General Aggregate

As a business experiences covered losses and claims are paid by the insurer, the remaining amount available under the general aggregate limit decreases. Each payment for a bodily injury, property damage, or personal and advertising injury claim directly reduces the available aggregate coverage. For instance, if a business has a $2 million general aggregate limit and a $750,000 claim is settled, the remaining aggregate limit for the rest of the policy period would be $1.25 million.

This process continues with each subsequent claim payment. The general aggregate limit typically “resets” or replenishes at the beginning of each new policy period. This means that for a renewed policy, a business starts with a full general aggregate limit for the new term, independent of claims paid in previous periods.

If the general aggregate limit is exhausted before the policy period ends, the insurer’s obligation to pay for further covered claims under that specific aggregate ceases. Any additional claims that arise after the aggregate is depleted become the direct financial responsibility of the business, potentially leading to significant out-of-pocket expenses.

General Aggregate Versus Other Policy Limits

One such distinction is the “per occurrence limit,” which represents the maximum amount an insurer will pay for any single incident or event that leads to a covered claim. While the per occurrence limit caps individual claim payouts, all such payouts contribute to and reduce the overall general aggregate limit. For example, a policy might have a $1 million per occurrence limit and a $2 million general aggregate limit. If two separate incidents each result in a $1 million payout, both would be covered under the per occurrence limit, but the general aggregate limit would then be fully exhausted.

Another distinct limit is the “products-completed operations aggregate limit.” This is a separate aggregate cap that applies specifically to claims arising from products manufactured, sold, handled, or distributed by the insured, or from operations that have been completed. For instance, if a contractor finishes a project and weeks later a defect in their completed work causes damage, a claim would fall under this specific aggregate. Unlike the per occurrence limit, the products-completed operations aggregate limit does not typically reduce the general aggregate limit; they function as independent ceilings for different categories of risk exposure.

Understanding the Financial Impact of the General Aggregate

The general aggregate limit has direct financial implications for businesses, making its understanding a critical component of effective risk management. The chosen aggregate limit directly influences both the premium paid for the insurance policy and the extent of financial protection a business receives. A higher general aggregate limit generally means a higher premium, but it also provides a significantly greater buffer against potential cumulative losses from multiple claims or a few large incidents during the policy term. This increased coverage can prevent a business from facing substantial out-of-pocket costs if claims escalate.

Conversely, opting for a lower general aggregate limit might result in reduced premium expenses, yet it exposes the business to a greater risk of exhausting its coverage. If claims exceed this lower cap, the business would be responsible for any additional costs, which could severely impact its financial stability. Businesses should carefully assess their specific industry risks, operational exposures, and potential liability scenarios when determining an appropriate general aggregate limit.