This limit, or ceiling, applies to covered incidents of bodily injury, property damage, personal injury, and advertising injury, with the exception of injuries related to the products-completed operations hazard. Damages paid out for medical expenses are also included in the general aggregate limit. Once the general aggregate limit has been exhausted, the insurer is under no obligation to cover losses in any of those categories.
Some policies have the same limits for per occurrence claims and the aggregate limit. However, other general liability coverage policies will have something along the lines of a $1,000,000 per occurrence limit and a $2,000,000 general aggregate limit (excluding products-completed operations).
This means that, in this example, individual claims have a limit of $1,000,000 each, while the total policy coverage for all claims made against you within the term of your policy will not exceed $2,000,000 total. If you have 10 claims totally $200,000 or less, for instance, all is well. But it is conceivable for a single claim to exceed the $2,000,000 coverage limits in today’s society.
Many insurance carriers offer higher general aggregate limits. Keep this in mind as you can minimize your risk by purchasing an insurance policy with a higher aggregate limit.
Why Does It Exist? Doesn’t It Defeat the Purpose of Insurance?
It’s one thing to understand the concept of the rule, it’s another thing to understand it in context of your business. Insurance companies, like all other businesses, face risks. Their goal is to provide you with the protection you need to take care of your business while minimizing their risks. The general aggregate limit is a means to balance insurer risks with insured protection.
If you’re in a field where lawsuits are the rule rather than the exception, or one in which the rare legal action may bring high costs (think product recalls), then you might want to consider investing in greater coverage limits when you take out your policy.
At the end of the day, it’s important to understand that all policies have limits. It’s about finding the limits that match your risks. This is how you make sure you’re covered.
What About Umbrella Policies?
You’ve most likely heard us suggest umbrella policies in the past. These policies help extend coverage when you’re concerned the per occurrence limit of your policy is too low.
For example, if your current policy has a $1,000,000 per occurrence limit but you would feel more comfortable with a limit of $3,000,000, purchasing an umbrella policy is the best option.
These policies are typically available in increments of $1,000,000 and cost less than a general liability policy. Purchasing a $2,000,000 umbrella policy in this situation would provide you with the per occurrence coverage you’re looking for without putting your general aggregate limit in danger.
However, your umbrella policy also has an aggregate limit, which is equal to the policy’s per occurrence limit. If you have a $3,000,000 claim, you can rest assured that it will be covered but your umbrella policy will be exhausted, both on the per occurrence limit and general aggregate limit for the policy term.
How Can I Make Sure I’m Fully Covered?
When choosing a policy or looking for a new general liability policy, ask yourself the following questions to see if the limits in your policy match up with your needs.
What is the general aggregate limit?
We’re surprised by how few businesses know this number off the top of their heads. Some aren’t even familiar with the term. When protecting your business, this is a piece of data you should always know. Never sign a policy renewal without reviewing your general aggregate limit.
What is the per occurrence limit?
This is another important number to know for the same reasons you need to know the general aggregate limit. If typical claims in your industry average higher than your per occurrence limit, you could be looking at devastating out of pocket expenses.
What is the policy term?
The general aggregate limit is per policy term. Knowing the length of your term will help you determine if your limit is too low or most likely high enough. Policy lengths vary greatly based on the type. While car insurance policies may only be six months long, a life insurance policy could have a 30-year term. Most general liability policies are for one year but always double check before signing.
What are my risks?
Certain businesses and industries face more risks than others. If you’re in a riskier business, having a higher general aggregate limit is wise. If you’re in a business with lower risks, choosing a policy with a lower limit might not be a mistake, though it’s still a risk. Common business lawsuits include discrimination claims, wage law violations, and breach of contract. How likely are any of these in your business?
It’s always best to work with a qualified, experienced, and reputable insurance agent in order to determine the right balance of liability coverage for the needs of your business and in your industry.