Aggregate limit of liability

What is an aggregate limit of liability?

The definition of an aggregate limit of liability is the maximum amount of money your insurance company will pay out over the life of your policy, usually one year.

Aggregate limits vs. claim limits

If you have small business insurance of any kind, be it general liability insurance, workers’ compensation, professional liability insurance, or more, it’s important to understand how an aggregate limit works and to select the limit that’s right for your business.

However, an aggregate limit isn’t the only limit you should be aware of. Most insurance policies also include a per claim limit. What’s a per claim limit, you ask? It’s the maximum amount an insurer will pay out for each individual claim you make.

So, if you buy a million-dollar policy, that million dollars is the aggregate limit — the total amount your insurer will pay over the policy’s term. But if there’s a per claim limit or per occurrence limit, you won’t be able to use that entire million dollars on a single claim. Don’t worry, we’ll explain.

An example: how aggregate limits and per claim limits work

Imagine you have a one-year liability insurance policy with a $1,000,000 aggregate limit and a $400,000 per claim limit. You file three claims over the course of the year (the policy period.)

• Your first liability claim ends up costing $450,000. Because of the per claim limit, your insurer would only pay $400,000, leaving you owing $50,000, even though there’s plenty of money — $600,000 — left in your million-dollar policy.
• Your second claim costs $300,000. Your insurance company would pay all $300,000 because it’s below your per claim limit, and you haven’t hit your aggregate limit yet. However, now you only have $300,000 left in your policy.
• Your final claim costs $375,000, and even though this is below your per claim limit, because you’ve maxed out your aggregate limit, you would have to pay the remaining $75,000.

Note: This doesn’t represent everything you would have to pay. Business owners would still owe monthly premiums and have to pay a deductible for every claim they file.

Why do insurance companies have an aggregate limit?

You might think it’s unfair that insurance companies limit how much they will pay out — after all, if you’re paying for insurance, shouldn’t you always have coverage? But here’s the thing — while this coverage limit benefits insurance companies, it also benefits you.

By offering different aggregate limits, insurance companies can offer you insurance tailored to your specific needs. If you work in a low-risk field or have a limited budget, you can opt for a plan with a lower limit and lower premiums.

On the other hand, if you work in a high-risk field or have a bigger budget, you can increase your limit to provide more protection for your business should something happen.

An aggregate limit helps protect insurance provider from having to pay out gigantic amounts of money to a single client, allowing them to keep their premiums affordable and offer more choices to you.

Now that you know how an aggregate limit works, it’s up to you to choose insurance coverage that’s right for you and your business needs.

Find the policy you need with NEXT

Every small business has different risks, and the aggregate limit on your business insurance policy should reflect that simple fact.

That’s why at NEXT, we have tailored insurance policies for more than 1,300 small business professions because yoga instructors and contractors have very different needs.

See what NEXT can do for you, start a quote, customize your options and access your certificate of insurance online immediately — in about 10 minutes.

Start your instant quote today.