When reviewing your Massachusetts business’ current general liability insurance policy or comparing potential new policies, it’s essential that you understand the various terms used in the policies. Without understanding the terms used, it’s impossible to fully appreciate the protections a policy provides. There are lots of terms to learn about, but two particularly important ones are “aggregate limits” and “per-occurrence limits”. Here’s a look at what each of these is.
What’s the Difference Between “Aggregate Limits” and “Per-Occurrence Limits” in My General Liability Insurance Policy?
Limits Determine General Liability Insurance Policies’ Maximum Payouts
In insurance policies, the term “limits” is usually used in a fairly straightforward manner. Limits generally determine the maximum amount a policy will pay for a valid claim. After a claim meets a policy’s deductible, the policy will normally pay until it’s limit is reached. After that point, the policy typically won’t provide additional protection.
For example, assume your business has a general liability insurance policy that has a $10,000 deductible and a limit of $1 million. If your business has a valid claim, you can likely expect the payout to go as follows:
Your business will cover the first $10,000 of the claim, until the deductible is met
The general liability coverage will cover the next $990,000, until the $1 million limit is met
Any amount beyond $1 million will need to be covered by your business or a supplemental liability policy
Aggregate Limits and Per-Occurrence Limits Define Different Maximums
It’s common for a general liability policy to have several limits within it. Rather than having just a single limit, different coverages may have different limits. Additionally, any one coverage (or the overall policy) may have two limits -- a per-occurrence limit and an aggregate limit.
Per-occurrence limits and aggregate limits both define maximum payouts, but they do so in different settings. Per-occurrence limits define how much a policy will pay for any one incident or claim. Aggregate limits define how much a policy will pay over the policy’s duration. (Most general liability policies have durations of 6 months or 1 year.)
To see how these limits interact with each other, assume your business’ general liability coverage has a per-occurrence limit of $400,000 and an aggregate limit of $1 million. Also assume your business had three separate claims over the course of a year (the policy’s duration). The first claim was for $300,000, the second was for $600,000, and the third was for $400,000.
Here’s how the policy would likely cover these claims in this scenario:
The first claim would probably be fully covered, since it’s less than the per-occurrence limit and the aggregate limit hasn’t yet been reached. After this claim, your business would have used $300,000 of the $1 million aggregate limit.
Your business’ second claim would probably be covered for $400,000, which is the per-occurrence limit. Your business would be responsible for the claim’s remaining $200,000 that exceeds the per-occurrence limit, and after this claim was paid your business would have used $700,000 of the $1 million aggregate limit.
Your business’ third claim would probably be covered for $300,000. Even though it doesn’t exceed the per-occurrence limit, there’s only $300,000 left before the aggregate limit is reached at this point. Your business would probably be responsible for the claim’s remaining $100,000.
(In all these situations, your business would still likely have to pay the general liability coverage’s deductible for each claim.)
Selecting the Right Limits for Your Massachusetts Business
Obviously, both aggregate limits and per-occurrence limits have a significant effect on how much protection a general liability insurance policy provides. To get help selecting limits that will meet your Massachusetts business’ needs, contact an experienced Garrity Insurance agent who can help you review and compare general liability policies when you’re looking for a new one.