Many business owners don't understand their insurance policies as well as they should. There is an important term on commercial general liability policies called the aggregate insurance limit, which may yield different benefits to your business than you thought you purchased from your agent. To avoid distressing claims situations, understand the aggregate limit to help you purchase one suitable for your business's needs.
An aggregate is not a type of insurance coverage, but rather a limitation of the coverage you have on your policy. The aggregate represents the maximum benefit you can receive under a given coverage for the policy period, usually one year. For example, if a general liability policy has a $1 million aggregate, you will receive no more than $1 million while the policy is in force, regardless of the number of claims you file.
Commercial general liability policies generally have two limits of coverage: the per-occurrence limit and the aggregate limit. The per-occurrence limit states the maximum benefit available for a single claim, while the aggregate is the maximum for all your claims combined. Some policies have the same dollar amount for both, while others have a higher aggregate than the per-occurrence limit. For example, a general liability policy may have $1 million per-occurrence limit but a $2 million aggregate.
Some commercial insurance policies have more than one aggregate, because a certain coverage called "products and completed operations" often has its own limit. This coverage pays for financial losses caused by work a business did incorrectly, such as faulty work performed by an auto repair business that results in a car crash. All other coverages, including bodily injury, advertising injury, personal injury and property damage, share a single aggregate limit often called the general aggregate.
While the aggregate allows the insurance company to charge appropriate and affordable premiums because it limits the insurer's liability, it also poses some confusing drawbacks to the business. For example, if you have a $1 million per-occurrence limit with a $2 million aggregate and file three claims each worth $800,000 in a year, you may believe you're fully covered because each claim is less than $1 million. However, the sum of the three claims exceeds your aggregate limit, so you would have to pay the balance of the third claim that exceeds the aggregate -- in this case, $400,000 -- with your business's funds.
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