Understand Insurance Terms: What's an Aggregate Limit? What's a Per Claim Limit?

Every business owner needs small business general liability insurance in case they are sued and held legally responsible for bodily injury, property damage, or other unfortunate situations. However, it is not always easy to determine which types of coverage your small business insurance policy provides, and this is made even more difficult by some seemingly technical terminology that can be difficult to understand. If you've ever heard the terms "aggregate limit" or "per claim" limit and wondered what they meant for you and your business, keep reading. While any type of liability insurance is intended to protect you and your company in the event that you are sued, it is important to note that the amount you will be paid in the event of a claim is limited per claim or per aggregate, though they may overlap. Don't worry if you're unfamiliar with the terminology! Understanding aggregate limits of liability for small businesses – as opposed to per claim limits – is actually quite simple.

The aggregate limit and the per-claim limit

An aggregate limit is a term used in many insurance policies. The aggregate limit of liability is the total amount in dollars that your insurance policy will pay you. It can be definitive, such as a general lifetime maximum for claims, or it can be set on an annual basis (for example, $500,000 per year). Because aggregate insurance is a sum total, it can cover multiple claims. There are usually limits on the amount of money that can be paid per claim, also known as per occurrence, in addition to aggregate limits. This refers to the maximum amount of money that the insurance will pay out in any given instance. For example, you may have a $25,000 per claim limit. In that case, if you incurred $30,000 in legal fees, your insurance would pay $25,000, leaving you to cover the remaining $5,000 yourself.

What Does This All Mean?

Sometimes looking at a specific example is the best way to understand something like this. Assume you have a policy with a $500,000 aggregate limit and a per-claim limit of $50,000. You filed two claims in one year, one for $65,000 and the other for $30,000: Because $50,000 is your per-claim limit, the first claim would be covered up to that amount. You would be required to pay the remaining $15,000 in full. The second claim would be fully covered because it falls under your $50,000 per claim limit. If you had a particularly bad year and needed to file additional claims, you would be covered up to your $50,000 per claim limit. If you filed more than ten claims in a single year and the total of all your claims exceeded $500,000, those claims would be denied because they exceeded your aggregate limit.

Common Errors to Avoid When Purchasing an Insurance Policy

When selecting a small business insurance policy, you can easily avoid some common blunders. Here are a few to keep an eye out for:

• Waiting to buy – Insurance is a must from the start. There are numerous stories of businesses that had unfortunate events occur on their first day and later regretted not having insurance in place before opening their doors or seeing their first client. Even if you never receive payment on a single claim, small business liability insurance is well worth the investment. Simply put, no business can afford to be without insurance.
• Maintaining the status quo – You may already have an insurance provider, but do they provide the best rates for your company? Do your homework. Premium costs are decreasing; take advantage of online insurance providers and look for one that will take as little of your time and money as possible while providing all of the coverage you require, including an easy claims process.
• Choosing a policy solely on price – Low premiums are great, but you should learn more about deductibles in the event of a claim, liability limits in terms of time frames and per claim, and how simple it is to file claims. Before you buy, make sure you like every aspect of your policy.
• Assuming that you will never be paid – Insurance companies frequently get a bad rap because of all the paperwork involved. Sure, it's time-consuming, but the vast majority of legitimate claims are paid at the end of the day.

Choosing Insurance For Your Business

When selecting a small business insurance policy, keep the following points in mind:

• Always go with a reputable brand – If reviews for an insurance provider are available, read them. It's critical to know how good the coverage is, especially from people like you. (You can read our customer testimonials here.)
• Set attainable objectives – Your company faces its own set of risks. You must evaluate them in terms of bottom-line numbers to ensure that the per claim insurance and aggregate insurance you are purchasing will cover your company in the long run. Look for a policy that allows you to customize your level of coverage based on your specific needs and that allows you to change it as your needs change.
• Purchase tailored coverage – A photographer does not require the same coverage as a plumber or a yoga instructor. Make certain that you are purchasing coverage that is tailored to your specific needs, not those of others. Examine the details of the policy you're considering purchasing, and don't be afraid to ask questions.

Sometimes you have to spend money to make money. Do your homework ahead of time to ensure you have the best small business insurance policy to meet your needs.