Aggregate Limit Of Liability

The aggregate limit of liability is the most an insurer is obligated to pay to an insured party during a specified period. The aggregate limit of liability is spelled out in the insurance contract and caps the amount of covered losses for which an insurer will pay. These limits are part of commercial and professional general liability insurance policies.

Insurance policies limit not only how much they will pay for a single incident, but the aggregate limit of liability is the limit for the entire policy term, which is typically one year. If the policyholder files enough claims to reach the aggregate limit, he or she is effectively uninsured.

A policy may have several different types of limits. A general aggregate limit applies to all types of claims the policy covers, including property damage, bodily injury and liability. A per occurrence limit applies to every incident for which the insured party files a claim. A medical expense limit caps how much the insurer will pay for an injured party’s medical bills. A general aggregate limit of liability applies to all types of liability claims the policy covers, such as personal and advertising injury.

For businesses, the question becomes how much insurance is enough. It’s a balancing act between purchasing limits that would cover the worst possible scenario or opting for the the short side where there's a risk of potentially exhausting your policy. If policies are exhausted, you could be covering claims yourself. The challenge for many companies is having enough capital to purchase adequate limits. It might also make sense to add additional umbrella coverage.

Manufacturers that mass-produce products have plenty of potential for class action suits, as do doctors. Suppose a doctor’s professional liability insurance policy has limits of $1 million per incident and $2 million aggregate limit of liability per year. If the doctor is sued twice in one policy year and loses both times, and each time, the plaintiff receives $1 million in damages, the doctor will have to hope there isn't a third time since their policy’s annual $2 million aggregate limit of liability has been exhausted. They won’t have any additional coverage until the next policy year. In this way, even though liability insurance protects policyholders, it gives them incentive to avoid being sued, since there are limits to their coverage. These limits also protect insurance companies against unlimited losses, which helps them to stay in business.