The difference between a per claim limit and an aggregate limit
If a per claim limit is the maximum paid out for each claim filed, an aggregate limit is the sum total amount that you could be paid by your insurance policy.
You might already be familiar with an aggregate limit if you’ve already got business insurance.
For example, if you buy a million-dollar insurance policy, that million dollars is your aggregate limit. It’s the maximum your insurer will pay for claims over the course of your policy period, generally a year.
Per claim limits cap the amount paid out for each claim you file while your policy is in effect.
Example of how per claim limits work
Imagine you’ve got a million dollar general liability insurance policy ($1,000,000 aggregate limit) with a $400,000 per claim limit. You end up filing three individual claims over the course of the year — your policy term.
- Claim #1: You file a claim for $450,000. Because of the per claim limit, your insurer would only pay $400,000, leaving you owing $50,000, even though there’s still $600,000 available in your liability coverage.
- Claim #2: The second claim costs $300,000, so your insurance provider would pay all $300,000 since it’s below your per claim limit. You have $300,000 remaining in your aggregate limit.
- Claim #3: Your final claim costs $375,000. Even though this falls below your per claim limit, because you only have $300,000 left, you would need to pay the remaining $75,000.
Note: This doesn’t represent the total amount you would have to pay. In addition to exceeding your limits, you would still owe your monthly premiums and have to pay a deductible for every claim you file.
Why have a per claim limit?
Basically, both per claim limits (and aggregate limits) exist to keep insurance at reasonable costs. Typically, insurance coverage with higher limits are more expensive, so having a maximum payout limit gives business owners more choice with their coverage.
By offering per claim limits, insurance carriers can offer you insurance tailored to your needs. If you work in a low-risk field or have a limited budget, you can opt for a plan with lower limits and lower premiums. In the even something unexpected happens, you’ve got some help.
Buy say you work in a high-risk field or have a larger budget. You can increase your coverage limits to provide more protection against accidents.
Policy limits help protect insurance providers from large losses, allowing them to keep their premiums affordable and offer more choices to you. As a business owner, you must assess these limits and the cost of your policy and weigh that against your risks.
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