Trying to figure out what limits, coverage, and insurance terms actually mean can feel like deciphering another language. But once you know the insurance basics, you realize what you need to protect your business.
Your policy limits and deductibles are more than numbers on a page. They’re designed to protect you when things go wrong.
TL; DR: How Much Does Insurance Pay?
You can know how much your small business insurance is designed to pay by reading your coverage details:
- Your general liability policy limits are the maximum amount your insurance may pay for a covered claim
- Your deductible is what you pay first before your insurance kicks in
- If a claim stays within your limits, then insurance pays the rest (after the deductible)
- If claims exceed your limits, then you pay the difference
- If multiple claims exhaust your annual limit, then coverage stops for the year (limits reset after policy renewal)
What Are General Liability Policy Limits?
General liability policy limits are the most your policy will pay for covered claims.
These limits commonly appear as two numbers, like $1,000,000 / $2,000,000 (or $1M / $2M). Those numbers represent the per-occurrence limit / aggregate limit, which we’ll explain shortly.
Tip #1: Your general liability limits can include other coverages like Damage to Premises Rented to You or Personal and Advertising Injury. Depending on your policy, your aggregate limit may apply separately to certain exposures or be shared.
Insurance Limits Explained: Per Occurrence Limits vs Aggregate Limits
- Per occurrence limits are the maximum your insurance will pay for one single claim or incident.
- Aggregate limits are the maximum your policy will pay for all claims combined during your policy period (typically one year).
If your per occurrence limit is $1 million, that’s the cap for one lawsuit or claim (even if more than one injury or person is affected). It’s used per incident, not per person or per injury. Once your aggregate limit is used up, your coverage doesn’t keep going. It stops until your policy is renewed.
Tip #2: Per-occurrence is per incident, and aggregate is per policy period. If you remember one thing, remember that per-occurrence resets for each new claim, while the aggregate does not reset until your policy renews.
What Is a General Liability Deductible?
A general liability deductible is the amount you agree to pay out of pocket before your insurance starts paying on a covered claim.
Most general liability coverages don’t have deductibles, but other parts of your policy might. If you do encounter a deductible on your liability policy, it’s still helpful to know how they work.
Deductibles are similar to copays. You agree to cover a small portion of your claims, and the insurance agrees to cover the rest. For example, you have a covered claim of $50,000 and a $1,000 deductible. You would pay $1,000 for your deductible, and your insurance would pay $49,000.
Tip #3: A deductible does not increase your limits or “unlock” more insurance. It only determines who pays first in a covered claim (aka it shifts a fixed initial cost to you before a payout).
Understand How Deductibles Affect Your Premium and Risk
Deductibles can affect your premium based on the amount you choose to pay. Some insurance plans have fixed deductible rates, while others offer deductible options.
A higher deductible can equal a lower premium, but more out-of-pocket costs if something happens. A lower deductible can equal a higher premium, but fewer expenses for you when a claim hits.
It’s really about your comfort level and how much you’re willing to risk paying for claims. If a $2,500 claim would seriously disrupt your business, a higher deductible might not be worth the savings. If you can comfortably absorb smaller claims, then you might choose a higher deductible to lower your premium.
*Deductibles only apply to covered claims. Being willing to pay a deductible doesn’t automatically equate to a covered claim or a claims payout from your insurance. Your insurance adjustor will inform you if a claim is covered and when you need to pay the deductible.
General Liability Limits Explained With Real Claims
Understanding insurance terminology is just one part.
The second is knowing how general liability limits work when it comes to claims. The cumulative impact of multiple claims over time sometimes adds up to be more than one big claim.
Tip #4: With most Insurance Canopy policies, there are no deductibles on general liability claims!
How Much General Liability Coverage Do Small Businesses Usually Need?
Most small businesses choose standard $1M per occurrence / $2M aggregate coverage limits. This doesn’t work for every small business, since the amount of general liability coverage you may need depends on factors like:
- You work on client property
- You have large commercial contracts
- You host customers at your location
- You’re required to carry specific limits by contract
Tip #5: You can typically add “excess liability limits” to a policy that allows you to increase your general liability limits above the listed amount (up to the excess limit). This can be helpful if a contract requires higher limits than your base policy provides.
Policy Limits and Certificates of Insurance (COIs)
When another business, property manager, or client asks for a Certificate of Insurance (COI), they’re mainly looking at two things:
- The type of coverage you have
- Your coverage limits
Many people require you to have specific limits on your insurance policy to make sure you’re covered for common claims that could arise while working together. If your policy shows a $500,000 aggregate, but your contract requires $1 million, you may not be able to move forward with the job.
It’s easier (and more affordable) to make sure you have the right limits in place before a claim happens. It also keeps you compliant with your contracts!
- You can increase limits during purchase or renewal
- Adding limits partway through coverage may be possible depending on your policy
- After a claim, changes may be limited or your premium may go up
Learn to look at your COI and see if it meets contract requirements by reading How to Read an Insurance Policy Like a Pro.
Choosing Limits That Fit Your Business
Your business, your coverage, your way! Choosing the right general liability limits is about customizing your policy to fit your business.
It’s tempting to go with the first cheap quote you get, or copy what another business did. But you want to make sure you’re getting what you need based on the type of business you run.
To help get an idea of what limits you need, ask yourself:
- What’s my realistic worst-case scenario?
- What do my contracts require? (or commonly require in my industry)
- Could my business financially handle a claim above my limits?
It’s best to work with a licensed agent to find a policy and limits that match your business’s needs. You can typically start with a base policy and increase limits with excess liability, if needed. It doesn’t have to be all or nothing on day one.
Feel Confident In Your Coverage
If you’re unsure about what general liability limits make sense, get a custom quote or talk to a licensed Insurance Canopy agent today. A five-minute conversation now can prevent a six-figure surprise later!
Frequently Asked Questions About General Liability Policy Limits
How Do I Know If My Liability Limits Are High Enough?
To determine whether your liability limits are high enough, start by reviewing your contracts and your industry’s risk level.
$1M per occurrence / $2M aggregate is a common starting point for businesses that regularly interact with customers, work on client property, or sign commercial agreements. If your potential claims could reasonably exceed that, you may want higher limits or excess liability coverage.
Can I Change My General Liability Limits Later?
Yes, you can change your general liability limits later in many cases. You can typically increase your limits by opting for a policy with higher limits or adding excess liability coverage.
What Happens If a Claim Exceeds My General Liability Limits?
If a claim exceeds your general liability limits, your insurer will only pay up to your per-occurrence or aggregate limit (whichever is greater at the time of the claim). Any remaining amount becomes your responsibility. That’s why choosing appropriate limits (or adding excess liability) is essential for higher-risk businesses.
Are Subcontractors Covered Under My General Liability Limits?
No, subcontractors are not automatically covered under your general liability limits. Coverage depends on your policy’s structure and your contracts. Many businesses require subcontractors to carry their own general liability insurance and provide proof of coverage.
Does General Liability Cover Employee Injuries?
No, general liability does not cover employee injuries. It’s designed to cover third-party bodily injury and property damage. Employee injuries are typically covered under workers’ compensation insurance.
Is $1 Million in General Liability Enough for My Business?
Yes, $1 million in general liability may be enough for your business, but it depends on your exposure and contractual requirements. Higher-risk operations or large commercial contracts may require higher limits.
$1 million is often a good starting point for understanding how much coverage you may need. It’s best to consult with a licensed insurance agent who can help analyze your risks and unique business needs.
