What Is General Aggregate Limit of Liability?

The general aggregate limit liability refers to the most money that an insurer can be obligated to pay to an insured party during a specified period. The contracts of commercial general liability (CGL) and professional general liability insurers cite these general aggregate limits in detail.

Understanding Aggregate Limit of Liability

The general aggregate limit is spelled out in the insurance contract and caps the number of covered losses for which an insurer will pay. The aggregate limits are part of commercial general liability (CGL) 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, then he or she becomes effectively uninsured.

An insurance policy may have several different types of limits. A general aggregate limit of liability applies to all types of liability claims that the policy covers, such as property damage, bodily injury, personal, and advertising injury. 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 a claimant's medical bills.

Key Takeaways

  • The general aggregate limit of liability refers to the most money an insurer can pay to a policyholder during a specified period.
  • These limits are contained in the contracts of commercial general liability (CGL) and professional general liability insurance policies.
  • The aggregate limit of liability represents the payout limit for any and all claims for the entire term of the policy.

The General Aggregate Limit: A Critical Concept

A general aggregate limit is a crucial term in CGL insurance, and it's equally critical that a policyholder understands it. The general aggregate limit places a ceiling on the insurer’s obligation to pay for property damage, bodily injury, medical expenses, lawsuits, and so on, which may arise during the tenure of the insurance policy. The coverage will also pay for any claim, loss, and lawsuit in which a policyholder is involved until it reaches the aggregate limit. Once the policyholder has crossed the general aggregate limit, the CGL company is not obligated to compensate for losses, litigation costs, or claims.

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

Like other business entities, insurance companies also face risks. An insurance company's goal is to offer you the protection you need for your business while limiting your risks. Here, the general aggregate can help in balancing the insurer risks with the help of insured protection.

If you're a business owner, opting for the insurance policy with a higher aggregate limit liability can actually help curtail your risks.

How Does the Aggregate Limit of Liability Work?

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 this doctor gets sued twice in one policy year and loses both times, and each time, the plaintiff receives $1 million in damages, then the doctor will have to hope that there isn't a third time as his policy’s annual $2 million aggregate limit of liability has been exhausted.

The doctor won’t have any additional coverage until the next policy year. In this way, even though liability insurance protects policyholders, it gives them an incentive to avoid being sued, since there are limits to their coverage. These limits also protect insurance companies against unlimited losses, which in turn helps them to stay in business.