What Is the Aggregate Product Liability Limit?

The aggregate product liability limit is the maximum payout an insurance company will make during the life or term of an insurance product. It is one of the six different limits listed in a commercial general liability (CGL) insurance policy.

Key Takeaways

  • The aggregate product liability sets a limit on the payouts for an insurance policy.
  • It helps insurers limit their risk exposure to the given policy.
  • An umbrella policy whose limit has not been reached can be used to cover costs once an aggregate limit for a general insurance policy is reached.

Understanding the Aggregate Product Liability Limit

The aggregate product liability limit helps insurers limit their exposure to risks with respect to a given CGL policy. In effect, it helps them balance their risks. It is a set dollar amount on a property or liability policy that an insurance company will not be required to pay above. The amount remains unchanged, no matter how many claims are made per period, as long as neither the dollar amount nor time period has been exceeded. If the term of a CGL is extended, then the tenure of the aggregate product liability limit is also extended along with it.

This limit can be based either per occurrence, or for the life and term of the policy. Once the limit is reached the insured can no longer file claims against the policy, and any additional liability or repairs that are incurred will have to be made out of pocket by the insured. This preemptively protects the insurance company from excessive or ongoing losses. An umbrella policy can be used to cover costs once an aggregate limit is reached for an insurance policy. However, it is important to remember that umbrella policies also come with aggregate limits.

The aggregate product liability limit may also be referred to as an annual aggregate limit. It is different from the general aggregate limit, which is the most that an insurer will pay for harm resulting from bodily injury, property damage, and personal and advertising injury.

Example of an Aggregate Product Liability Limit

For example, a homeowner has purchased a home in a hurricane-prone area. The insurance company has placed an aggregate product liability limit at $250,000 in claims per year, or $500,000 over the life of the policy.

During a particularly bad hurricane season, the property sustains $350,000 in damages. The insured files a claim with their homeowners insurance company and receives a payment to cover $250,000 worth of damages, leaving the homeowner to come up with the additional $100,000. This has met the policy’s liability limit for the year. If the homeowner incurs any additional damages or losses during the policy year, they will have to pay for them out of pocket as well.

Now say the following year the property is struck again by loss, and experiences an electrical fire, causing an additional $100,000 in damages. If the policy year has passed, the homeowner can now submit a claim for the new damages, receiving the full $100,000. However, their remaining limit on life of policy claims has gotten closer to the maximum, leaving them with only $150,000 for any future losses they may sustain, no matter what the nature of the claim.

At such time they will be faced with deciding what will be their best option moving forward. They may decide that it is best to find a new homeowners insurance company, which will be required by the lender if they still hold a mortgage on the property, one that carries a higher product liability limit. Or they may opt to ensure that they have enough funds available to cover any future claims.

These limits do not just apply to homeowners insurance policies, and can be found on many different insuring platforms.