If you're in construction, liability insurance is a must. The aggregate amount listed in your policy refers to the total payout you can claim. A $2.5 million per policy aggregate limit means that's the most your policy will pay no matter how much you need. If it's $2.5 million per project aggregate, the limit applies to each construction project, so the total payout may be higher.
TL;DR (Too Long; Didn't Read)
In construction, insurance per project aggregate means that the coverage limit in your general liability applies to each project on which you're working. If you have $1 million in coverage, each project is covered up to $1 million in losses.
General Liability Insurance
General liability insurance covers you if you cause damage to a third party, such as property damage or bodily injury. Your clients may require you to take out coverage and so might a general contractor if you're working as a sub. Coverage protects you several ways:
- Bodily injury coverage protects you if, for example, untrained visitors to the construction site suffer an accident.
- Property damage coverage protects you if, say, someone claims your backhoe tore up their trees.
- Completed products claims covers you for problems or injuries caused by defects in the finished construction.
- Faulty workmanship coverage protects you against claims based on your finishing late or over budget.
- Advertising injury coverage shields you if someone files suit over your advertising, such as if you made a libelous comment about a competitor.
- Immediate medical expense coverage pays for immediate medical attention, such as a trip to the ER if someone is injured on-site.
The coverage applies to injuries and damage to third parties. If your own employees are hurt, that's a matter for workers' compensation insurance.
Per Project Aggregate
Like any insurance policy, the more coverage you get, the more your general liability will cost. The exact amount of your coverage depends not just on the numbers in your policy but the wording as well.
- Per incident is the maximum the insurer will pay on a given claim. If the maximum is $500,000 per incident, then that's the most you can receive for one accident or case of property damage. The company will balance each occurrence vs. the general aggregate.
- Per policy aggregate is an absolute limit. Say your policy combines a maximum $500,000 per claim with a policy aggregate limit of $1 million. You could file two claims worth half a million or 10 claims worth $100,000, but when the total payout hits $1 million, your insurer starts saying no.
- Per project aggregate applies the limit to each project on which you're working. Suppose you have a $1.5 million per project aggregate and six construction projects happening at once. Each of them would be covered for claims up to $1.5 million. This coverage will cost more, as the insurer's potential losses are greater.
- Per location aggregate. This sounds like the per project aggregate, but it isn't. It applies to offices or other property you own or rent and doesn't include construction sites on which you're working.
Your insurance certificate will have a series of boxes checked identifying the different coverages. Checking the per project aggregate box does not by itself guarantee you got per project insurance. Always read the policy to see what it says because it's the policy that counts when you file your claim.
Price and Project
Per project insurance gives you superior coverage. You don't have to worry that accidents on one construction site will max out your coverage and leave you vulnerable elsewhere. As you'll have to pay more for the added protection, you'll have to figure out the balance between what you want, what you need and what you can afford.
Insurers may not always go into detail about your coverage. Some companies think it's better to not give you details unless you ask. Go over your policy until you're certain you understand it. Bring in someone who is fluent in insurance legalese if that's what it takes. You don't want to find out after an incident that you misunderstood your coverage.
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com