What Is Aggregate Insurance Coverage?

Insurance policies set a limit to how much they'll pay when you file a claim, but they also limit the aggregate insurance coverage they pay out over time. For instance, your company's liability insurance might set a limit of $50,000 per claim and a separate annual $2 million aggregate limit. That's the most they'll pay in a year, no matter how many claims you file.

TL;DR (Too Long; Didn't Read)

The aggregate insurance definition is the most your policy will pay for all losses you sustain over a given period of time, usually a year.

General Liability Insurance

Business owners typically deal with aggregate insurance coverage in their general liability insurance policy. This policy covers legal costs in many situations:

  • Bodily injury. This kicks in if you're sued because a customer or visitor became injured on your property and it was your fault. For example, if you don't repair loose flooring or clean up a pool of water and the customer falls, they may be able to sue successfully.
  • Property damage. For example, a plumber in someone's home leaves the water running, causing expensive damage to the carpets.
  • Personal and advertising injury. This is a grab-bag category that includes lawsuits over false advertising, libel and slander, infringing on someone's copyright and causing someone's arrest on false pretenses.
  • Medical payments. In bodily injury cases, this pays a limited amount for the injured party's medical bills. Nobody has to go to court for the policy to pay out. 

General liability insurance comes with a variety of restrictions: it doesn't cover employee injuries, for instance. As long an incident falls into a covered category, though, the policy will pay up to the limit set when you signed it.

Aggregate Insurance Coverage

The first limit you have to deal with is the limit on per-incident payouts. Your general liability policy may have a flat $500,000 limit on individual claims. If someone falls down the stairs at your office and sues, the policy will pay for legal fees and damages up to the half-million limit.

The second limit is the aggregate insurance, meaning the most it will pay out for all claims. If, say, you have $2 million aggregate coverage for the year, that's the absolute limit on what you'll be reimbursed. If you have one $2 million claim, four $500,000 claims or 20 $100,000 claims, you use up your liability coverage until the new year begins.

Setting an aggregate insurance coverage limit protects the insurer. It balances the gain from your insurance premiums against the risk of a really big loss on your policy.

Understanding Special Cases

The aggregate insurance definition has a few variations in particular industries. In construction, it's common to have a "per project" aggregate with an aggregate limit for each job the contractor is working on.

Some group practices, for example, in a massage-therapy practice, will have both an aggregate individual limit and a group aggregate limit. If other members of the team max out the group limit, the other individuals will end up short-changed.

Shopping for Insurance

The more you're willing to pay in premiums, the larger your individual and aggregate insurance coverage can be. You'll have to crunch the numbers and figure out what's best for your bottom line. You can revisit coverage down the road as your business grows and adds more assets.

When you shop for your liability coverage, there are some basic principles to keep in mind:

  • Don't wait. Someone could be injured the first day you're open.
  • Don't buy based solely on the premiums. Deductibles, per claim limits and aggregate limits can all make a cheap policy a bad policy.
  • Find a reputable insurer. Talk to colleagues in your industry about who they'd prefer, read online reviews or do some research of your own.
  • Know the details of your coverage. Ask for changes to the policy if it doesn't offer the coverage you need. 

References

About the Author

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