General liability policy limits explained
General liability insurance has two policy limits. To determine the right limits for your small business, you must consider your liability risks and the impact these limits could have on your premium.
What are commercial general liability insurance limits?
General liability insurance gives small business owners financial protection against common business risks, including damage to a client’s property, customer slip-and-fall accidents, product liability issues, and advertising injuries like libel and slander.
A general liability policy has two coverage limits:
- Per-occurrence limit is the maximum amount your insurer will pay on a single claim
- Aggregate limit is the total amount your insurer will pay during a policy period
What is the difference between per-occurrence vs. aggregate limits?
The difference between the two limits is scope. Per-occurrence limits apply per claim, and aggregate limits apply to all claims combined.
Both limits work together to determine how much your insurer will pay and how much you’ll owe on a claim. Here’s a closer look at how each limit works:
Per-occurrence limit
The per-occurrence coverage limit is how much your insurance company will cover for a single claim.
For example, if a software development company has a $1.3M insurance claim on a single incident and a $1M per-occurrence limit, their insurance would cover $1M on the claim (after they paid the deductible), and the software developer would owe the remaining $300,000.
Aggregate limit
The aggregate limit is the total amount your policy will cover during a policy period, which is typically one year.
For instance, if a general contractor’s aggregate limit is $2M, their insurance company will stop covering general liability claims if they exceed that amount during a policy period.
How do general liability insurance limits work?
General liability covers many types of claims and lawsuits. Let’s say a construction business has a general liability policy with a $1 million per-occurrence limit and a $2 million aggregate limit.
Here’s how the policy could play out over the course of a policy year:
Claim 1: Third-party bodily injury
A visitor slips and falls on debris at a jobsite and sues for $1.4 million. Since the claim exceeds the $1M per-occurrence limit:
Claim amount | Insurer pays | Construction company pays | Aggregate balance |
|---|---|---|---|
$1,400,000 | $1,000,000 | $400,000 | $1,000,000 |
Claim 2: Third-party property damage
A crane loses control of its load, swinging into a client’s office suite and causing $600,000 in structural damage. This falls below the per-occurrence limit, so the insurer covers it in full:
Claim amount | Insurer pays | Construction company pays | Aggregate balance |
|---|---|---|---|
$600,000 | $600,000 | $0 | $400,000 |
Claim 3: Injury or illness caused by a product
A homeowner gets sick after exposure to a chemical the contractor used in their home and sues for $850,000. The claim falls below the per-occurrence limit, but only $400,000 of the aggregate limit remains:
Claim amount | Insurer pays | Construction company pays | Aggregate balance |
|---|---|---|---|
$850,000 | $400,000 | $450,000 | $0 (exhausted) |
Claim 4: Personal or advertising injury
A competitor accuses the construction company of copyright infringement and sues for $500,000. Since the aggregate is exhausted, the insurer pays nothing:
Claim amount | Insurer pays | Construction company pays | Aggregate balance |
|---|---|---|---|
$500,000 | $0 | $500,000 | $0 (exhausted) |
Are defense costs included or excluded from general liability limits?
Typically, legal defense costs are covered outside of the general liability limits, meaning they don’t affect the amount available to cover a settlement or judgment. These costs can include:
- Attorney’s fees
- Court costs
- Administrative expenses
- Investigative fees
This varies by insurance company, so it’s important that you review your policy terms to understand how this coverage is handled.
How do your coverage limits and deductible impact the cost of general liability insurance?
Your general liability coverage limits have a direct impact on the cost of the policy, along with your business type, size, and location.
Most TechInsurance customers choose a policy with a $1M per-occurrence and a $2M aggregate limit, since that’s the standard minimum requirement in many commercial contracts and leases.
Customers who need higher limits will pay a higher premium. While it’s tempting to keep your coverage minimal to avoid more expensive rates, you need to make sure you have enough protection to overcome an expensive claim or lawsuit.
You also need to consider the size of your deductible. The average general liability deductible for TechInsurance customers is $500, meaning they must pay the first $500 before insurance kicks in. When selecting your deductible, consider this:
- Lower deductibles mean you’ll pay less out-of-pocket for a claim, but more for your premium.
- Higher deductibles lower your premium, but require you to pay more out-of-pocket before insurance coverage activates.
While it’s tempting to keep your coverage minimal to avoid more expensive rates, you need to make sure you have enough protection to overcome an expensive claim or lawsuit.
How do you determine how much general liability insurance you need?
To determine how much coverage you need, it’s important to think about your overall risk exposure. When selecting your limits, consider these key factors:
- Your public interaction: Retailers, restaurants, and other businesses open to the public face more exposure than a home-based consulting firm and typically need higher limits of coverage to reflect that risk.
- Your clients’ property: Businesses regularly working on client premises, like landscapers, electricians, and cleaning services, usually need higher coverage amounts to cover property damage or injury claims on someone else’s property.
- Your contracts and leases: Many clients and landlords require a minimum coverage amount before signing a contract or commercial lease.
- Your state or licensing board requirements: Although states don’t generally require general liability insurance, some licensing boards do, such as those for real estate agents, healthcare workers, and contractors.
Other important factors to evaluate include the size of your operation, your revenue, and the average cost of a lawsuit in your industry. Together, these details can help you decide whether higher limits make sense.
How can you increase your general liability coverage limits with a commercial umbrella policy?
If the standard $1 million per-occurrence / $2 million aggregate limits are insufficient, commercial umbrella insurance can help. An umbrella policy provides an extra layer of coverage over the primary limits for policies like:
- General liability insurance
- Employer's liability insurance (part of workers’ compensation insurance)
- Commercial auto insurance or hired and non-owned auto insurance (HNOA)
Umbrella insurance increases your coverage limits in $1M increments and is often needed to fulfill client contracts that require higher policy limits. Even when it’s not mandated, umbrella coverage is highly recommended for extra peace of mind.
How can I save money on general liability insurance?
The average cost of general liability insurance for TechInsurance customers is $45 per month.
General liability insurance premiums are calculated based on several factors, including:
- Location
- Business operations
- Number of employees
- Claims history
- Policy limits and deductible
- Your industry
There are many ways to save on general liability insurance, including:
Compare quotes
Comparing quotes from multiple insurance companies is one of the best ways to secure affordable coverage. With TechInsurance, you can get cheap general liability insurance quotes online in minutes.
By submitting just one easy application, you can get quotes from top-rated providers like The Hartford, Chubb, and Liberty Mutual. Plus, our licensed insurance agents are here to answer questions and help you choose the right coverage.
You’ll typically get coverage and proof of insurance the same day you get quotes.
Bundle policies
Many insurance providers will give you discounts for purchasing multiple policies, such as bundling coverage in a business owner’s policy (BOP). A BOP bundles general liability with commercial property insurance into one policy that protects against common risks and property damage.
If you need more types of coverage, you can add endorsements to a BOP, such as:
- Business interruption insurance: Replaces lost income and pays for expenses if property damage temporarily disrupts business operations.
- Tools and equipment insurance: Also called inland marine insurance, this policy provides protection for business property in transit.
- Cyber insurance: Provides financial protection against cyberattacks and data breaches that target small businesses.
- Errors and omissions insurance, also called professional liability insurance: Protects a business from disputes over the quality of the professional services they provide to clients.
A commercial package policy (CPP) is similar to a BOP, bundling property and liability coverage. However, CPPs offer more customizable coverage options and higher policy limits, making them a good choice for higher-risk businesses that may not be eligible for a BOP.
Pay the annual premium
Typically, you can pay your general liability insurance premium in monthly or yearly installments. Most insurance carriers will offer a pay-in-full discount, since paying once a year reduces administrative fees and interest charges.
Risk management
Having a clean claims history can have a significant impact on your general liability premium. Implementing safety training can reduce risks, helping you to avoid claims and keep your premiums low. This can include:
- Reducing hazards on your premises and jobsites
- Training employees to quickly clean up spills and report hazards
- Installing a quality security system
- Creating procedure checklists and reviews
Get general liability insurance for your small business
Complete TechInsurance's easy online application to compare free quotes for general liability insurance and other policies from top-rated U.S. carriers. TechInsurance licensed insurance agents are available to answer questions or help you choose the right coverage.
Once you find the best policies for your business needs, you can begin coverage in less than 24 hours and get a certificate of insurance for your small business.
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