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Per occurrence limit

A per occurrence limit is the maximum amount of insurance money you’ll get after filing a single covered claim.

What is a per occurrence limit?

A per occurrence limit is the maximum amount your insurance company will pay to cover a single claim. The payout is calculated after you meet your deductible.

Let's say you own an IT consulting firm, and an office fire damages $80,000 worth of equipment. Your business insurance policy has a $10,000 deductible and a $100,000 per occurrence limit. You would be required to first pay $10,000 out-of-pocket towards your claim, and the insurance company would then give you $70,000. The total cost of your claim in this case is within the per occurrence limit.

However, say the damage was $120,000. You would still be required to pay your $10,000 per occurrence deductible out-of-pocket. But the insurance company would only pay you $90,000 towards the covered loss, because your per-occurrence limit is $100,000. The additional $20,000 would not be covered by insurance, and you would be responsible for the difference.

What types of insurance have a per occurrence limit?

Not all business insurance policies have per occurrence limits. Two common types of business insurance policies that include a per occurrence limit are errors and omissions insurance (also called E&O or professional liability insurance) and general liability insurance.

Why is a per occurrence limit important?

As a business owner, it’s important to understand per occurrence insurance limits. It allows you to determine the right amount of insurance that your business needs in order to limit risk.

Choosing the right per occurrence policy limit will also help you avoid unwanted surprises after filing a claim. The higher your per occurrence limit, the less risk you have as a business owner.

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Per occurrence insurance vs. per claim insurance

Business insurance policies are usually designated as either per occurrence insurance or per claim insurance, which is also called a claims-made policy.

It’s important to know the difference, because they often result in very different payouts.

With occurrence-based insurance, your insurance company will pay for all claims related to a single event. It doesn’t matter how much property was damaged or how many people suffered personal injuries. For this type of insurance, you pay only one deductible per event.

With a per claim policy, the insurance company will pay separately for each loss that results from a single incident.

For example, say your workplace was deemed unsafe, and five employees got hurt as a result. Insurance would treat those five claims individually, which means you will likely have to pay five separate deductibles.

Differences between per occurrence insurance vs. per claim insurance

The main differences between per occurrence and per claim policies are the amount of coverage they provide, and the price.

A per occurrence insurance policy offers guaranteed coverage for incidents that happen while your policy was active. If you cancel your policy and file a claim that occurred during the policy period but after your coverage ended, the insurance company would still cover your claim. Think of a per occurrence policy as lifetime insurance.

Per claim insurance only protects your business if you file a claim while you have an active policy, and continue to have coverage after the fact. If you cancel your policy, you won’t be covered for claims that occurred during the policy period.

Because per occurrence insurance offers a high level of coverage, those policies tend to be more expensive than per claim policies. And though the deductible for a per occurrence policy might be pricey, you’ll never have to pay multiple deductibles for a single event.

If you have to file a major claim at any point, having per occurrence insurance could save you a significant amount of money. It might justify the cost of spending more money upfront if your business is high risk.

Per occurrence limit vs. aggregate limit

Your insurance policy’s per occurrence limit is the maximum amount of money you’ll get to cover a single claim. In comparison, your policy’s aggregate limit is the highest amount of money the insurance company will pay you for all claims made during your policy period (usually one year).

For example, say your policy’s per occurrence limit was $1 million and the aggregate limit was $2 million. Your company gets sued on two separate occasions in the same year, each time for $1 million. Because your per occurrence limit is $1 million, both lawsuits will be covered.

However, you’ve now reached your $2 million aggregate limit. If you needed to file any additional claims that year, even minor ones, the insurance company is not required to reimburse you because you’ve reached your aggregate limit.

What to know about per occurrence aggregate limit vs. per claim aggregate limit

The aggregate limit works differently for per occurrence insurance policies and per claim insurance policies. Knowing the difference can help you decide which type of policy to purchase, and help you set your coverage limits.

If you have per occurrence insurance, the aggregate limit will reset at the start of each new policy term, whether you reached your limit in the previous period or not.

If you have per claim insurance, the aggregate limit will never reset. If you choose a $3 million aggregate limit when you purchase your insurance, that is your limit for the duration of the policy. As soon as you hit your aggregate limit, you’re no longer covered until you increase the limit.

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