The 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 for a single claim. The payout is calculated after you meet your deductible.
What types of insurance have a per-occurrence limit?
Not all small business insurance policies have per-occurrence limits. For instance, commercial property insurance policies do not have these limits.
A per-occurrence limit is a third-party liability limit, which means it covers lawsuits from individuals outside of your business. For example, most general liability insurance policies have a $1 million per-occurrence limit (as well as an aggregate limit). If a customer trips on a power cable in your office and sues, it'll cover your legal costs up to $1 million for that incident.
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.
Per-occurrence limits pay claims for any one incident that happens at your business. Aggregate limits pay claims for any number of incidents during your policy period. So, you may want to evaluate whether your business is at risk of one extremely costly incident or several minor incidents and set your limits accordingly.
Choosing the right per-occurrence 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.
Differences between 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.
Differences between 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.
The main differences between per-occurrence and per-claim policies are when they provide coverage, 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.
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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