Small business general liability insurance is something every business owner needs in case you’re sued and held legally responsible for bodily injury, property damage, or other unfortunate situations. But it’s not always easy to figure out exactly which types of coverage your small business insurance policy gives you, and that's made even more complicated by some seemingly technical terminology that can be hard to understand. If you've seen references to "aggregate limit" or "per claim" limit and wondered what those words mean for you and your business, read on.
While any type of liability insurance
is designed to protect you and your business in case you are sued, it’s important to note that the amount you’ll be paid in case of a claim is limited per claim or per aggregate, though they may overlap.
If you’re not familiar with the terminology, don't worry! Understanding small business aggregate limits of liability – as opposed to per claim limits – is actually quite easy.
Aggregate Limit and Per Claim Limit
Many insurance policies have what is called an aggregate limit
. The aggregate limit of liability is the total amount in dollars that you will be paid by your insurance policy. It may be definitive, as in a general lifetime maximum for claims, or it may be set annually (like $500,000 per year). Because it’s a sum total, aggregate insurance can cover more than one claim.
In addition to aggregate limits, there are usually limits on amount of money that can be paid per claim, also known as per occurrence
. That refers to the maximum amount of money the insurance will cover for any one instance. For example, you may have a per claim limit of $25,000. In that case, if you were to incur damages of say $30,000 in legal fees, your insurance would pay $25,000, and you’d have to cover the remaining $5,000 yourself.
What Does This All Mean?
Sometimes the easiest way to understand something like this is to look at a specific example.
So, let's say you have a policy with a $500,000 aggregate limit and a $50,000 per claim limit.
You had two claims in one year, the first for $65,000 and the second for $30,000:
The first claim would be covered up to $50,000, since that is your per claim limit. You would need to pay the remaining $15,000.
The second claim would be covered fully, since it's under your per claim limit of $50,000.
If you had a really bad year and needed to make any additional claims, they would each be covered up to your per claim limit of $50,000.
If you made more than 10 claims in one year, and the total of all your claims exceeded $500,000, then those wouldn't be covered because they would exceed your aggregate limit.
Common Mistakes to Avoid When Choosing Your Insurance Policy
There are some common mistakes that you can easily avoid when choosing a small business insurance policy
. Here are the ones we suggest you look out for:
- Waiting to buy – Insurance is a must-have from day one. There are many stories of businesses who had unfortunate things happen on their first day, and regretted not taking care of insurance before they opened their doors, or saw their first client. Even if you never collect on a single claim, small business liability insurance is well worth the coverage, just in case. Put more simply, no business can afford not to have insurance.
- Sticking with the status quo – You may already have an insurance provider, but do they offer you the best rates for your business? Do your research. Premium costs are dropping these days; take advantage of online insurance providers, and look for one that will take as little of your time and money as possible, while offering all the coverage you need, including an easy claims process.
- Choosing your policy based on price alone – Low premiums are great, but you need to know more about deductibles in case of a claim, the limits on liability in terms of time frames and per claim, and how easy it is to file claims. Make sure you like all parts of your policy before you buy.
- Assuming you’ll never get paid – Insurance companies often get a bad rap for all the paperwork involved. Sure it’s a bit cumbersome, but the vast majority of legitimate claims are indeed paid at the end of the day.
Choosing Insurance For Your Business
When choosing a small business insurance policy, you should always have a few things in mind:
- Always go with a reputable brand – If reviews for an insurance provider you’re considering are available, check them out. It’s important to know how good the coverage is, particularly from people like you. (You can find our customer reviews here.)
- Set realistic goals – Your business has its own set of risks. You need to evaluate them in terms of bottom-line numbers, to make sure that both the per claim insurance and aggregate insurance you’re taking on will cover your business over the long haul. Check for a policy that allows you to choose your level of coverage based on what you need, and enables you to change it as you grow.
- Buy customized coverage – A photographer doesn't need the same coverage as a plumber or a yoga teacher. Make sure you're buying coverage that's specific to your needs, not someone else's. Check for details of the policy you're buying, and don't be afraid to ask questions.
Sometimes you need to spend money in order to make money. Do your research in advance and make sure you’re covered, with the best small business insurance policy to suit your business needs.