General liability insurance limits explained

Most small business owners choose general liability coverage limits of $1 million per occurrence and $2 million aggregate for each policy period. Both limits can impact your business operations.

Your per-occurrence coverage limit is how much your insurance company will provide on a single incident. For example, if you had an insurance claim of $1.5 million on a single incident and a $1 million per-occurrence limit, the insurance company would pay $1 million on that claim (after you pay your deductible), and then your business would be responsible for the remaining $500,000.

The aggregate limit is the total dollar amount of coverage that your general liability policy provides during the policy period, which is usually one year. If your business had a $2 million aggregate limit, your insurance company would stop paying on general liability claims if they exceed a combined $2 million during a policy year.

There are many types of claims and lawsuits covered by general liability insurance. With a per-occurrence limit of $1 million and an aggregate limit of $2 million, this is how your general liability insurance provider would cover claims:

A customer has a slip-and-fall accident with a bodily injury at your medical spa, leaving them in pain and unable to work. They sue your business for $1 million in medical payments, lost income, and pain and suffering.

Your insurance company would cover these medical bills, plus any related court costs and legal settlements. The coverage for this incident would be capped at $1 million because this is your per-occurrence limit.

Your construction business accidentally damages a customer’s property while working on a job, resulting in a lawsuit for $200,000 in damages. Your insurance company would cover this claim, since it’s less than your $1 million per-occurrence limit.

A customer has an allergic reaction to a hair or skin care product they purchased from your personal care business and they sue you for $100,000. Your general liability insurance policy would cover this claim and lawsuit, because general liability typically includes product liability coverage.

Businesses with high product risk (such as manufacturers or distributors) might need a stand-alone, higher-limit product liability policy beyond what the standard general liability provides.

If one of your competitors took issue with something you said about them on your website, on social media, or in an advertisement, they might sue you on a defamation claim. As long as your court costs, legal verdicts, or settlements add up to less than $1 million, this claim would be covered under your per-occurrence limit. Defamation insurance, including claims of false advertising, is included in the personal and advertising injury section of general liability policies.

A general liability claim brings associated costs of investigating and defending the claim – attorney fees, court costs, etc. It is more common for defense costs to be covered outside the general liability limits, meaning they do not reduce the amount available to pay a settlement or judgment. However, this can vary depending on the carrier, and you should always closely review your policy terms to confirm how this coverage is handled.

Your insurance company will only cover claims from an incident up to the per-occurrence limit. If the claims from a single incident exceed the per-occurrence limit of $1 million, your business will have to pay any amount over the limit.

With a $2 million aggregate limit, if your general liability claims add up to more than this in a coverage year, your insurance company would cover up to $2 million in claims. Your business would cover anything that exceeds this amount.

Understanding how limits work is crucial, but it's also important to know how your choices impact your budget.

Coverage limits have a direct impact on the cost of general liability insurance, along with other factors such as your type of business, the size of your business, and your location.

A majority (over 90 percent) of Insureon customers choose a general liability policy with a $1 million per-occurrence limit and a $2 million aggregate limit. This is also because it's a standard minimum requirement in commercial contracts and leases. Our customers pay an average of $42 per month, or about $500 per year.

Customers who need higher limits can expect to pay a higher premium. While it might be tempting to reduce your coverage limits to save money, you need to make sure your business will be able to financially survive an expensive claim or lawsuit.

Another thing to consider is the size of your deductible. The average general liability deductible among Insureon customers is $500. With this deductible, your business would cover the first $500 on each claim, before your insurance coverage activates, up to your policy's per-occurrence limit.

A higher deductible could reduce your insurance premiums, but it will increase your out-of-pocket costs on a claim. You'll want to choose a deductible that keeps your insurance affordable, yet also provides your business with enough financial security in case of a claim.

One way to reduce your premium is to combine your general liability and commercial property insurance into one policy known as a business owner's policy (BOP). This is usually less expensive than buying the coverages separately.

Fill out Insureon's easy online application to compare quotes from top-rated U.S. providers and find the right coverage at the best price.

Need assistance? Consult with an insurance agent for help choosing the right coverage limits. Once your policy is selected, you can begin coverage and get your certificate of insurance (COI) in less than 24 hours.