With insurance limits, retroactive dates, coverage exclusions and more, insurance can be confusing. At the AOA Insurance Alliance administered by Lockton Affinity, we strive to make it as simple as possible.
Read on for some basic information about how to select insurance limits.
Understanding insurance limits
An insurance limit, or limit of liability, is the maximum amount the insurance company will pay under a given policy. If a claim is filed against you, the maximum amount the insurance company will pay is the limit you selected.
Depending on the type of policy you have, you may see limits of liability written differently. Common examples, include:
- $1,000,000 Occurrence / $3,000,000 Aggregate
- $1,000,000 Claim / $3,000,000 Aggregate
- $1,000,000 Occurrence Limit / $3,000,000 General Aggregate Limit
Despite how the limits of liability are written, they are always set up in the same way. The first number is the maximum dollar amount for damages and expenses to be paid for a single occurrence or incident. The second number is the maximum total dollar amount that your policy will pay out in a policy term (typically an annual policy).
How to select insurance limits
When you select insurance limits, it is different for every business and every type of policy. However, there are a few considerations that apply to all:
What can you afford?
The premium of a policy is directly related to the limit of liability selected. The higher the insurance limit, the higher the level of coverage. Therefore, the policy is more expensive. Take a look at your budget and resources to determine what you can afford when applying for insurance.
What is your exposure?
If your business is small or just starting out, a lower insurance limit may be appropriate given the assets of your business. As your company grows, or if your operations create larger exposures for third-party damages, consider this and adjust your limits accordingly.
Are there industry or contractual requirements?
Depending on the industry you are in, your state may require a minimum limit of liability. Certain partnerships, franchise operations, contractual obligations and lease agreements may also enforce limit requirements.
What about group policies?
In a group policy, you and your corporation could share limits of liability, so whatever your limit is per occurrence, you and the corporation will both draw from that amount. Group policies also have the option of separate limits, meaning your corporation has an additional limit of liability, the same amount as yours but separate. While this is a good option to ensure you and your corporation have the proper coverage, separate limits on a group policy will increase your premium amount.
Unfortunately there is no one-size-fits-all solution to determine the insurance limits your business needs. However, Lockton Affinity’s experienced customer service reps are happy to help walk you through your options.
Coverage may not be available in all states and is subject to actual policy terms and conditions. Coverage is provided by an excess/surplus lines insurer which is not licensed by or subject to the supervision of the insurance department of your state of residence. Policy coverage forms and rates are not subject to regulation by the insurance department of your state of residence. Excess/surplus lines insurers do not generally participate in state guaranty funds and therefore insureds are not protected by such funds in the event of the insurer’s insolvency.