Most business owners opt to take out insurance policies to cover themselves, their businesses, and their employees. You would assume that when a policy like this is taken out, your company is covered for everything. However, that isn’t necessarily the case, as every insurance policy has its limits.
The fact is that aggregate limits are a normal part of business insurance policies, and almost every policy will have one. Most business insurance policies have aggregate limits written into their policy terms, including professional liability insurance and general liability insurance.
So, what is an aggregate limit, and why is it important?
What Is Aggregate Insurance, and Why Is There a Limit?
Unsure about what aggregate insurance is and why there is a limit? The aggregate insurance definition is the highest amount of money the insurer will pay for all of your losses during a policy period—this period typically lasts for one year. On certain types of insurance coverage, an aggregate limit is put in place.
Understanding the Aggregate Limit
The aggregate limit on each insurance policy is written into the policy terms; it’s also something that the customer can customize when initially taking out the policy. However, the greater the aggregate limit, the higher the insurance policy premium.
Therefore, it’s important to be clear on the aggregate limit on your policy before you take the policy out to ensure that the price is affordable and the limit meets your expectations.
The aggregate limit means that if a policy has a limit of £20 million, and within one policy period filed claims total £30 million, the insurance company is only liable to pay £20 million. This means that the outstanding fees would be paid by you and your company.
How Do Aggregate Limits Work?
It's a fairly straightforward process when it comes to how aggregate limits work, the aggregate insurance meaning, and what aggregate insurance is. Aggregate limits determine the amount that can be paid out during the entirety of a policy period. At the same time, aggregate insurance is a form of additional coverage that can add extra protection to a policy after the aggregate limit is reached.
For example, let’s say you suffer a business loss, such as serious damage to your business premises. In a case like this, you would need to file a claim with your insurance provider to benefit from the business policy that you hold with them. However, there will be an aggregate limit on your policy. If your claim exceeds that limit, then your insurance provider won’t payout for the entirety of the claim, only the amount your policy is set up to cover.
It’s important to understand that aggregate limits differ from per-occurrence (also known as per-claim) limits, as these are limits with the amount the insurance provider will payout for each claim. If you were to claim for two incidents within your policy period and the total amount exceeded your aggregate limit, you would be liable to pay the difference yourself.
Why Are Aggregate Limits Necessary?
The aggregate limit of a policy benefits both the insurance provider and the insurance client.
The benefit for the customer might not seem clear, but the fact is that having an understanding of the aggregate limit that’s in place can allow the customer to customize their insurance policy and its aggregate limit to reflect the risk exposure and the budget available to them.
For instance, for a business that faces low to moderate risks and has a lower budget, paying for a policy with lower aggregate limits, will help to keep the cost down while still offering protection.
Whereas, for a business with more substantial risks and a larger budget, increasing the aggregate limits on the policy to ensure a higher level of protection, is a step that can make sense.
For instance, companies’ aggregate limits help to reduce their risk of bad losses. By protecting themselves, they can ensure that their premiums remain affordable for customers in the longer term.
Is There Insurance to Cover Any Losses Over the Aggregate Limit?
There is the option when it comes to aggregate limits of looking into insurance coverage designed to cover any catastrophic losses that exceed the aggregate limit on regular insurance policies.
At an additional cost, most insurance providers offer additional plans that offer coverage for any losses that come above the policy’s base aggregate limit. These policies will have a higher limit, and in some instances, policies can even have no limit at all.
For businesses that come with very high risks and have a high budget to match, this kind of policy can be a smart move. Especially as claims can quickly exceed aggregate limits, having additional protection in place can be a total financial gamechanger.
Conclusion
There you have it, a guide to what aggregate insurance is and how the process of an aggregate limit works.
The truth is that aggregate limits are not complex or difficult to understand; it’s simply a case of taking the time to find out how the aggregate process works.
Once you understand the limit on a policy, it’s easy to understand what is covered and what is not covered and where additional coverage might be required.
The key takeaway is to ensure that when signing up for an insurance policy for your business, you determine what is and what is not covered by the policy and where the aggregate limits lie.
