What is a general aggregate, and what does it mean for your business?
The general aggregate is the maximum amount of money a liability insurance policy will pay in a given policy term.
Unlike a per-occurrence limit, which limits the amount per claim, a general aggregate limit can be exhausted through either two claims, fifty claims, or anywhere in between.
We know that general aggregates can be confusing, especially for certain niche insurance policies or insurance requirements that you might face. That is why we’ve put together this guide.
Here is just about everything you need to know:
How does the general aggregate work?
Take a look at the illustration below. Let’s assume you have the traditional general liability insurance policy of $1,000,000 per occurrence and a $2,000,000 general aggregate.
Imagine that each smaller bucket is each claim (or an "occurrence," as your policy states). Each of the smaller "per occurrence" buckets can fit $1,000,000 worth of liability in a single claim.
The big bucket represents your general aggregate limit, which is the maximum the insurance company will pay for regardless of claim quantity. The big bucket can fit up to $2,000,000 worth of liability, regardless of the number of claims.
As a liability claim happens, it will begin to fill up a small bucket. Once the small bucket is filled, it will get dumped into the larger bucket (the aggregate bucket).
This way, no single "per occurrence" bucket can completely fill up the aggregate bucket. You would need a minimum of two full occurrence buckets!
Why is the general aggregate important?
Without going any further into the metaphor, the general aggregate is very important to your business. If you have a worst-case scenario claim, you will still have insurance after that claim occurs, because one claim won’t wipe out your entire insurance policy.
Additionally, it makes insurance more affordable since you and the insurance company will agree on the maximum amount that insurance policy will pay out. After all, you can always purchase a higher limit.
What insurance policies do not have an aggregate limit?
Not every insurance policy has an aggregate limit. If a policy is required by the government, for example, it likely doesn’t have an aggregate limit.
Here are some the policies we are talking about:
Auto Insurance
Auto liability insurance is not subject to aggregate limits like a general liability policy. Since everyone who drives is required by law to have auto insurance, it does not make sense to have a general aggregate limit. You would have drivers on the road who are ostensibly insured but who have exhausted their policy!
Workers Compensation
If you are an employer, chances are you are required by state law to carry workers compensation insurance to pay for employee injuries that happen while they’re on the job.
It is an employee's right to a reasonably safe working environment and to have their medical bills paid if they are injured on the job.
It is not the employee's fault if the employer has had some bad claims that year and their workers compensation policy is capped out. By law, the employer still needs to pay what is owed to the employee.
Excess Liability And The General Aggregate
Even if a policy has an aggregate limit, there is a way to increase the maximum amount of money that the insurance company is obligated to pay out.
With an excess liability policy, you can increase not only your "per occurrence" limit, but also your general aggregate limit.
Here’s how it works:
As you can see, the excess policy sits on top of both the occurrence and the aggregate limit to increase both.
A $5,000,000 excess liability policy results in $6,000,000 for any one occurrence and $7,000,000 aggregate.
What is a per-project aggregate?
This is a common requirement for certain type of businesses, usually in the construction industry. In fact, it’s so common that we thought we needed to mention it in this post.
As explained above, the general aggregate gets eroded every time you file a claim. If you have a lot of claims, you may run out of insurance limits.
Since construction projects can be prone to claims and damages, certain construction jobs require that you have a dedicated aggregate limit set aside for that job.
This ensures that even if you max out your policy with claims and the project owner needs to file a claim against your insurance, they have their own dedicated limits to collect against..
Since you are essentially buying additional limits, this endorsement will usually result in an additional premium.
Common Issues With The General Aggregate
Non-Concurrent Effective Dates
You may face problems if you purchase additional limits of liability on an excess insurance policy and the underlying policies don't all have the same policy effective dates.
You could have a situation where the general aggregate is reinstated on the primary liability policy but not on the umbrella, or vice-versa.
Having non-concurrent effective dates isn't always a problem, but make sure you discuss it with your insurance broker.
Insurance Requirements
We have seen some insurance requirements that require uncommon aggregate limits. For example, the majority of insurance policies are $1,000,000 per occurrence and $2,000,000 general aggregate.
A contract that requires $2,000,000 per occurrence and $5,000,000 general aggregate is awkward, since a $1 million excess liability policy would only meet the occurrence requirement, but a $3 million excess liability policy might feel like you are purchasing too much insurance.
If this sounds like you, it’s time to have a discussion with your insurance broker! Underwriters can get creative in these situations. They may offer increased aggregate limits on the primary liability policy so you don't have to purchase a full $3 million excess.
Too Many Additional Insureds
Companies are quick to hand out the “additional insured” status on their insurance policy to win jobs and get business. The problem: now your insurance policy is not just providing indemnification for you, it is insuring 200 other businesses, too. This could create a situation where you need much higher limits so there is enough money to cover all the parties your insurance company is defending.
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Summary
The general aggregate limit plays a critical role in how liability insurance policies function. If you need additional limits, you can take steps like purchasing an excess liability insurance policy or even getting a project aggregate limit.
Regardless, if you are looking to help to review your aggregate limits or need assistance meeting certain insurance requirements, let us know!
