Limits & Deductibles

Coverage limits are the maximum amounts your insurance will pay for covered losses.

Types of limits:

Per Occurrence Limit
The maximum paid for any single incident or claim.
Example: A $1 million per occurrence limit means the most paid for one accident is $1 million.

Aggregate Limit
The maximum paid for ALL claims during the policy period (usually one year).
Example: A $2 million aggregate means once you've had $2 million in claims, no more will be paid that year.

Common limit structure: "$1M/$2M" means $1 million per occurrence, $2 million aggregate.

Split limits vs. Combined Single Limit (CSL)
- Split: Separate limits for different types of damage
- CSL: One limit covering everything combined

A deductible is the amount you pay out of pocket before insurance covers the rest.

Example:
- You have a $1,000 deductible
- You have a covered loss of $15,000
- You pay the first $1,000
- Insurance pays the remaining $14,000

Types of deductibles:

Flat deductible - A fixed dollar amount ($500, $1,000, $2,500)

Percentage deductible - A percentage of the insured value (common in property insurance)
Example: 2% deductible on a $500,000 building = $10,000 deductible

Per claim vs. per occurrence - Some policies apply the deductible to each claim, others to each incident

Your choice of limits and deductibles affects both your protection and your premium costs.

Higher deductibles = Lower premiums
You take on more risk per claim, so the insurer charges less.

Higher limits = Higher premiums
More coverage means more potential payout, so it costs more.

Finding the right balance:
- What can you afford to pay out of pocket per incident?
- What's the potential severity of claims in your industry?
- What do contracts require? (Many require minimum limits)
- What's the difference in premium for different options?

Rule of thumb: Don't choose a deductible so high you couldn't pay it if needed.

Sometimes your base policy limits aren't sufficient for your risk exposure.

Umbrella Insurance
Provides additional limits ABOVE your underlying policies. If you have $1M GL and a $2M umbrella, your total coverage is $3M for covered claims.

Excess Insurance
Similar to umbrella but typically follows the exact same coverage as the underlying policy.

When to consider higher limits:
- You have significant assets to protect
- You work on large contracts with high limit requirements
- Your industry has high-severity potential claims
- You want peace of mind against catastrophic losses

Cost of umbrella coverage is often surprisingly affordable for the amount of additional protection.