Understanding the key terms in your insurance policy is crucial, especially when it comes to the limits of your coverage. Two terms you’ll often encounter are “occurrence limit” and “aggregate.” Let’s break down what they mean and why they’re important.
Occurrence Limit
Definition: The occurrence limit is the maximum amount your insurance company will pay for a single claim or event. Think of it as the cap on coverage for each individual incident.
Example: If your general liability policy has an occurrence limit of $1 million, that’s the most the insurer will pay for any one claim, regardless of the total number of claims made during the policy period.
Aggregate Limit
Definition: The aggregate limit is the total amount your insurance company will pay for all claims combined during your policy period (typically a year). It’s the overall pool of coverage you have available.
Example: If your policy has an occurrence limit of $1 million and an aggregate limit of $2 million, the maximum the insurer will pay for any one claim is $1 million but the total of limit for the policy is $2 million. If multiple claims are made throughout the year totaling $2 million, then the policy limit would be exhausted.
Key Differences
Scope: The occurrence limit applies to a single incident, while the aggregate limit applies to the cumulative total of all incidents during the policy period.
Exhaustion: Once the aggregate limit is reached, you have no more coverage for the rest of the policy period, even if individual claims are below the occurrence limit.
Importance: Both limits are important. The occurrence limit protects you from large individual claims, while the aggregate limit ensures you have coverage for multiple smaller claims throughout the year.
Which Limit is More Important?
Both the occurrence limit and the aggregate limit are crucial aspects of your insurance coverage. The ideal balance between the two will depend on your specific business and its risk profile.
High-Risk Businesses: Operations with a higher risk of frequent or severe claims may need a higher aggregate limit to ensure they have enough coverage for multiple incidents. This usually applies to operations spraying large amounts of herbicides or spraying new high value crops.
Low-Risk Businesses: Businesses with a lower risk profile may be able to prioritize a standard occurrence limit with a low aggregate limit. This is usually more important for operations flying fungicides and seeding operations to keep the cost low.
Higher chemical limits are typically smooth, meaning the occurrence and aggregate limits are the same.
How Does This Apply To My Aerial Application Policy
Standard Aerial Application Chemical Limits: 1/3/1/1 are typical aerial application limits. This stands for $100k bodily injury per person, $300k bodily injury per occurrence, $100k property damage per occurrence, and $100k property damage aggregate. Some companies will offer 1/3/1/3 while other will offer $300k CC CSL (Comprehensive Chemical, Continuous Single Limit) That would give $300k limits across the board including the aggregate.
Special Limits for Specific States: Some states will require 1/3/1/5 limits. This does not mean you have $500k occurrence limits or even need that much coverage; however, you will need to make sure your broker knows what to ask for and how to get it affordably. VT Insurance can get this limit added free of charge with all our underwriters!
Tips for Choosing the Right Limits
Assess your risks: Work with your insurance agent to identify your business’s specific risks and potential liabilities.
Consider your budget: Higher limits typically come with higher premiums, so find a balance that provides adequate protection without breaking the bank.
Review your limits regularly: As your business grows and changes, your insurance needs may evolve. Review your policy limits annually to ensure they still provide adequate coverage.
Remember, understanding the difference between occurrence limits and aggregate limits empowers you to make informed decisions about your insurance coverage. If you have any questions or need assistance choosing the right limits for your business, don’t hesitate to contact your insurance agent.
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