Limits of Liability Insurance

Liability insurance is an essential type of insurance that protects individuals and businesses from financial losses resulting from lawsuits or claims. However, there are limits to liability insurance that individuals and businesses need to understand to ensure they have adequate coverage. This article explores the limits of liability insurance, including the types of limits, how they work, and what they cover.

What is Liability Insurance?

Liability insurance is a type of insurance policy that protects individuals and businesses from financial losses that may arise from claims or lawsuits resulting from accidents, injuries, or damages they may have caused. The insurance policy covers the legal and defense costs associated with defending against the claim and any damages that may be awarded to the plaintiff.

For instance, a business owner may have a liability insurance policy that covers them if a customer is injured on their property or if they damage property belonging to a third party while carrying out their business activities.

Types of Limits in Liability Insurance

In liability insurance policy, there are limits to the amount of compensation that an insurer will pay in case of a claim. These limits can be of two types:

Per Occurrence Limit

This type of limit sets the maximum amount of coverage that an insurer will pay out for a single occurrence or event. If the damages exceed this limit, the policyholder will be responsible for paying the rest. For instance, if a business has a policy with a $500,000 per occurrence limit and a customer sues them for $1 million in damages, the insurer will only pay $500,000, and the business owner will have to pay the remaining $500,000.

Aggregate Limit

The aggregate limit sets the total amount of coverage that an insurer will pay over the duration of the policy term, regardless of the number of claims made. Once the aggregate limit is exhausted, the policyholder is responsible for any additional costs. For instance, a business may have a policy with a $1 million aggregate limit, and if they make multiple claims totaling to $1.2 million, they will be responsible for paying the remaining $200,000.

How Do Limits Work?

When you purchase a liability insurance policy, your insurer will provide you with a policy document that outlines the coverage and limits of the policy. The policy will specify the per occurrence and aggregate limits that apply to your coverage.

In the event of a claim, the policyholder is responsible for paying the deductible, which is the amount that they are required to pay out of pocket before the insurance coverage kicks in. Once the deductible is paid, the insurer will pay the damages up to the limits specified in the policy. If the damages exceed the limits, the policyholder will be responsible for paying the remaining amount.

What is Covered Under Liability Insurance?

Liability insurance covers a vast range of risks, including bodily injury, property damage, and legal expenses. The policy may also cover damages caused by your employees, contractors or subcontractors while performing their duties, as well as any damage caused by products or services provided by your business.

Bodily Injury

Bodily injury coverage pays for medical expenses and lost wages resulting from injuries sustained by a third party as a result of your business activities. For instance, if a customer slips and falls on your premises and suffers injuries, the policy will cover their medical expenses and lost wages.

Property Damage

Property damage coverage pays for damages to property owned by a third party that results from your business activities. For instance, if you accidentally damage a customer’s property while carrying out your business activities, the policy will cover the cost of repairs or replacement of the damaged property.

Legal Expenses

Legal expenses coverage pays for legal defense fees and court costs associated with defending against a lawsuit or claim resulting from your business activities. The policy may also cover any settlement costs or damages awarded to the plaintiff in case of a judgment against you.

FAQ

What is the difference between per occurrence and aggregate limit?

The per occurrence limit sets the maximum amount of coverage that an insurer will pay out for a single occurrence or event, while the aggregate limit sets the total amount of coverage that an insurer will pay over the duration of the policy term, regardless of the number of claims made.

What happens if my damages exceed my policy limits?

If your damages exceed your policy limits, you will be responsible for paying the remaining amount out of pocket. It is essential to ensure that you have adequate coverage to avoid such a scenario.

What is covered under liability insurance?

Liability insurance covers a wide range of risks, including bodily injury, property damage, and legal expenses resulting from your business activities. The policy may also cover damages caused by your employees, contractors or subcontractors while performing their duties, as well as any damage caused by products or services provided by your business.

Conclusion

Liability insurance is an essential type of insurance that protects individuals and businesses from financial losses resulting from lawsuits or claims. However, there are limits to liability insurance that individuals and businesses need to understand to ensure they have adequate coverage. By understanding the types of limits, how they work, and what they cover, you can make informed decisions about the liability insurance policy that best suits your needs.