If you’ve ever looked at your insurance policy and seen numbers like $1 million per occurrence or $2 million aggregate, you’re looking at your insurance policy limits. These numbers decide how much your insurer will actually pay when something goes wrong, and they’re a lot more important than most business owners realize.
Too high, and you could be paying for coverage you don’t need. Too low, and one serious claim could put your business at risk.
In this post, we’ll break down what insurance policy limits are, why they matter, and how to figure out what’s right for your business, not just what’s cheapest.
Here’s what you’ll learn:
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What policy limits mean in plain terms
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Why they affect more than just your premium
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How to choose limits that actually match the work you do
What Are Insurance Policy Limits?
Insurance policy limits are the maximum amount your insurance company will pay out on a covered claim. These limits are set when you buy your policy and are typically broken into two key parts: per-occurrence and aggregate limits.
Your per-occurrence limit is the most your insurer will pay for a single claim. So if you have a $1 million per-occurrence limit, and someone sues you for injuries that happened on one of your job sites, that’s the most your insurer will cover for that incident, regardless of how serious the claim is.
Your aggregate limit, on the other hand, is the total your insurer will pay over the life of the policy, usually within a 12-month period. If your aggregate limit is $2 million, and you have multiple claims in a year, once the insurer pays out $2 million total, you’re on your own for any additional claims that year.
Insurance policy limits are clearly stated on your declarations page, often near the top. But just because they’re easy to find doesn’t mean they’re easy to understand, especially when you’re comparing different policies or pricing options.
Knowing the difference between these limits is key to making informed decisions about your coverage. A policy that looks affordable up front might leave you underinsured when you need it most.
Why Insurance Policy Limits Matter
It’s easy to look at your policy limits as just another line on your quote. But those numbers directly affect how much protection your business actually has when something goes wrong, and how much you could be on the hook for if the claim goes beyond your limits.
Let’s say you have a $1 million per-occurrence limit and a $2 million aggregate. If a claim comes in for $1.5 million, your policy will only cover $1 million. The other $500,000 is your responsibility. That kind of shortfall can seriously hurt your business, especially if you don’t have the reserves to cover the difference.
Insurance policy limits also affect how your claims are paid out. If you hit your aggregate limit before the year ends, you won’t have any coverage left for new claims. That’s a real risk for businesses that handle high-risk work, large jobs, or multiple projects at the same time.
And yes, higher limits usually mean higher premiums. But if you're only picking a limit based on price, you could be setting yourself up for a financial hit later. It’s about finding a balance, one that protects you without overextending your budget.
Understanding how insurance policy limits work isn’t just for your agent. It’s one of the most important decisions you’ll make in choosing your coverage.
Common Policy Limits in Contractor Insurance
When it comes to contractor insurance, most policies come with a few standard insurance policy limits, but that doesn’t mean they fit every business.
For general liability insurance, one of the most common setups is $1 million per occurrence and $2 million aggregate. This is often the starting point for contractors bidding on jobs or working with commercial clients. It’s also the minimum many project owners require just to get on the job site.
Commercial auto policies often use split limits (like $100,000 per person, $300,000 per accident) or combined single limits, such as $500,000 or $1 million. If you’re transporting materials, employees, or tools, your vehicle coverage should be strong enough to cover a serious accident, not just a fender bender.
Umbrella or excess policies are used to extend your insurance policy limits beyond the base coverage. For example, if your general liability limit is $1 million and you have a $2 million umbrella policy, you now have $3 million in total available if a claim goes past the original limit.
Different trades may also require higher limits. A handyman working on residential repairs may need less coverage than a contractor working on multi-million-dollar commercial jobs. Some clients will even specify limits in the contract, which means your coverage has to meet those requirements, or you risk losing the work.
Knowing the standard insurance policy limits for your type of work gives you a better idea of what’s typical, and where you might need to go higher depending on what’s at stake.
How to Choose the Right Insurance Policy Limits for Your Business
There’s no one-size-fits-all answer when it comes to choosing insurance policy limits. The right number depends on what kind of work you do, how much you have to lose, and what your clients expect.
Start by looking at your average project size. If you’re working on $20,000 remodels, your risk is very different from someone doing $2 million builds. Ask yourself: if something went seriously wrong on a job, how much would it cost to fix? How much could you be sued for?
Then think about your exposure. Do you work in high-traffic areas? Do you use subcontractors? Do you operate heavy equipment or handle hazardous materials? The higher the risk, the higher your limits should be.
Also consider your assets. If a claim goes beyond your policy limit, the rest comes out of your pocket, or worse, your business assets. The more you’ve built, the more you have to protect.
Don’t forget contract requirements. Many commercial clients require minimum insurance policy limits to work with you. If your coverage doesn’t meet those terms, you could lose out on jobs even if everything else is in place.
If you’re worried about cost, umbrella or excess liability coverage can be a smart way to boost your limits without reworking your entire policy. It sits on top of your existing coverage and gives you more breathing room if something big happens.
The best approach? Don’t guess. Use real numbers, real risk, and real contract terms to guide your decision.
Policy Limits Should Match Real-World Risk
Insurance policy limits aren’t just numbers on a document, they’re the line between manageable damage and financial disaster. Whether you’re running small residential jobs or large commercial builds, your limits should match the real risks your business faces.
If it’s been a while since you reviewed your limits, now’s a good time to take another look. Have your projects grown? Are you taking on bigger clients? Are your contract requirements changing?
Your business evolves. Your coverage should too.
A quick conversation with your insurance agent can help you figure out if your current limits still make sense, or if it’s time to adjust before something serious happens.