Choose liability limits in two steps. First, find the highest limit any lease, client contract or general contractor requires of you, because a certificate that shows less can cost you the space or the job. Second, ask whether one serious claim, or a bad year of several smaller ones, could go past that figure, and what your business would have to pay itself if it did.
The NAIC’s small business guide defines the limit of liability as the maximum amount an insurer will pay for a covered loss, which means everything above it is yours. So the useful question is less what you’re required to carry than what you’d be left holding if a claim went past it, and whether the business could survive paying that out of its own accounts.
Key takeaways
- The limits in your lease and client contracts set your minimum, and for most small businesses they decide the answer on their own.
- Liability policies usually have a per-occurrence limit for each claim and an aggregate limit for the whole policy year, and a busy year can use up the aggregate.
- $1 million per claim and $2 million per year is a common general liability pairing in leases and contracts, which makes it a starting point to check, not an automatic choice.
- Higher limits usually cost more, so compare quotes at two levels and weigh the difference against what you’d otherwise pay yourself.
- Revisit your limits when you sign a new lease, land a bigger client or grow, since what’s at stake grows with the business.
Your contracts set the floor
For most small businesses, the limit question is answered by paperwork before it’s answered by judgment, because landlords write a general liability limit into the lease, clients write limits into their service agreements, and general contractors write them into every subcontract, often with a list of other requirements attached. Buying less than the highest of those figures looks cheaper, but it’s a false saving, because the first time you send a certificate of insurance (COI) that shows a lower number, someone is going to send it back.
So gather every requirement before you quote, using our guides to client contract requirements and lease requirements if the clauses are unfamiliar. Look in:
- Your lease. Landlords often set general liability limits and ask to be named as an additional insured.
- Client contracts and master service agreements. These may name limits for general liability, professional liability and sometimes cyber.
- General contractor subcontracts. These often set general liability limits, may require coverage for completed operations, and usually ask for workers’ comp with a minimum employer’s liability limit.
Write down each figure and take the highest for each policy. If a contract asks for a limit “per project” or “per location,” note that wording and ask about it when you quote, since it’s a different request from a single yearly aggregate.
How the two numbers on a liability policy work
Most liability policies, including general liability and professional liability, carry two limits that work as a pair: the per-occurrence limit, which is the most the policy will pay for any one claim or incident, and the aggregate limit, which is the most it will pay for all covered claims in the policy period, usually a year.
Think of the aggregate as a bucket that every paid claim drains, while the per-occurrence limit caps how much any single claim can take out of it. A policy written as $1 million/$2 million will pay up to $1 million on one claim and up to $2 million across the year, and once the bucket is empty it pays nothing more until it renews.
General liability has one more wrinkle. California’s Department of Insurance explains that a standard commercial general liability policy has separate limits for different kinds of claims, with one aggregate shared by most of them and a separate aggregate for products and completed operations, the claims that come from things you sold or work you finished. For a contractor or a shop that sells goods, that second bucket can matter as much as the first.
A bad year, worked through
The obvious lesson is that one big claim can blow past the per-claim cap and leave the overflow with you. The one owners miss is that three ordinary claims, none of them catastrophic, drained the aggregate before the year was over, which is a bigger risk for a business with heavy foot traffic, many job sites or many client projects than for one with a single quiet office.
Defense costs change the math too. On many general liability policies, the cost of defending a covered claim is paid in addition to the limits, while many professional liability policies count defense against the limit, so a long fight shrinks what’s left for a settlement. Check which kind you have, because it decides how far a $1 million limit really stretches.
What could go past your limit?
Once you know your floor, work through four questions honestly.
- What’s the worst realistic claim in your work? A fire that spreads from a job site into a client’s home, a serious fall at a busy café or a report error that costs a client a deal can all produce claims far larger than a sprained ankle.
- How many claims could you have in a year? More customers, more sites and more projects mean more chances for several claims in one policy year, and that’s what tests the aggregate.
- What would you pay above the limit? Anything over it belongs to your business, which means its cash, its equipment and its future income.
- Who are your clients? Bigger clients sign bigger contracts, and a mistake on a bigger contract usually means a bigger claim.
The SBA’s rule of thumb fits here: insure against things you wouldn’t be able to pay for on your own. If your honest answer to question three is “we’d close,” that’s your signal to price the next level up, even if no contract asks for it.
The limits you’ll see on each policy
Corgi’s policy pages show example limit options for each policy, which show how the choices are set up but aren’t recommendations for your business.
| Policy | How the limit works | Options shown on the site |
|---|---|---|
| General liability | Per claim and per year | $300,000 to $2 million per claim, $600,000 to $4 million per year |
| Professional liability | Per claim and per year | $250,000 to $2 million per claim, $500,000 to $3 million per year |
| Workers’ comp | State benefits have no limit to choose; the employer’s liability limit caps lawsuits | Employer’s liability of $100,000, $500,000 or $1 million |
| Cyber | One limit shared by every incident in the year | $250,000 to $2 million |
Employer’s liability, part of a workers’ comp policy, works differently from the rest: the medical and wage benefits your state sets aren’t capped by a limit you choose, and the employer’s liability limit applies mainly to lawsuits over a work injury that fall outside those benefits, such as a suit by an injured employee’s spouse or a claim passed back to you by a third party the employee sued, which is why general contractors often set a minimum for it. On cyber insurance, look past the headline limit to the sublimits, smaller limits inside it for events like ransomware or funds transfer fraud, since a large overall limit can carry a small sublimit for exactly the incident you’re worried about.
More isn’t automatically better
The instinct many owners have is to buy the biggest limit they can afford and call it safe. We’d push back on that. A limit you’ll never plausibly reach is premium spent on nothing, even though it feels safe, while the same money might cover a policy you don’t have at all, such as professional liability for a business that gives advice or cyber for one that takes card payments. The better test is the gap: the distance between the worst realistic year and the limit you’re required to carry anyway.
When that gap is real, close it. When it isn’t, carry what your contracts require and spend the difference elsewhere. And if you’re unsure, get quotes at two levels and look at the difference in premium next to the amount you’d be exposed to at the lower one, because that comparison tends to make the decision for you.
Some businesses do need more protection than a single policy’s limits provide, and umbrella and excess liability policies exist for that purpose, but they’re separate policies outside the eight Corgi offers, and a contract that requires one will usually say so in writing.
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When to raise your limits
Limits aren’t set once and forgotten. Revisit them when:
- You sign a new lease, or your landlord updates its requirements
- A client or general contractor asks for more
- Your revenue, staff or number of locations grows
- You add a service, such as a salon adding treatments or a contractor taking on larger projects
- A claim or a near miss shows you how large a loss could get
If a client asks for higher limits before a job, you don’t have to wait for renewal. With Corgi, limits can be raised the same day, so a new contract can be met without waiting for renewal.
Frequently asked questions
What does $1 million/$2 million mean on a liability policy?
It means the policy pays up to $1 million for any one covered claim and up to $2 million for all covered claims in the policy year; the first number is the per-occurrence limit and the second is the aggregate limit.
Is a higher limit worth the extra premium?
It depends on what a serious claim in your work could cost and what you could pay yourself. Get quotes at two levels and compare the difference in premium with the amount you’d be left to pay if a claim went past the lower limit.
Can my aggregate limit run out?
Yes. Every covered claim paid in the policy year uses up part of the aggregate, and once it’s gone the policy won’t pay more claims until it renews. Businesses with many customers, sites or projects should watch it closely.
Do I need the same limits on every policy?
No. Each policy covers a different kind of claim and has its own limit, so general liability, professional liability, cyber and employer’s liability limits are chosen separately, often from different contract requirements.
