Here's something most business owners don't think about until it's too late: what happens when someone gets hurt on your property, and the lawsuit tops a million dollars? Your business insurance has limits—caps on how much it'll pay. The per-occurrence limit is one of the most important numbers on your policy, and understanding it could save your business from financial disaster.
Think of your per-occurrence limit as the safety net for a single bad day. Whether it's a customer slipping on your wet floor, a construction accident that damages property, or a product that causes an allergic reaction, this limit determines how much financial protection you have when things go wrong. Let's break down exactly what this means for your business.
What Is a Per-Occurrence Limit?
A per-occurrence limit is the maximum amount your insurance company will pay for all claims resulting from a single incident. The key word here is 'single incident.' If a customer trips over a power cable in your office and breaks their arm, that's one occurrence. If three customers trip over that same cable during the same day, that's still one occurrence—and all three claims are capped by your per-occurrence limit combined.
This limit covers everything related to that incident: medical bills, legal defense costs, court settlements, and judgments. Let's say you have a $1 million per-occurrence limit and face a lawsuit for $1.2 million. Your insurance pays $1 million (after you pay your deductible), and you're personally on the hook for the remaining $200,000. That's why choosing the right limit matters so much.
Most general liability policies—the foundational coverage for businesses—come with per-occurrence limits. This applies whether you run a hair salon, a construction company, a medical spa, or a consulting firm. The specific limit you choose should reflect what you could actually face in a worst-case scenario.
Per-Occurrence vs. Aggregate Limits: The Critical Difference
Your policy actually has two limits working together, and understanding both is crucial. The per-occurrence limit caps what you get for one incident. The aggregate limit caps what you get for all incidents during your policy period—usually one year.
Here's the most common setup: $1 million per occurrence and $2 million aggregate. This means your insurer will pay up to $1 million for each separate incident, but no more than $2 million total for all incidents combined during your policy year. Once you hit that $2 million aggregate limit, your coverage stops paying out for new claims—even if each individual claim is well below your per-occurrence limit.
Think of it this way: the per-occurrence limit sets the ceiling for each bad day. The aggregate limit sets the ceiling for a bad year. If you face two separate $1 million claims in the same year, your per-occurrence limit covers each one fully—but you've now maxed out your $2 million aggregate, and any third claim that year comes out of your pocket.
The crucial point many business owners miss: your aggregate limit doesn't increase your per-occurrence limit. Even with a $5 million aggregate, if your per-occurrence limit is $1 million, that's all you're getting for any single incident. The aggregate is simply the total pool of money available across multiple incidents.
Real-World Examples: When Per-Occurrence Limits Come Into Play
Let's look at how this works in practice. A customer at a medical spa has a severe allergic reaction to a skin care product and can't work for months. They sue for $1 million in medical bills, lost income, and pain and suffering. With a $1 million per-occurrence limit, your insurance covers the medical bills, legal defense, and settlement—up to that $1 million cap. If the judgment comes in at $1.3 million, you owe $300,000 personally.
Or consider a construction scenario: your crew accidentally damages a customer's home while working on a project, causing $200,000 in property damage. The homeowner sues. Your $1 million per-occurrence limit easily covers this claim, and you haven't touched your aggregate limit significantly, leaving plenty of coverage for other incidents that year.
Here's where it gets tricky: imagine you're driving a company vehicle and cause a multi-car accident. Three people are injured, filing separate claims totaling $1.5 million. Because all injuries stem from one incident, your per-occurrence limit applies to all claims combined. With a $1 million limit, insurance pays $1 million (minus your deductible), and your business owes the remaining $500,000.
Even reputational issues count. If a competitor sues you for defamation over something you posted on social media, and the legal costs and settlement reach $800,000, that falls under your per-occurrence limit. As long as it's under $1 million, you're covered—but it does eat into your annual aggregate.
How to Choose the Right Per-Occurrence Limit
Choosing your per-occurrence limit isn't about picking a number that sounds good. It's about honest risk assessment. Start by looking at your business assets—what do you stand to lose if a major lawsuit hits? Your limit should be high enough to protect those assets from being seized to pay a judgment your insurance doesn't cover.
Industry matters enormously. If you run a low-risk consulting business from a home office with minimal client interaction, you might be fine with a $500,000 per-occurrence limit. But if you operate a construction company, a medical practice, or any business where people could suffer serious injuries or property damage, $1 million is the baseline—and many choose $2 million or higher.
Client contracts often make this decision for you. Many clients and vendors require businesses they work with to carry specific minimum coverage—commonly $1 million per occurrence and $2 million aggregate. If you don't meet these requirements, you can't win the contract. Check your existing agreements and ask potential clients what they expect.
Consider the worst-case scenario for your specific business. Ask yourself: if someone suffered a catastrophic injury on my premises or because of my work, what could the damages realistically total? Medical bills for serious injuries can easily exceed $500,000. Add in lost wages, pain and suffering, and legal costs, and $1 million disappears quickly. Higher limits cost more in premiums, but they cost far less than paying a six-figure judgment out of pocket.
Also think about frequency versus severity. Are you more likely to face one extremely costly incident, or several smaller ones throughout the year? If you're in a high-contact business with lots of customers—like a fitness studio or retail store—you might face multiple smaller claims that add up. A higher aggregate limit might matter more than a higher per-occurrence limit. But if you're in construction or manufacturing where one major accident could be devastating, maximize your per-occurrence coverage.
Review Your Coverage and Make Informed Decisions
Your business changes over time, and your insurance limits should too. If you've grown your team, expanded your services, or started working with higher-value clients, your original coverage might not cut it anymore. Review your per-occurrence and aggregate limits annually—ideally before your policy renews.
Don't guess about what you need. Talk to an insurance agent who understands your industry. They can help you compare your limits to similar businesses and identify gaps in your coverage. Sometimes the difference between a $1 million and $2 million per-occurrence limit is just a few hundred dollars in annual premium—a small price for doubling your protection.
Remember, insurance isn't just about meeting contractual requirements or checking a box. It's about protecting everything you've built. One serious incident with inadequate coverage can bankrupt a business. Understanding your per-occurrence limit—and making sure it's high enough—is one of the most important risk management decisions you'll make as a business owner. Get it right, and you can focus on growing your business instead of worrying about what happens if something goes wrong.
