Policy Limits, Deductibles, and Self-Insured Retentions
Limits define the most the insurer will pay. The CGL uses an occurrence limit (per occurrence) and an aggregate limit (annual total). Coverage B has a separate personal and advertising injury limit, and Coverage C has a medical expense limit. Products-completed operations may have a separate aggregate. Candidates must know that defense costs may be inside or outside the limits depending on the policy, and that the general aggregate is usually reduced by payments for damages but not by defense costs when defense is outside the limits.
Deductibles are amounts the insured pays before the insurer responds; they are typically subtracted from each loss payment. Self-insured retentions (SIRs) are amounts the insured retains and usually must pay before the insurer has any duty to defend or indemnify. The difference matters: a deductible is often paid by the insurer and reimbursed by the insured, while an SIR is funded by the insured up front and may affect the insurer's duty to defend.
Traps: confusing a deductible with an SIR; forgetting that the aggregate is separate from the occurrence limit; assuming defense costs always erode limits; and missing that a per-occurrence limit applies to each occurrence, not to the policy year as a whole.
Rule of thumb: occurrence limit caps one loss; aggregate caps the year; deductible reduces each payment; SIR sits in front of coverage. Worked example: a policy has a $1 million occurrence limit, a $2 million general aggregate, and a $10,000 deductible. A covered claim settles for $300,000. The insurer pays $290,000 after the deductible, and the remaining aggregate is reduced by the amount paid. A second claim for $1.5 million in the same year would exhaust the aggregate, leaving no limit for a third claim.