What are Coverage Limits?

Coverage Limits are the maximum amount your insurance company will pay for a covered loss or claim under your policy. There are typically two types of limits in liability policies: a per-occurrence limit (the maximum paid for any single claim or incident) and an aggregate limit (the maximum paid for all claims during the policy period, usually one year). For example, a general liability policy might have a $1 million per-occurrence limit and a $2 million aggregate limit, meaning the insurer will pay up to $1 million for any single slip-and-fall claim, but no more than $2 million total for all claims during the policy year. Property insurance policies have different limit structures, often based on the value of the insured property. Once you reach your coverage limit, you are personally responsible for any additional costs.

What you need to know

Coverage limits represent the boundary between insurance protection and personal financial exposure. Choosing inadequate limits is one of the most common—and most expensive—mistakes restaurant owners make when purchasing insurance.

How coverage limits work

Understanding limit structures prevents costly surprises:

• Per-occurrence limit—maximum paid for any single claim or incident
• Aggregate limit—maximum paid for all claims combined during policy period (typically annual)
• Separate limits for different coverages—general liability, liquor liability, property, umbrella each have their own limits
• Limits apply after deductibles—you pay the deductible first, then insurance pays up to the limit
• Excess costs are your responsibility—anything above limits comes from your personal assets

Common coverage limit structures

Standard limits vary by coverage type:

• General liability—$1M/$2M most common, $2M/$4M for higher-risk operations
• Liquor liability—$1M/$2M minimum, $2M/$4M recommended for bars and high-volume alcohol service
• Property coverage—based on building and contents replacement cost, typically $200K-$2M+
• Workers’ compensation—statutory limits by state, often $500K-$1M per accident
• Commercial umbrella—$1M-$5M additional coverage above primary policies
• Cyber liability—$1M-$5M depending on data exposure and transaction volume

Why standard limits may be inadequate

The typical $1M/$2M limits aren’t always sufficient:

• Catastrophic injury claims exceed $1M easily—permanent disability, traumatic brain injury, paralysis
• Liquor liability claims often exceed $1M—drunk driving deaths can result in $2M-$5M+ judgments
• Multiple claims can exhaust aggregate—three $750K claims in one year exceed $2M aggregate
• Legal defense costs eat into limits—in some policies, defense costs count against the limit
• Inflation increases claim values—medical costs and jury awards rising faster than standard limits

The aggregate limit trap

Many restaurant owners don’t understand aggregate limits until it’s too late:

• Aggregate applies to all claims during policy period—not per-claim
• Once exhausted, you have no coverage—for remaining claims that policy year
• Multiple smaller claims can exhaust aggregate—three $700K claims = $2.1M, exceeding $2M aggregate
• Cannot increase mid-policy after claims—you’re stuck with your original limit
• Personal exposure for all subsequent claims—until policy renews with fresh aggregate

Critical warning: Choosing coverage limits based on “what’s cheapest” or “what others have” rather than your actual risk exposure is financial gambling. A single catastrophic claim—a customer paralyzed in a slip-and-fall, a drunk driver killing a family after leaving your bar, a grease fire destroying neighboring businesses—can generate $2M-$10M+ in damages. With $1M per-occurrence limits, you’re personally liable for $1M-$9M out of pocket. Most restaurant owners cannot survive a seven-figure personal judgment and will lose their business, home, and retirement savings.

Why it matters for Restaurant Owners

Choosing the right coverage limits is one of the most important decisions you’ll make when purchasing restaurant insurance, because limits that are too low can leave you financially exposed while limits that are too high waste money on premiums for coverage you don’t need. Many restaurant owners choose $1 million per-occurrence and $2 million aggregate limits for general liability because these are standard amounts that landlords and clients typically require, but depending on your restaurant’s size, location, and risk profile, you might need higher limits.

The true cost of inadequate limits

Real-world scenarios demonstrate the danger:

• Slip-and-fall with permanent injury—$1.5M judgment with $1M limits = $500K personal liability
• Liquor liability death claim—$3M judgment with $1M limits = $2M personal liability
• Multiple claims exhausting aggregate—three moderate claims totaling $2.2M with $2M aggregate = $200K personal liability plus zero coverage for any additional claims that year
• Property loss exceeding limits—$800K building and contents damage with $500K coverage = $300K out of pocket
• Food poisoning outbreak—$5M in claims with $2M aggregate = $3M personal liability

The reality: A single serious injury claim—such as a customer suffering permanent injuries in a slip-and-fall or a drunk driving death caused by an over-served patron—can easily exceed $1 million in medical costs, lost wages, and pain and suffering damages. If your per-occurrence limit is $1 million and the judgment is $2 million, you’re personally responsible for the additional $1 million. This is why many restaurant owners purchase commercial umbrella insurance to add an additional $1-5 million in coverage above their primary policies.

Determining adequate coverage limits

Consider these factors when selecting limits:

• Restaurant size and revenue—larger operations face higher liability exposure
• Alcohol sales volume—bars and high-volume alcohol service need higher liquor liability limits
• Location and clientele—urban restaurants, tourist areas, and upscale establishments face higher claim severity
• Property values—ensure building and contents limits match full replacement cost
• Landlord and contract requirements—many leases and contracts mandate minimum $2M aggregate
• Personal asset protection—higher limits protect your home, savings, and retirement accounts
• Claims history—prior claims may indicate need for higher limits

The value of umbrella coverage

Commercial umbrella policies provide critical additional protection:

• Sits above primary policies—provides additional limits after primary exhausted
• Relatively inexpensive—$1M umbrella often $300-$800 annually
• Broad coverage—typically covers general liability, liquor liability, auto liability
• Protects personal assets—prevents catastrophic claims from destroying your financial security
• Required by sophisticated operators—most successful restaurant owners carry $2M-$5M umbrella

Essential coverage limit practices

Protect yourself with adequate limits:

• Never choose limits based solely on cost—consider actual exposure and claim potential
• Review limits annually—as your business grows, increase coverage accordingly
• Obtain umbrella coverage—adds critical protection for catastrophic claims at reasonable cost
• Ensure property limits match replacement cost—not purchase price or assessed value
• Consider higher limits for liquor liability—if alcohol sales are significant portion of revenue
• Verify aggregate adequacy—ensure it can handle multiple moderate claims in one year

Understanding your coverage limits and ensuring they’re adequate for your risk exposure is essential to protecting your personal assets and your business.