How to choose commercial insurance limits

Limit recommendations are one of the most important conversations an agent has with a commercial client — and one of the easiest to get wrong by defaulting to "the minimum" without analysis. Underinsured clients find out about their limits during claims, when it's too late to change them. Here is a practical framework for recommending appropriate limits across the main commercial lines.

General liability limits

The standard GL policy is written with a per-occurrence limit and a general aggregate limit. The most common minimum in commercial lines is $1M per occurrence / $2M aggregate, but this is not necessarily appropriate for every account.

Factors that suggest higher GL limits:

• Contract requirements — many commercial contracts require $2M or $5M per occurrence. Always ask clients what their contracts require before recommending limits.
• Work at third-party locations — contractors and service businesses working at client properties face larger premises liability exposure than businesses operating at their own fixed location.
• Public exposure — businesses with high foot traffic (restaurants, retail) or large events face greater frequency of potential claims.
• Products exposure — businesses that manufacture or sell products with injury potential should carry higher products/completed operations limits.

For most small commercial accounts, $1M/$2M is a starting point. For anything with contract requirements, higher-hazard operations, or significant revenue, recommend at least $2M/$4M and consider a commercial umbrella on top.

Commercial property limits

Property limits should equal the replacement cost of the covered property — not the market value, not the purchase price, but what it would cost to rebuild or replace at today's prices. This distinction matters enormously for older buildings where market value may be well below replacement cost.

Common mistakes in property limits:

• Using purchase price instead of replacement cost — a building purchased for $400,000 five years ago may cost $650,000 to rebuild today due to construction cost inflation.
• Not updating limits at renewal — construction costs have increased significantly in recent years; limits from three years ago may represent significant underinsurance today.
• Forgetting business personal property — inventory, equipment, and contents are separate from the building and need their own limit.
• Inadequate business income limits — business income coverage should cover at least 12 months of net income plus continuing expenses to allow full recovery after a major loss.

Use a replacement cost estimator — most carriers and some third-party tools offer these — to get a defensible building replacement cost figure. Document the estimation method and the client's acknowledgment of the recommended limit.

Workers compensation limits

Workers comp liability is the "employer's liability" portion of the policy, separate from the statutory benefits portion. Employer's liability limits typically default to $100,000/$500,000/$100,000, but many agents recommend at least $500,000/$500,000/$500,000 as a standard minimum.

The statutory WC benefits themselves are set by state law and don't have a policy limit — the insurer pays whatever the law requires. The liability limits only matter if an employee sues the employer directly (in states where that's allowed) or in a third-party-over action.

Commercial auto limits

Commercial auto liability limits should reflect the size and nature of the operation. The standard recommendation for most commercial accounts is $1M combined single limit (CSL). Accounts with larger vehicles (dump trucks, commercial trailers), multiple drivers, or long-haul operations typically need higher limits.

Contract requirements again apply: many commercial contracts require $1M auto, and some — particularly in construction — require $2M or higher. Always check the client's contracts.

Commercial umbrella limits

The umbrella sits above the primary GL, auto, and employer's liability limits. It provides additional coverage when a claim exceeds the underlying policy limits. Umbrella limits are typically available in $1M increments.

The right umbrella limit is not a single number — it depends on the client's total exposure:

• What is the maximum loss they could realistically cause to a third party?
• What does their largest contract require?
• What are their total assets — what could a plaintiff pursue beyond the insurance policy?

For most small commercial accounts, a $1M–$2M umbrella is appropriate. For larger contractors, manufacturers, or businesses with high-hazard operations, $5M or more is worth discussing.

Document your recommendations

Whatever limits you recommend, document them in writing — and document when a client declines to take your recommendation. If a client is underinsured at claim time and you recommended higher limits that they declined, your documentation protects you from an E&O claim. See our guide to E&O coverage for agents for why this matters.

Good limit recommendations come from thorough intake — understanding the client's operations, contracts, assets, and risk tolerance. A well-designed intake form captures all the information you need to make a defensible limit recommendation at the first quote.

Collect what you need for a complete coverage analysis

AgencyAssist's intake captures contract requirements, asset details, and operations info — so your limit recommendations are informed, not guesswork.