Updated October 1, 2026.
Direct answer. Policy limits, deductibles, coinsurance, sublimits, and self-insured retentions set the ceiling and your share of every claim—not the headline premium or the single limit on the declarations page. On property losses, coinsurance can shrink partial payments before the deductible applies; on liability, aggregates can run out mid-year while per-occurrence limits still look untouched on paper.
Buyers rarely see the interaction until adjuster worksheets arrive. Map each term to balance-sheet capacity and to filing discipline—start with how to read an insurance policy for where limits, deductibles, and conditions actually live.
Policy limits: per-occurrence, aggregate, and location caps
ISO CGL separates general aggregate, products-completed operations aggregate, per-occurrence limit, personal and advertising injury limit, damage to rented premises, and medical payments. Payments erode the general aggregate through the policy year—a later event can be uncovered while per-occurrence headroom still looks available on paper.
Definition — Per-occurrence vs. per-claim limit
A per-occurrence limit (CGL, commercial auto, many umbrellas) covers all harm from one occurrence—ISO defines occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Every injured party from one accident shares one limit. A per-claim limit (professional liability, D&O, EPLI) applies per claim; related wrongful acts may count as one claim. Multi-claimant scenarios turn on that distinction.
Property limits attach to building, contents, and extensions by location. Blankets pool values across sites; specific limits isolate each address. Blankets flex when one location takes the hit, but bad total insured values trigger coinsurance. Read primary, umbrella, and specialty limits together—see commercial insurance program design for tower stacking.
Deductibles: straight, percentage, and franchise
A straight deductible is a fixed dollar amount off each payment—you keep the first $1,000, $10,000, or $25,000 per occurrence. Premium credit is steepest at low deductibles and flattens at high ones because large losses are rarer.
Percentage deductibles apply to wind, hail, and earthquake in many coastal and western states. Two percent of a $500,000 dwelling is $10,000 per qualifying claim—not the flat amount shown for other perils. California Earthquake Authority plans often use 5%–25% of replacement cost; on a $500,000 home that is $25,000–$125,000 out of pocket before broader program limits matter.
Franchise deductibles (uncommon in standard U.S. property) fall away once loss exceeds the franchise amount; they appear more often in marine and aviation.
Coinsurance and agreed value
Coinsurance is the penalty clause on most commercial property policies: carry less than the required percentage of replacement cost (often 80%, 90%, or 100%) and every partial loss is paid at the ratio carried ÷ required. Underinsurance by twenty percent costs twenty percent of every partial claim for the term—not just on the day of the fire.
Construction costs jumped from 2019 through 2023 on many indexes; schedules updated only at renewal may still understate replacement cost in 2026. Revaluation and property risk assessment work belong in the same conversation as limit setting.
Agreed value endorsement CP 04 02 suspends coinsurance for the policy period when values are certified at inception. For how agreed value differs from actual cash value and replacement cost at settlement, see what agreed value means in insurance. Blanket agreed value across locations is the usual approach for multi-site accounts with solid valuations.
Sublimits and excluded categories
Sublimits cap causes or property types below the building limit—jewelry, home-based business property, sewer backup, and similar on homeowners forms. Standard HO-3 excludes flood; NFIP and private flood are separate limits—see FEMA flood insurance. Commercial forms sublimit earthquake, flood, business income, and valuable papers unless bought up. Never assume the building limit governs every peril.
Self-insured retentions and large-account towers
On excess and umbrella placements, an SIR means you fund defense and indemnity to the retention before the carrier above attaches—cash flow and counsel on day one are yours. Primary policies may use large deductibles; endorsements control whether defense sits inside or outside the retention. Match notices and reserves to the tower using your claims management playbook.
How the numbers stack at claim time
Carriers document: covered loss, coinsurance on partial property losses, deductible, then policy and sublimits. Business income adds waiting periods and restoration caps. Treating the dec page as the settlement number skips steps adjusters will not—see property claim filing and documentation for notice and proof-of-loss work that supports each line.
Frequently asked questions
How does the coinsurance penalty work in property insurance?
The coinsurance clause requires you to insure the property to at least a stated percentage (typically 80%, 90%, or 100%) of replacement cost as a condition of full recovery on partial losses. If limits are lower, you become a co-insurer: recovery = (insurance carried ÷ insurance required) × covered loss, then the deductible applies. Example: $1,000,000 replacement cost with 80% coinsurance requires $800,000 of insurance; carrying $600,000 yields a 75% ratio, so a $100,000 loss pays $75,000 before deductible. The penalty hits every partial loss until limits or valuation catch up; a total loss is generally paid up to the policy limit. Agreed value (CP 04 02) suspends coinsurance for the policy term when valuation is documented at inception.
What is the difference between a deductible and a self-insured retention (SIR)?
Both are retained loss, but timing and defense differ. With a deductible, the carrier typically pays the claim (including the deductible layer) and collects reimbursement from you afterward; defense obligations in liability lines usually attach from the first dollar subject to policy terms. With a self-insured retention (SIR), you pay and often defend claims up to the SIR before the carrier’s duty to indemnify or defend attaches. SIRs are common on commercial umbrella and excess towers and on large primary accounts; straight deductibles dominate smaller commercial and personal lines. Mixing the two across layers without reading endorsements is a common tower design mistake.
What are sublimits and how do they affect claim recovery?
A sublimit caps payment for a specific loss category below the policy’s overall limit. On ISO HO-3, special limits often apply to jewelry, firearms, business property at home, and similar categories; sewer backup may be capped by endorsement while flood is excluded unless separate NFIP or private flood coverage is in place. Commercial property forms commonly sublimit flood, earthquake, business income, extra expense, valuable papers, and outdoor property. Sublimits rarely appear on the declarations page; they sit in the form and endorsements. A $500,000 building limit does not mean $500,000 of flood recovery if flood is sublimited or excluded.
How do aggregate limits affect multiple claims in one policy year?
An aggregate caps what the carrier pays for all covered events in the policy period for the coverages tied to that aggregate. On ISO CGL, the general aggregate erodes with most Coverage A and B payments; products-completed operations often has a separate aggregate. Once exhausted, later same-term claims may get nothing though per-occurrence limits look unused. Model years with multiple large losses, not a single maxed occurrence.
What is agreed value and how does it relate to coinsurance?
Agreed value is a property endorsement (commonly CP 04 02) that sets insurable values at policy inception and suspends the coinsurance clause for that policy period, so partial losses are not reduced by an underinsurance ratio if you meet the endorsement conditions. It is distinct from how a claim is paid after loss—actual cash value, replacement cost, or agreed amount at settlement—which is covered in valuation rules on the form. Carriers usually require a current replacement-cost basis (Marshall & Swift, RSMeans, or equivalent) supporting the agreed value schedule. Without agreed value, stale values on the dec page still trigger coinsurance math on every partial claim.
In what order do coinsurance, deductibles, and limits apply on a typical property claim?
Adjusters apply policy wording literally, but the usual ISO commercial property sequence is: determine covered loss amount for the damaged property, apply any coinsurance penalty to partial losses, subtract the applicable deductible (straight or percentage), then pay subject to the location limit, blanket limit, and any sublimit for that cause of loss or category. Business income and extra expense follow their own forms and waiting periods. Documentation and proof of loss drive each step; carriers will not skip coinsurance because the insured misunderstood the dec page. Early notice and line-item proof of loss keep disputes from turning into penalty disputes.