10 Business Insurance Terms Every Business Owner Should Know
Business insurance comes with a lot of terminology that can be confusing, especially if you are purchasing commercial insurance for the first time.
Understanding a few common insurance terms can make it easier to read your policy, compare quotes, and ask better questions about your coverage.
Here are 10 terms every business owner should know.
1. Premium
The premium is the amount you pay for your insurance coverage.
Depending on the policy and insurance company, premiums may be paid monthly, quarterly, annually, or according to another payment arrangement.
Premiums can be affected by factors such as the type of business, location, revenue, payroll, claims history, coverage limits, and other underwriting considerations.
2. Deductible
A deductible is the amount you are generally responsible for paying toward a covered loss before the insurance company pays the remaining covered amount, subject to the policy terms.
For example, if a covered property claim has a $1,000 deductible, the business would generally be responsible for the first $1,000 of the covered loss.
Deductibles can vary depending on the type of policy and coverage.
3. Policy Limit
A policy limit is the maximum amount an insurance company will pay for a covered loss or claim, subject to the terms of the policy.
Businesses should make sure their limits are appropriate for their potential exposures.
4. Aggregate Limit
The aggregate limit is generally the maximum amount an insurance policy will pay for covered claims during a specified policy period.
For example, a liability policy might have a $2 million aggregate limit. That does not necessarily mean $2 million is available for every individual claim.
The policy’s specific limits and conditions determine how coverage applies.
5. Occurrence
An occurrence policy generally provides coverage for certain incidents that occur during the policy period, even if the resulting claim is made later, subject to the policy terms.
Many commercial general liability policies are written on an occurrence basis.
6. Claims-Made
A claims-made policy generally provides coverage for covered claims made during the policy period, subject to the policy’s terms and any applicable retroactive date or other requirements.
Professional liability and other specialty policies are commonly written on a claims-made basis.
Understanding whether a policy is occurrence-based or claims-made can be particularly important when changing insurance companies.
7. Exclusion
An exclusion is something the policy does not cover.
Insurance policies contain exclusions that can significantly affect how coverage applies.
This is one reason it is important to look beyond the price of a policy and understand what is actually covered.
8. Endorsement
An endorsement is a change or addition to an insurance policy.
An endorsement can modify, add, restrict, or otherwise change coverage.
Two businesses may have policies that look similar at first glance but contain different endorsements that significantly affect their coverage.
9. Additional Insured
An additional insured is a person or organization that is added to another party’s insurance policy for certain coverage, usually through an endorsement.
For example, a landlord may require a business tenant to add the landlord as an additional insured on the tenant’s liability policy.
The exact protection provided depends on the policy and endorsement.
10. Certificate of Insurance
A certificate of insurance, often called a COI, is a document that provides information about insurance coverage.
Businesses frequently use certificates when working with landlords, customers, vendors, contractors, and other organizations.
A certificate is generally evidence of insurance and does not itself change the terms of the underlying policy.
Understanding Your Insurance Matters
Knowing these basic terms can make business insurance easier to understand, but insurance policies contain many additional terms, conditions, exclusions, and endorsements.
If you are comparing insurance quotes, reviewing an existing policy, or signing a contract that requires specific coverage, it is important to understand how those requirements apply to your business.
An insurance professional can help explain the coverage and identify questions you may want to discuss before making a decision.
Nieves Insurance Group works with Florida businesses to help them understand their insurance options and find coverage appropriate for their individual circumstances.
Insurance coverage is subject to the terms, conditions, exclusions, and limitations of the applicable policy. This article provides general information and is not a substitute for reviewing the actual insurance policy.
