Business insurance is a foreign language. From premiums and deductibles to exclusions and endorsements, the insurance terminology is intimidating. It is important, as a business owner, to understand these insurance terms in making informed decisions and protecting your business from unexpected financial risks.
This primer dissects the most crucial insurance jargon you should understand—without jargon. Whether you’re beginning your business or simply renewing your policy, you’ll be more at ease.
Contents
Why Business Owners Need Insurance Smarts
Business insurance is not only mandatory—it’s an emergency fund. Understanding what’s behind key insurance terms empowers you to:
Select the most suitable policies for your business,
- Prevent expensive gaps in coverage
- Know what you’re paying for
- Communicate well to agents and brokers
Okay, now that we’ve taken a glance at jargon that each business owner must be familiar with,
Insurance Slang Defined
Premium
The premium is the amount you pay your insurance company, typically monthly or annually, to maintain your policy in effect. It’s your membership fee for financial protection.
Deductible
Your deductible is what you pay yourself prior to insurance payment. Suppose your deductible is $1,000 and your loss is $5,000. You pay $1,000 and insurance pays the balance.
Policy Limit
The policy limit is what your insurer will pay for a covered loss. If your policy limit is $500,000, and you lose more than that, you pay the excess.
Key Business-Specific Insurance Terminology
General Liability Insurance
This coverage protects your business from third-party allegations of bodily harm, property damage, or harm to individuals. An example would be if a shopper slips and injures himself in your store, general liability would pay for medical expenses and attorney costs.
Professional Liability Insurance
Or errors and omissions (E&O) insurance, this protects your business from mistakes or negligence in the provision of services. Consultants, financial advisors, and service professionals are mandated to have this.
Business Owner’s Policy (BOP)
A BOP packages general liability and property insurance in one affordable bundle. It’s perfect for small- and medium-sized enterprises and streamlines your insurance policy.
Insurance Terminology Around Risk and Coverage
Underwriting
Underwriting is how the insurer will decide whether and how much they will take on the risk of insuring your business. It determines your premium, eligibility, and conditions of coverage. They consider your line of business, location, and loss record.
Endorsement
An endorsement is an addition or change to your policy. It extends or restricts coverage. For instance, if you need to add cyber liability coverage to your general liability policy, you can ask for an endorsement.
Exclusion
An exclusion is a condition or item excluded from your policy. Weeding through your exclusions will prevent nasty surprises when you make a claim.
Claims and Compensation
A claim is your official request to the insurer for payment of a covered loss. Making claims on time and submitting proper documentation are essential.
Loss
Loss is damage, injury, or loss of money your business suffers. Insurers pay only covered losses in your policy and not excluded ones.
Replacement Cost vs. Actual Cash Value
- Replacement Cost pays for the cost of replacing lost or damaged property with new items of similar kind and quality.
- Actual Cash Value (ACV) accounts for depreciation, meaning you’ll receive less than what it would cost to replace the item new.
- Knowing which one your policy does is crucial when insuring valuable business assets.
Types of Business Insurance to Consider
Commercial Property Insurance
Protects your building, equipment, inventory, and fixtures from dangers like fire, theft, and storms.
Workers’ Compensation Insurance
Workers’ comp in the majority of states covers medical expenses and lost wages if an employee is injured on the job.
Cyber Liability Insurance
Against data breach, cyber attack, and electronic data loss legal expense, protects your business. An increasing requirement in today’s digital age.
Commercial Auto Insurance
Pays for Its business-use vehicles. If you’ve got a delivery vehicle or call on customers, you’ll want this coverage if you get into an accident while in business.
Handling Your Business Insurance
Review of policies every year
Your business grows, and yours should the insurance. New employees, new products or services, or new revenues may mean additional protection or increased policy limits.
Locate a Trustworthy Agent
An astute insurance agent or broker can walk you through the overwhelming jumble of insurance jargon, shop around for policies, and customize coverage for your business.
Maintain Clear Records
Clear records—receipts and payroll records to security procedures—can speed up the claims process and authenticate losses when necessary.
Final Words: Get Insurance Working for You
Insurance jargon is bewildering, but understanding it can pay huge dividends to your business. With the right insurance and an understanding of these terms, you can drive growth and innovation—and have peace of mind knowing you’re covered when it counts most.
Take a few minutes to sit down and review your active policies, take the advice of an insurance expert, and consult this guide as needed. A few minutes today can save an eternity of frustration tomorrow.
