If you’re a business owner, you know that there’s a lot to find out about commercial insurance. It can be overwhelming. At any rate, there are a lot of fancy words that can be confusing and technical. We’ve picked out some business insurance words that we’ll give quick, simple definitions for. (We put them in alphabetical order, because why not?)
18 business insurance words you need to know.
An insurance company that is licensed to do business in a particular state.
A binder is a temporary authorization for insurance – it’s given before the policy itself is issued.
A BOP or business owner’s policy is an insurance policy for small to medium-sized businesses. It combines property insurance, general liability, and business interruption coverage (three types of insurance that small businesses commonly need) into one convenient policy.
Certificate of insurance.
A certificate of insurance or COI is a document providing proof of your insurance coverage. You might need a COI if you’re working with clients.
A declaration page, or dec page, is usually at the front of the insurance policy. It gives the who, what, where, and when of your coverage by giving the policyholder’s name, address, a description of the property insured, the policy period, and the premium. It can also give important extra information about your policy.
Your deductible is the amount you agree to pay if you have a claim. You take care of your portion and the insurance company has theirs. For example, if your deductible is $1,000 and then you have a covered loss of $6,500, you’d pay $1,000 and the insurance company would pay $5,500. A deductible can come in a few forms – a percentage, a dollar amount, or, simply, time.
Excess and surplus lines coverage.
This is property and casualty insurance that isn’t available from a particular state’s licensed insurers (also known as admitted carriers), so must be procured from a non-admitted carrier.
This is a part of an insurance policy that eliminates coverage for certain things, like property classes, risks, or locations. These are things that your insurance will not cover. So pay attention to those!
Law of large numbers.
This is kind of the entire basis of insurance. It’s a math thing that means that the bigger the group of units insured, the more accurate any prediction of loss will be. You can see why insurance companies would be fans of this mathematical theory – they like both accuracy and predictability. (We decided to throw it onto the business insurance words list.)
Coverage for if the policyholder is legally required to pay another person due to bodily injury or property damage. Liability insurance is really important coverage for businesses.
The limit of your insurance policy is how much the policy will pay out for a covered loss. It’s basically the maximum amount your insurance will give you before it taps out.
This is essentially the cost of maintaining a business’s property. It takes into account the cost of insurance, property taxes, rent, and utilities.
Ordinance or law coverage.
This is an addition (or endorsement) to a property policy. It can help cover the costs of bringing a building up to code (i.e. building code) if it is damaged and needs to be rebuilt according to codes that weren’t around when the building was originally built. (Yeah, it’s a little confusing…)
A peril is the specific cause of a loss. Perils can be covered by your insurance policy – for example, fire could be a covered peril. This is different than risk – peril is the thing that causes the loss, while risk is the odds that the loss will happen. At any rate, it’s really important to read through the policy so that you know what losses are and aren’t covered.
Your premium is how much you pay for your insurance. It depends on a lot of different factors, such as your location, what kind of work you do, the number of employees you have, and so on. No two businesses are the same, so no two businesses will have the same premium or insurance plan. (This is why it’s important to work with an insurance expert, like those on our team – they can help you get the coverage you need at a great rate.)
Risk is simply the odds than an insured (whether a person or a business) will incur a loss. As you can imagine, insurance companies are very concerned with risk and how much risk your business faces. It’s important that you know what your risks are and how to mitigate them (or reduce your chance of having a loss).
This is when a business manages the various risks it faces. This involves looking at all the risks and their likelihood of loss, and it also means taking measures to improve safety and getting insurance.
Underwriting and underwriter are words that you might hear thrown around in the insurance world. Underwriting is simply how the insurance company looks at a risk and decides whether or not to accept it. The process also includes classifying the risks so that the insurer can set an accurate premium for them.
So, these are a few words that you can put in your back pocket. You can use your new insurance vocabulary when you talk to your agent – and impress them with your know-how. Anyways, hopefully these words will help you out.
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