Business Insurance Basics: 14 Key Terms You Need to Know
Many industries have their own lexicon. Doctors, architects, dentists, and writers—to name a few—all have certain distinctive words that are used almost exclusively within the field to convey specialized meanings.
The insurance also has its own vocabulary. However, unlike other fields that have a tendency to remain insular, most people, especially business owners, will at some point come to have firsthand experience with these terms.
You might be familiar with some of these insurance terms, especially if you’ve ever purchased auto insurance or homeowner’s/renter’s insurance. Keep in mind that personal insurance has far less variety than business insurance. Due to its very nature, business insurance offers an extensive assortment of options.
That comprehensive scope can make it intimidating, but the more you educate yourself about the insurance lexicon, the more adept you’ll be at determining the type and scope of the coverage necessary for your business. Here are 14 business insurance phrases that are important to be familiar with:
Actual Cash Value: An amount determined by taking the replacement cost of an object and subtracting the depreciation value.
BOP (Business Owner's Policy): A customized policy wherein several types of business insurance are grouped together in a way that can reduce the premium. Bundles may include property insurance and liability insurance, or property and business interruption insurance, or various combinations of insurance.
Business Interruption Insurance: A type of insurance for business owners that covers the loss of earnings due to a covered interruption in business.
Certificate of Insurance: A document that certifies that a business has certain types of insurance; the certificate usually details the coverage period, the insurance carrier, and other important information.
Deductible: An amount for which the insured is responsible in the event of loss paid by the insurance company. If the company has a claim for $12,000 and the deductible is $2,000, the insurance company will pay $10,000 on that claim, and the insured will pay the $2,000 deductible.
Endorsement: A document that revises the terms and conditions of a policy; also known as a rider, the endorsement can add or subtract coverage depending on its language.
General Liability: A type of policy that protects some businesses from most types of claims of bodily injury or property damage.
Named Peril: Coverage for losses caused by an explicitly named hazard. The perils must be specifically named or they may not be covered.
Premium: Money paid on behalf of a company to an insurance company in order to be insured against a peril or loss.
Professional Liability Insurance: A type of policy that protects businesses from most types of claims of professional wrongdoing; it is also known as “Errors and Omissions” insurance.
Property Insurance: Insurance that covers loss of or damage to assets, including equipment, inventory, or other real property owned by a policyholder.
Quote: An estimate of a premium’s cost for a specific business. While many businesses buy insurance based solely on a quote, it’s also important to pay attention to an insurance carrier’s rating and other factors. At a minimum, make sure that the policies you are comparing offer the same levels of coverage.
Replacement Cost: An amount required to replace property without subtracting a depreciation value.
Umbrella Insurance: A policy that offers additional coverage for an underlying policy coverage. For example, a firm that has professional liability insurance can purchase an umbrella policy that provides additional coverage beyond the basic policy.
Buying business insurance should not be intimidating. In order to do it well, you must educate yourself about the benefits and challenges of finding the right coverage, the best carrier, and the most value. Business insurance can make the difference between building a legacy or creating a burden, so it’s important to know exactly what you’re getting when you pay your premium.
