Insurance-speak can be confusing, but given the impact it can have on your business, it’s important to understand it. Here’s a quick guide to the industry-specific insurance terms you need to know.
Whether you’re in retail, construction, or digital media, your small business needs insurance coverage. Having insurance can help protect the assets you’ve worked hard to build and acquire, covering damage after accidents, natural disasters, professional errors, and more. The risks you face in your business are unique, and plans are tailored to fit your scenario.
Because of this, meeting to set up small business insurance can seem to be a whirlwind of lingo and phrases you may not understand. There can be a lot of industry-speak, which can be overwhelming if you’re not familiar with it. After all, there is real business impact based on these decisions, so you want to be informed. With the help of Travelers Insurance, here are some important terms to have a handle on in order to understand your small business insurance policy.
Starting a Policy
Here is some of the language you’ll typically see when trying to establish your policy.
- Endorsement/Rider: Additional protection purchased in addition to your core business owners policy (BOP). You can use riders to add extra features to your policy.
- Insured: The person or business, including employees and others, covered by an insurance policy.
- Policy: A written contract, between the insurer and policyholder, that lays out the conditions of your insurance.
- Premium: What you pay to your insurance company in exchange for coverage.
- Quote: An initial estimate of how much your insurance will cost. The actual premium could be different.
- Underwriting: A process where the insurance company reviews and evaluates your risks to decide whether you qualify for coverage, and at what premium.
Using Your Insurance
When the time comes to actually make use of your policy, here are insurance terms you can expect to see.
- Appraisal: A professional estimate of the value of your property. The insurance company may require an appraisal during underwriting, or after you file a claim to calculate how much to pay for your loss.
- Certificate of Insurance: A document that shows you have insurance and lists the types of policies you hold. It will also list the dates noting how long your coverage is in force.
- Claim: When you notify your insurance company of a loss and request that they provide coverage that is covered by your policy.
- Deductible: If you have a loss, this is the amount you’ll be required to pay before your insurance will start paying to cover a loss. For example, if you have a $2,000 deductible, you need to pay the first $2,000 of any loss before your insurance will pay out on a claim.
- Lapse: When your insurance policy has a gap in coverage, typically caused by a policyholder failing to pay the premiums to maintain the policy.
- Loss: The financial cost of an incident, like damage to your car after an accident or a lawsuit from an upset client. Your insurance company may pay to cover the loss according to the conditions laid out in your policy.
Lastly, here are some of the words that you may see specifying what is included in your policy.
- Actual Cash Value (ACV): The value of an asset after depreciation is factored in. Some insurance policies only cover the actual cash value of property after a loss. For example, the value of damage to a 5-year-old car will be less than that of a brand-new car due to depreciation from time and wear and tear.
- Depreciation: Wear and tear on property, like a car or equipment. Over time, these assets become less valuable because of the depreciation.
- Peril: Something that causes a loss. Fires, hurricanes, and theft are examples of perils. It’s important to understand exactly which perils your coverage covers.
- Policy Limit: The maximum amount your insurance will pay for a loss. The insurance company will not pay beyond the policy limit, even if your loss total was more than that.
- Primary Policy: If you have multiple insurance policies covering the same situation, the company holding the primary policy will generally lead the claims handling process.
- Replacement Value: The cost to replace damaged property. If a piece of equipment breaks, you likely will need to buy a brand-new one. A policy that covers replacement value will pay for this full cost, even if the actual value of your property is lower because of depreciation.
We hope you found this to be a quick, helpful guide to insurance terms you’ll see when getting started with small business coverage. If you’re still on the fence about which insurance carrier is right for you, consider reaching out to The Feltner Group. As independent brokers, we work for our clients, not the insurance companies, so we’re dedicated to helping you get the coverage you need at the best possible rates. Learn more about the benefits of an independent agent and be on your way to securing small business insurance in no time flat.