Business insurance is an important component of your total business plan. It is often required for bank financing, supplier credit, and by your prospective customers. It is important to know the coverage in place, where gaps exist, and what your policies mean in relation to risk and potential losses.
The first step in understanding your coverage is working with your commercial insurance agent. Do not hesitate to call or meet with them to discuss the specifics of all your business insurance. If necessary, have your attorney review the policies if there are terms or riders you still don’t understand. In addition, your state department of insurance can be a great resource.
Here is a list of terms with the definitions. If something is in your policy and defined here, follow up with your agent. If you don’t recognize a term, ask if you should have this coverage.
Actual cash value: Sometimes known as ACV. This method determines value of loss by reducing the value of the property by depreciation. Depreciation is typically factored by age, wear and tear, and obsolescence.
Business Owner’s Policy: Also known as a BOP. This policy will encompass liability and property insurance for the business. It may include other endorsements for coverage.
Coinsurance: This is a requirement in a policy to carry a minimum amount of coverage relating to an asset’s value. It’s called coinsurance because failure to carry this amount required then makes the insured a co-insurer on any loss.
Endorsement: Also known as a rider, addendum, or attachment. An endorsement is a written document which changes coverage offered by a policy. An endorsement can add coverage for certain scenarios not normally covered by the policy. Often, endorsements can be added to cover additional risk.
Exclusion: This is a provision which eliminates coverage for various items, acts, or issues. Be careful to look for exclusions. Don’t assume you may be covered when in reality you are not.
Replacement cost: This method determines value without factoring in deprecation.
There are certainly other terms used in insurance which could need more definition. The key is working with your commercial insurance professional in determining what information you need to make proper decisions regarding your coverage.