Do You Understand Your Business Insurance?

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.

Get a Quote

Insurance Terms In Your Business Insurance Policy

It’s important to understand the terms in your business insurance policy.

Many business owners make the mistake of assuming they know what their business insurance policies cover. The terminology used in a commercial insurance policy can be daunting and hard to understand. It’s important you as a business owner understand the terms of your business insurance policies.

Here are some business insurance terms and their definitions:

Actuary: A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.

ACV or Actual cash value: Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, an office desk that is 8 years old will not be replaced at today’s price because of depreciating for 8 years.

Additional insured: A person or entity added to a policy for coverage. The coverage may be temporary or more permanent in nature.

Adjuster: Is charged with determining the extent of loss and whether the loss is covered under the existing policy. There are three types of adjusters you may deal with. The first is an employee adjuster, the second and independent, and last is a public adjuster.

Aggregate Limit: Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

Binder: Written acknowledgement that insurance applied for is in force, whether or not the premium had been paid or the policy issued.

Coinsurance: This is a requirement to insure a minimum amount of an asset’s value. If the insured fails to purchase the required amount, they become a co-insurer of any loss.

Endorsement: An endorsement, sometimes called a rider, is a written document attached to the policy for a specific modification of the insurance policy. An endorsement can be added when the policy is written, or later during the term of the policy.

Exclusion: This is a provision in the insurance policy which eliminates coverage of certain losses.

Named Perils Insurance: An insurance policy which covers only defined perils or causes of loss. This is the opposite of an All-Risk policy, which covers all perils except those specifically excluded.

Occurrence: An event which triggers a claim to be filed for coverage under the policy. An occurrence is often equated to ‘accident’ but any number of incidents can be called an occurrence.

Replacement cost: This is the method for calculating the replacement value of a loss without a deduction for depreciation of the asset.

Obviously, these are just a few of the many terms in a commercial insurance policy. If you run across any term or something you don’t understand, ask your agent or broker. Don’t make an assumption only to find out too late a claim is not covered when you thought it was.

Get a Quote