Just opened up your first small business? Congrats! Your next step should be getting your business insured. If you’ve never had business insurance, some industry terms may not be familiar to you. Understanding your policy is a key part of getting the right coverage and from the right company.
Check out this Small Business Insurance Glossary provided by Travelers Insurance to help you better understand 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.
- Insurance Agent: Someone who sells insurance policies from one or more insurance companies.
- 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 Small Business Insurance
- Appraisal: A professional estimate of the value of your property.
- 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.
- 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.
- Depreciation: Wear and tear on property, like a car or equipment. Over time, these assets become less valuable because of the depreciation.
- Exclusion: A situation where your insurance policy will not cover damages.
- Named Peril Policy: An insurance policy that only covers the situations listed in the policy.
- 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.
Types of Small Business Insurance
- Business Interruption Insurance: If you have to temporarily close your business due to a covered loss, business interruption insurance covers lost income and ongoing expenses.
- Business Owners Policy (BOP): This covers a broad range of property and liability risks. It can help protect your business in case of things like fire (property damage), suspended operations (business income) or lawsuits (liability) resulting from bodily injury, property damage, personal injury or advertising injury.
- Cyber Insurance: This can be essential in helping your company recover after a data breach. This includes costs such as the disruption of your business, revenue loss, equipment damages, legal fees, public relations expenses, forensic analysis and costs associated with legally mandated notifications.
- Liability Insurance: Liability insurance covers your legal defense costs and judgments if you are responsible for damages to someone else.
- Professional Liability Insurance: Insurance that covers damages that come because of mistakes in your work, such as if you mishandle tax planning for a client, or poorly design a product.
- Umbrella Insurance: Insurance that covers losses that are higher than the policy limits on your other insurance plans. Once your other policy has paid to its limit, the umbrella insurance could cover any remaining costs.
- Waiver of Subrogation: This prevents your business and your insurance company from seeking a share of any damages paid to a third party responsible for the loss for a paid claim.
- Workers Comp Insurance: Insurance that covers your employees if they get hurt on the job.
Now that you know the basic terminology for your new small business insurance, you can be confident that you are asking the right questions and getting the right coverage from your agent. For the full article from Travelers Insurance, click here.
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Disclaimer: This article is for informational purposely only. No legal advice being suggested. The author assumes no responsibility or liability for the actions taken or not taken by the readers based upon such information.