Understanding Insurance Terms: Back to Basics
Over time, just about every business will eventually develop its own lexicon. These words, phrases, or abbreviations can become shorthand or have underlying importance. Naturally, this can be confusing for outsiders who are attempting to enter a given world. It takes time, experience, and a little schooling to know the ins and outs.
The world of insurance is no different. It has its own unique vocabulary and phraseology. So, if you’re a business owner, you need to familiarize yourself with these insurance terms.
Need some help? We’ve got you covered! Read on for our complete guide on insurance terms and definitions.
Understanding Insurance Terms: Back to Basics
While some of these insurance terms and definitions may be more obvious than others, it’s essential that we cover all of the basics. This includes:
- Insured – The person or persons covered by the insurance policy. This could comprise both you and your employees.
- Deductible – The out-of-pocket expenses that must be paid for damages prior to insurance payments setting in. If there is a claim for $2500 and you have a $500 deductible, you’ll have to cover the first $500 in payments. After that, the remaining $2,000 is covered by the insurance policy.
- Premiums – The fee you must pay, either on a monthly or yearly basis, in order to be covered by the insurance policy against peril or loss.
- Appraisal – A professional estimate of value in regard to a good or service.
- Claim – A request to the insurer for repayment for losses covered by the insurance policy agreement.
- Quote – The estimated cost of premiums for a specific policy. While a quote is important, it’s also vital that you inquire as to the carrier’s evaluation, customer service, and other critical factors of service.
- Certificate of Insurance – A document that acknowledges that your business has various forms of insurance coverage. It typically details:
- The carrier
- The type of coverage
- The coverage period
- Limits of liability
- Actual Cash Value (ACV) – The amount an insurance policy must pay to replace items or equipment. It’s figured by deducting the depreciation of the original item from the cost of the replacement item.
- Annual Statement – The annual report that must be filled out by the insurance company, which provides an overview of the financial disposition of the business as well as any noteworthy events that occurred within that time period.
- General Liability – An insurance policy that shelters businesses from most general claims of bodily harm or property damage that occurred at the business or were caused by its good(s) or service(s).
- Professional Liability Insurance – A business insurance policy that protects professional businesses from claims of professional misconduct or error. Also known as Errors and Omissions insurance.
- Property Insurance – Insurance that covers either property damage or loss to a business’ assets such as the property itself, equipment, inventory, or other items owned by the business. Typically, these cover the following:
- Fire damage
- Smoke damage
- Water damage
- Theft
- Vandalism
- Catastrophic Insurance – This specialized coverage will protect a business from “acts of God.” Various geographical regions are high-risk for certain natural phenomenon such as:
- Hurricanes
- Hail
- Tornadoes
- Floods
- Mudslides
- Windstorms
If your business operates in an area where such events occur frequently, it’s recommended that you tack this on since general liability typically won’t cover it.
- Named Peril – You can obtain special hazard insurance for a specifically named peril or catastrophe. Failure to name the peril could result in lack of coverage.
- Business Interruption Insurance – If something catastrophic occurs to a business, especially to its location, it may need to shut down temporarily. Business interruption covers the expenses of earnings that are lost as a result of this commerce hiatus.
- Workers’ Compensation Insurance – Insurance that covers the business’ liability for the injury, disability, or death of any employee, regardless of fault. It is legally required in most states for any worker that operates as a W-2 employee.
- Umbrella Insurance – A policy that provides additional coverage surpassing the baseline coverage. For example, a business can purchase and stack an umbrella policy on top of their liability insurance in order to fully cover any possible costs.
- Business Owner’s Policy (BOP) – A basic custom insurance policy for small businesses which bundles several forms of business insurance in order to cut down on the expenses that result from premiums. It’ll often include:
- Business interruption
- Property
- Liability
Getting Covered
Now that you know the basic insurance terms and definitions, it’s time to seek out the right insurance policy for your business. Implementing the right liability coverage will ensure that your business, employees, and personal assets are safe and prepared for any eventuality. Don’t let jargon inhibit you.
If you need help finding the proper policy, reach out to an insurance agent from Now Insurance to get started. Together, you can craft a tailormade insurance coverage plan for your business—one that will shield you from every threat or risk.
Sources
- National Association of Insurance Commissioners. Glossary of Insurance Terms. https://www.naic.org/consumer_glossary.htm
- Credit.org. Basics of Insurance. https://credit.org/2017/04/21/basics-of-insurance/
- Investopedia. Business Liability Insurance. https://www.investopedia.com/terms/b/business-liability-insurance.asp