16 March 2023
As a business owner, you probably know how important insurance can be in helping protect your business from unfortunate events. But how much knowledge do you have about how insurance works? If you’re like most people, it’s not much. Many people buy their policies and then file them away, and only bring them out when needed.
But understanding how business insurance works — and the terms that go with it — can be helpful. A basic understanding can help you shop for a new policy, use your insurance, and ask questions about renewals. Plus, it can help you grasp all that your policy can do for you. Overall, isn’t it nice to know exactly what you purchased? We think so.
To help, we’ve put together 10 common terms and their explanations. And because we’re not fans of industry jargon, our explanations are simple, clear, and most of all, relatable. Even better, we’ve got more where these came from.
How much is your small business worth? An appraisal can help you find out. An appraisal is an assessment of a property's value by an independent professional.
Here’s an example. Let’s say you’re a lawn professional who wants to buy inland marine or business personal property insurance. During the application process, you’ll need to state your average yearly earnings, the value of your equipment, and other important information about your business.
After an insurance professional reviews your application, you’ll get a recommended amount of coverage to buy based on your responses.
In addition to yourself, you may need to cover someone else on your policy. In this case, you’ll need to name the “Additional Insured.” This could be the name of another person or entity who also needs coverage. The term “Additional Insured” extends your policy to other people or groups who need insurance protection.
For example, you could be required to add a potential client or an individual from whom you’re renting a business location.
To do this, ask your insurance agent or carrier to adjust your policy to include an “Additional Insured.”
You don't always need to specifically name the additional insured. There is an option called Blanket Additional Insured. This automatically provides coverage to any party you’re contractually required to cover.
This is the most your insurance company will pay to cover your claims during your policy period (usually 12 months). The aggregate limit can include several claims that you’ve filed throughout the year. Once you reach your aggregate limit, your insurance will cease covering your claims, so it’s important to keep the aggregate number in mind.
Here’s an example. Let’s say your aggregate limit is $1 million, and you’ve had three separate claims this year. The first claim is for $500,000, the second claim is for $50,000, and the third claim is for $200,000. Good news, at $750,000, you’re still under your aggregate limit of $1 million, and your insurance may cover all your losses. Once your policy period is over, the aggregate limit resets if you renew your policy.
If you drive a vehicle, you may have heard this term. But bodily injury liability (a key part of general liability insurance) works a little differently from bodily injury coverage in auto insurance. In small business insurance, it covers costs if a third-party gets injured, sick, or dies as a result of your business and its product or services.
If a third-party such as a customer or vendor gets injured or sick, bodily injury coverage can help pay for:
It also can cover legal fees if a customer sues as a result of their injuries and pain and suffering. Most general liability insurance covers the costs of bodily injury. If you have questions about how much coverage you have or might need for bodily injury, speak with your insurance professional.
A certificate of insurance (COI) is a document that proves your business has insurance coverage. Many times before you secure a new client, you’ll need to provide a COI. This document demonstrates you have enough insurance coverage to pay for something that goes wrong on the job.
In addition, if you hire a subcontractor, you may want to require that they show you a certificate of insurance. This can ensure your subcontractor has their own policy, and you won’t be held liable for damage caused while they’re working for you.
A certificate of insurance almost always includes:
At Simply Business, we make it easy to get a copy of your certificate of insurance. After you purchase your policy, we’ll send you an email with your certificate of insurance included. You also can grab a copy on your online account.
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If your business experiences a loss, whether someone gets hurt and sues you, or there is property damage, you need to advise your insurance company right away. Generally speaking, the sooner you do that, the sooner you can recoup some of your costs.
To advise your insurance company, you’ll want to file a claim, and when you do, you’ll be considered a “claimant,” or a person who files a claim. A claim is a formal document that shares information with your insurer about the accident or damage, and requests compensation for your loss.
If you’re a small business owner, chances are you’ll need to file a claim at some point. According to one study, four out of 10 businesses will likely experience a property or general liability claim in the next 10 years. Here are the six most common types of small business claims:
Maybe you need to add or subtract coverage to your insurance policy. After all, your small business and its risks can change over time. If this is the case, you may consider getting an endorsement, also known as a rider. You can use an endorsement to increase your coverage limit or modify your policy in another way, such as adding or excluding coverage for specific situations. For example, you may want to add an Additional Insured endorsement if you need to cover someone else on your policy other than yourself.
Despite the name, this one has nothing to do with boats. Inland marine insurance is coverage that protects your company’s property when it’s in transit (over land) or in storage.
When a claim is paid by an insurance company, a loss payee is the first person or entity who receives the payment. Often a loss payee isn’t the small business owner.
Let’s look at an example. If you take out a loan to finance your business’s equipment or property, technically, the bank is the owner of those items. If there’s a fire or theft resulting in property damage, the bank is considered the loss payee and receives the payout first. Usually a loss payee is most relevant when there’s property damage.
Sometimes insurance companies need to recover their costs from a negligent third party on a claim they paid out under your insurance policy. This is called subrogation. For example, let’s say a subcontractor damages one of your equipment storage sheds. Your insurance company then pays you for the claim and pursues the subcontractor to recoup their costs.
If your policy has a “waiver of subrogation,” it prevents your insurer from pursuing a third party to recover their costs, and potentially getting involved in a lawsuit.
We know business insurance can be confusing, and the jargon is nothing short of intimidating. Yet it’s extremely important to understand your policy and how it works, especially if you face a loss and need to file a claim.
At Simply Business, we’re here to simplify the lingo, help you know what you’re buying, and why you might need it. This way, you know exactly where your money is going and how your insurance can help you in the event of an emergency. To learn more insurance terms, check out our Business Insurance 101 Knowledge Center or Business Insurance Glossary. Prefer to talk to a human? Call one of our licensed insurance agents at 844-654-7272. We’re here to help.
I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
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*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.