Glossary of Business Insurance Terms

Business insurance can seem overwhelming with all the different terms and concepts. But don’t worry! We’re here to help you understand everything you need to know.?

Whether it’s ACORD certificates or workers’ compensation insurance, we’ll break down the key terms and important aspects of business insurance to give you the knowledge and confidence you need.?

Looking for one term in particular or do have any questions? Reach out to our team. We’re here to help and make insurance a tool to be understood.

ACORD Certificate of Insurance

An ACORD certificate of insurance serves as tangible proof that a business is adequately insured, providing reassurance to clients and stakeholders. Recognized as the industry standard by nearly 90% of insurers, this certificate offers peace of mind and fosters trust in business relationships.

Actual Cash Value (ACV)

When assessing property damage, ACV determines the value by subtracting depreciation from the replacement cost. Understanding ACV ensures fair compensation for covered losses, guiding decisions on repairs and replacements.

Additional Insured

Extending coverage to third parties, an additional insured designation is common when clients require businesses to provide insurance coverage to contractors or partners. This practice fosters trust and collaboration while mitigating risks for all parties involved.

Admitted vs. Non-Admitted Insurance Carriers

Admitted carriers adhere to state regulations, providing added security and accountability. Conversely, non-admitted carriers operate independently of state oversight, necessitating thorough due diligence to assess risks and obligations.

Aggregate Limit

The maximum payout your insurer will disburse during your policy period, the aggregate limit underscores the importance of selecting coverage that aligns with your business’s needs and exposure to risks.

Appraisal

An appraisal conducted by insurers determines the value of your property, facilitating accurate assessments for insurance purposes. It ensures fair compensation in the event of property damage or loss.

Arbitration

Offering an alternative to litigation, arbitration resolves disputes swiftly and cost-effectively. Embracing arbitration enhances efficiency and preserves valuable resources for your business.

Blanket Insurance

Streamlining coverage for multiple properties or assets, blanket insurance offers flexibility and convenience while safeguarding your business’s interests across various locations.

Builder’s Risk Insurance

Tailored for construction projects, builder’s risk insurance protects against property damage or loss during the construction phase, providing essential coverage for builders and developers.

Business Income Insurance

In the event of operational disruptions due to property damage, business income insurance replaces lost income, enabling continuity and resilience in challenging times.

Business Interruption Insurance

Synonymous with business income insurance, business interruption insurance safeguards your business’s financial stability amidst disruptions, ensuring prompt recovery and sustained operations.

Business Owner’s Policy (BOP)

Combining essential coverages like general liability, business income, and commercial property insurance, a BOP offers comprehensive protection tailored to small and medium-sized businesses.

Business Personal Property

Encompassing inventory, equipment, and furniture, business personal property insurance safeguards essential assets, mitigating financial losses in the event of theft, damage, or destruction.

Care, Custody, or Control

Acknowledging responsibility for others’ property under your care, custody, or control, this concept underscores the need for prudent risk management practices to prevent losses and liabilities.

Certificate of Liability Insurance

A certificate of liability insurance serves as tangible proof of your business’s insurance coverage, instilling confidence and credibility among clients and partners.

Claim

A claim signifies a request for coverage under your insurance policy, highlighting the importance of prompt and accurate claims management to mitigate losses and expedite recovery.

Claimant

The party filing a claim, a claimant seeks compensation for losses or damages incurred, necessitating thorough documentation and assessment to ensure fair and timely resolution.

Claims-Made Insurance Policy

Common in professional liability insurance, a claims-made policy covers claims made during the policy period, emphasizing the importance of continuous coverage to address potential liabilities.

Coinsurance

A provision in property insurance, coinsurance establishes the minimum insured value required to avoid penalties in the event of a covered loss, underscoring the importance of adequate coverage levels.

Commercial Auto Insurance

Critical for businesses utilizing vehicles for business purposes, commercial auto insurance provides essential protection against liabilities and damages arising from accidents or collisions.

Commercial Earthquake Insurance

Offering vital coverage against seismic events, commercial earthquake insurance safeguards your business’s physical assets and financial interests from earthquake-related damages.

Commercial Flood Insurance

Addressing gaps in standard property insurance, commercial flood insurance shields your business from financial losses resulting from flood-related damages, ensuring comprehensive protection against natural disasters.

Commercial Property Insurance

A cornerstone of risk management, commercial property insurance shields your business’s physical assets from perils like fire, theft, vandalism, and natural disasters, safeguarding your financial interests and continuity of operations.

Commercial Umbrella Insurance

Augmenting liability coverage limits, commercial umbrella insurance provides an added layer of financial protection against unforeseen liabilities and catastrophic losses, enhancing your business’s risk management strategy.

Comprehensive General Liability Insurance

Synonymous with general liability insurance, comprehensive general liability insurance offers broad protection against bodily injury, property damage, and personal and advertising injury claims, ensuring robust coverage for your business’s liabilities.

Continuity Date

Marking the commencement of continuous coverage, the continuity date reflects your business’s commitment to maintaining insurance coverage, fostering stability and consistency in risk management practices.

Cyber Extortion

In the digital age, cyber extortion poses significant risks to businesses, necessitating comprehensive cyber insurance coverage to mitigate financial losses and reputational damage resulting from ransom demands and data breaches.

Cyber Liability

With cyber threats increasingly prevalent, cyber liability insurance has become essential for businesses. This coverage protects against financial losses resulting from data breaches, cyberattacks, and other cyber incidents, providing financial assistance for legal expenses, regulatory fines, and customer notification costs.

Deductible

The deductible is the amount of money the insured must pay out of pocket before the insurance coverage kicks in to cover the remaining expenses. Choosing the right deductible amount is crucial, as it affects both the premium cost and the financial burden in the event of a claim.

Directors and Officers (D&O) Insurance

Directors and officers insurance protects company executives and board members from personal financial losses arising from lawsuits alleging wrongful acts, errors, or negligence in their managerial duties. This coverage is vital for attracting top talent to executive positions and mitigating risks associated with corporate governance.

Disability Insurance

Disability insurance provides income replacement for employees who are unable to work due to illness or injury. Offering financial security and peace of mind, disability insurance ensures that employees can maintain their standard of living during periods of incapacity.

Duty to Defend

Under a duty to defend provision in an insurance policy, the insurer is responsible for providing legal defense against covered claims or lawsuits, regardless of whether the claims are ultimately deemed valid. This provision ensures that insured parties receive legal representation and support throughout the claims process.

Endorsement

An endorsement, also known as a rider or addendum, is a modification or addition to an existing insurance policy that alters the terms, conditions, or coverage provisions. Endorsements allow businesses to customize their insurance policies to meet specific needs or address unique risks.

Excess Insurance

Excess insurance, also referred to as excess liability or umbrella insurance, provides additional coverage beyond the limits of primary insurance policies. This coverage kicks in after the primary policy limits have been exhausted, offering an extra layer of protection against catastrophic losses.

Exclusion

An exclusion is a provision in an insurance policy that specifies certain perils, risks, or circumstances for which coverage is not provided. Understanding policy exclusions is crucial for businesses to assess their risk exposures accurately and determine the need for supplemental coverage.

Experience Modification Factor (MOD)

The experience modification factor, or MOD factor, is a numerical rating used to adjust workers’ compensation insurance premiums based on a business’s past claims history and safety performance. A lower MOD factor reflects better-than-average loss experience and may result in lower premiums.

Fiduciary

A fiduciary is an individual or entity entrusted with acting in the best interests of another party, often involving responsibilities related to financial management, decision-making, or asset protection. Fiduciaries are held to high ethical and legal standards, and fiduciary liability insurance provides financial protection against claims alleging breaches of fiduciary duty.

Fire Insurance

Fire insurance provides coverage for property damage and losses caused by fires, including damage to buildings, equipment, inventory, and other assets. This coverage is essential for businesses to recover from fire-related incidents and resume operations promptly.

Fraudulent Acts

Fraudulent acts refer to intentional deceit or dishonesty committed by employees, contractors, or third parties for personal gain or to harm a business. Fidelity bonds and commercial crime insurance protect against financial losses resulting from fraudulent activities, offering peace of mind and financial security.

General Aggregate Limit

The general aggregate limit is the maximum amount of coverage available under an insurance policy for all covered claims or losses during the policy period. This limit applies cumulatively to all covered liabilities, ensuring that businesses have adequate protection against multiple claims within a policy term.

Indemnity

Indemnity is a contractual agreement in which one party agrees to compensate another party for specified losses, damages, or liabilities. Indemnity provisions are common in insurance contracts, outlining the respective rights and obligations of the insured and the insurer in the event of covered claims or losses.

Inland Marine Insurance

Inland marine insurance covers movable or specialized property and goods in transit over land or stored at various locations. This coverage is essential for businesses that transport equipment, inventory, or valuable assets outside of traditional fixed locations, providing protection against theft, damage, or loss during transportation or storage.

Insurable Interest

Insurable interest is a fundamental principle of insurance that requires the insured to have a financial stake in the insured property or person. Insurable interest ensures that the insured would suffer a financial loss in the event of a covered loss, thereby preventing speculative or fraudulent insurance arrangements.

Insurable Risk

An insurable risk is a hazard or peril that meets certain criteria for insurance coverage, including being fortuitous, measurable, and not catastrophic. Insurable risks are typically predictable and pose a manageable level of uncertainty, making them suitable for transfer to an insurer through an insurance policy.

Insured Value

The insured value is the maximum amount of coverage provided under an insurance policy for a specific property, asset, or liability. Insured values are determined based on factors such as replacement cost, market value, or agreed-upon coverage limits, ensuring that insured parties have adequate financial protection against covered losses or damages.

Key Person Insurance

Key person insurance, also known as key employee insurance or key man insurance, protects businesses against financial losses resulting from the death or disability of key employees or executives. This coverage provides funds to cover recruitment costs, loss of profits, or debt obligations associated with the loss of a key individual.

Loss Control

Loss control encompasses proactive measures and risk management strategies aimed at preventing or minimizing potential losses, including safety protocols, employee training, and property maintenance procedures. Effective loss control initiatives help businesses reduce insurance claims, lower premiums, and maintain a safe and productive work environment.

Loss Payee

A loss payee is a party, such as a lender or mortgagee, entitled to receive insurance proceeds in the event of a covered loss to the insured property. Loss payees have a financial interest in the insured property and are typically listed on insurance policies to ensure that their interests are protected in the event of damage or loss.

Loss Ratio

The loss ratio is a key performance metric used by insurers to assess the profitability and sustainability of insurance policies or portfolios. Calculated by dividing the total incurred losses by the total earned premiums, the loss ratio indicates the proportion of premiums paid out as claims, with lower ratios indicating more profitable underwriting results.

Malpractice Insurance

Malpractice insurance, also known as professional liability insurance, provides financial protection for professionals, such as doctors, lawyers, and consultants, against claims alleging negligence, errors, or omissions in the provision of professional services. This coverage is essential for protecting professionals’ assets and reputations against costly legal claims and judgments.

Managed Care Liability Insurance

Managed care liability insurance provides coverage for healthcare providers, organizations, and administrators against claims alleging errors, negligence, or breaches of duty in managed care arrangements. This coverage helps mitigate financial risks associated with regulatory compliance, quality of care, and patient outcomes in the evolving healthcare landscape.

Minimum Premium

The minimum premium is the lowest amount of premium charged by an insurer for providing insurance coverage under a policy. Minimum premiums ensure that insurers can cover administrative costs, underwriting expenses, and potential claims while offering affordable coverage to policyholders, particularly for low-risk or small-scale insurance exposures.

Named Insured

The named insured is the individual, organization, or entity specifically identified and designated as the primary policyholder on an insurance policy. Named insureds have rights, responsibilities, and coverage under the terms of the policy, including the authority to make changes, file claims, and receive benefits as outlined in the policy provisions.

Negligence

Negligence is a legal concept that refers to the failure to exercise reasonable care or caution, resulting in harm or injury to others. Negligence forms the basis for many liability claims and lawsuits, with plaintiffs seeking compensation for damages caused by the defendant’s failure to meet the standard of care expected in similar circumstances.

Occurrence-Based Insurance Policy

An occurrence-based insurance policy provides coverage for claims arising from events or incidents that occur during the policy period, regardless of when the claims are reported. This coverage offers long-term protection against future liabilities, ensuring that businesses are covered for losses or damages that may manifest over time.

Peril

A peril is a specific event or circumstance that poses a risk of loss or damage to insured property or persons. Common perils include fire, theft, vandalism, natural disasters, and accidents, with insurance policies providing coverage against specified perils based on the terms and conditions of the policy.

Policyholder

The policyholder is the individual or entity that owns an insurance policy and is entitled to coverage, benefits, and protection under the terms of the policy. Policyholders pay premiums to insurers in exchange for insurance coverage against specified risks, with rights and obligations outlined in the policy contract.

Premium

The premium is the amount of money paid by the insured to the insurer in exchange for insurance coverage. Premiums are typically paid on a regular basis, such as monthly, quarterly, or annually, and represent the cost of risk transfer and protection against potential losses, liabilities, or damages covered by the insurance policy.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses and professionals from legal claims alleging negligence, errors, or omissions in the provision of professional services. This coverage is essential for consultants, advisors, and service providers to mitigate risks associated with professional liability and malpractice claims.

Property Damage

Property damage refers to physical harm or destruction to tangible assets, including buildings, equipment, inventory, vehicles, and other property owned or used by a business. Property damage can result from various perils, such as fire, theft, vandalism, accidents, or natural disasters, and is typically covered by property insurance policies.

Reinsurance

Reinsurance is a risk management technique used by insurers to transfer a portion of their insurance liabilities and exposure to other insurers, known as reinsurers. Reinsurance allows insurers to spread risk, protect against catastrophic losses, and maintain financial stability, particularly in high-risk or volatile insurance markets.

Renewal

Renewal is the process of extending or continuing an existing insurance policy for an additional term or period, typically following the expiration of the current policy term. Renewing insurance policies allows businesses to maintain continuous coverage and update policy terms, limits, or premiums based on changing needs or circumstances.

Retroactive Date

The retroactive date is the specific date from which coverage begins under a claims-made insurance policy, establishing the period during which claims for prior acts or incidents are eligible for coverage. Retroactive dates ensure continuous protection for past liabilities and prevent coverage gaps between policy periods.

Risk Management

Risk management encompasses proactive strategies and practices designed to identify, assess, and mitigate potential risks and uncertainties faced by businesses. Effective risk management helps businesses make informed decisions, allocate resources efficiently, and protect against adverse events or liabilities that could impact operations or financial stability.

Self-Insurance

Self-insurance is a risk management strategy in which a business assumes financial responsibility for potential losses or liabilities instead of purchasing traditional insurance coverage. Self-insured businesses set aside funds to cover claims, retain risk exposure, and maintain control over insurance costs, claims administration, and risk management practices.

Subrogation

Subrogation is a legal principle that allows insurers to recover claim payments from third parties responsible for causing the losses or damages covered by insurance policies. Subrogation rights enable insurers to pursue compensation on behalf of insured parties, preventing unjust enrichment and promoting equitable distribution of losses among responsible parties.

Surety Bond

A surety bond is a contractual agreement between three parties: the principal (business or individual), the obligee (entity requiring the bond), and the surety (bond issuer). Surety bonds provide financial assurance that the principal will fulfill contractual obligations or comply with legal requirements, with the surety guaranteeing payment or performance in the event of default by the principal.

Term Life Insurance

Term life insurance provides coverage for a specified period or term, typically ranging from one to thirty years. If the insured dies during the term of the policy, the insurer pays a death benefit to the designated beneficiaries. Term life insurance offers affordable coverage and flexibility, making it suitable for temporary financial protection and income replacement needs.

Umbrella Insurance

Umbrella insurance, also known as excess liability insurance, provides additional coverage beyond the limits of primary insurance policies. This coverage kicks in after the primary policy limits have been exhausted, offering an extra layer of protection against catastrophic losses and liability claims that exceed primary policy limits.

Underwriting

Underwriting is the process by which insurers evaluate, assess, and price insurance policies based on the risks presented by potential policyholders. Underwriters analyze various factors, including risk exposure, claims history, and loss potential, to determine the appropriate premiums, coverage limits, and policy terms for insuring specific risks or liabilities.

Uninsured Motorist Coverage

Uninsured motorist coverage protects insured drivers from financial losses resulting from accidents with uninsured or underinsured motorists who are unable to pay for damages or injuries. This coverage is essential for safeguarding against uninsured drivers and ensuring that insured parties receive compensation for their losses or medical expenses in accidents caused by uninsured motorists.

Workers’ Compensation Insurance

Workers’ compensation insurance provides coverage for employees’ medical expenses, lost wages, and rehabilitation costs resulting from work-related injuries or illnesses. This coverage is mandatory in most states and helps businesses comply with legal requirements, protect employees’ rights, and mitigate financial risks associated with workplace accidents or injuries.

Wrap-Up Insurance

Wrap-up insurance, also known as owner-controlled insurance programs (OCIPs) or contractor-controlled insurance programs (CCIPs), provides consolidated insurance coverage for all parties involved in large construction projects. This coverage streamlines insurance procurement, enhances risk management, and reduces costs for project owners, contractors, and subcontractors.

Final Notes

Navigating the complex world of business insurance requires a solid understanding of key terms, concepts, and coverage options. From ACORD certificates to workers’ compensation insurance, each term plays a crucial role in protecting businesses against financial losses, liabilities, and unforeseen events. By familiarizing yourself with this glossary of business insurance terms, you can make informed decisions, mitigate risks, and ensure that your business is adequately protected in today’s dynamic and uncertain business environment.

Learn More About Apex

Apex was founded to fill the service and consultative gap left by agency consolidations in the insurance marketplace. These consolidations have left customers who are used to a boutique service approach with no personal connection to their team.

Apex brings the high-touch service proposition back to San Diego businesses and beyond.

At Apex Risk & Insurance Services, we use the Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage.?

This leaves small business owners with more time to do what they do best: Run their business knowing that their company and employees are protected.

Check out our commercial insurance policies, then, read on to learn what makes us different.