Business Insurance Definitions

Business insurance has its own vocabulary. These definitions explain the terms you'll see on quotes, policies and contracts, in plain language. New to business insurance? Start with what is business insurance.

Policy Basics

Premium: What you pay for an insurance policy, usually monthly or yearly.

Deductible: What you pay toward a covered claim before the insurance pays the rest.

Policy limit: The most a policy will pay for covered claims.

Per-occurrence limit: The most a policy will pay for any one incident.

Aggregate limit: The most a policy will pay for all covered claims during the policy period.

Policy period: The dates a policy is in effect, often one year.

Named insured: The person or business listed on the policy as the policyholder.

Coverage: What a policy can pay for, described by what it covers, its limits and its exclusions.

Exclusion: Something a policy specifically does not cover.

Endorsement: A change to a policy that adds, removes or adjusts coverage. Also called a rider.

Claims Terms

Claim: A request for payment under an insurance policy after a loss or a lawsuit.

Adjuster: The person who investigates a claim and decides how much the insurer should pay.

Occurrence policy: A policy that covers incidents that happen while it's active, even if the claim is filed later.

Claims-made policy: A policy that covers claims filed while it's active, for work done after its retroactive date. Common for professional liability.

Tail coverage: An extended reporting period that lets you report claims after a claims-made policy ends.

Actual cash value: A way to value a property loss: replacement cost minus depreciation.

Replacement cost: A way to value a property loss: what it costs to replace the item with a new one of like kind and quality, without subtracting depreciation.

Coinsurance: A property policy rule that requires you to insure at least a set percentage of a property's value. If you insure for less, a claim payment may be reduced.

Subrogation: The insurer's right to recover what it paid on a claim from the party who caused the loss.

Contracts and Proof of Insurance

Certificate of insurance (COI): A one-page document that shows a business has active coverage. Clients, landlords and general contractors often ask for one. See certificate of insurance.

Certificate holder: The person or company that receives a certificate of insurance, such as a client or landlord.

Additional insured: Another party, such as a landlord or client, added to your policy so it can respond to claims against them tied to your work.

Waiver of subrogation: A contract term in which you agree your insurer won't try to recover a paid claim from the other party.

Hold harmless agreement: A contract clause in which one party agrees not to hold the other responsible for certain losses.

Surety bond: A three-party guarantee that a business will complete a job or meet an obligation. Often required for contractors and public projects. See construction bonds.

Common Business Insurance Policies

General liability insurance (commercial general liability, CGL): Can cover claims of bodily injury, property damage and advertising injury to people outside your business, plus legal defense.

Business owner's policy (BOP): A package that combines general liability, commercial property and business interruption coverage for small and midsize businesses.

Commercial package policy: A bundle of several commercial coverages, such as property, liability and crime, in one policy. Also called a commercial multiple peril policy.

Commercial property insurance: Can cover a business's building, equipment, inventory and furniture after a covered loss like fire or theft.

Business interruption insurance: Also called business income and extra expense coverage. Can cover lost income and ongoing costs while a business is closed after a covered loss.

Blanket insurance: Property coverage that applies one limit across several locations or several types of property.

Workers' compensation insurance: Can cover medical bills and lost wages for employees hurt or made sick by their work.

Employer's liability insurance: Part B of a workers' compensation policy. Can cover lawsuits from employees over work injuries in certain situations.

Commercial auto insurance: Can cover liability and vehicle damage for cars, vans and trucks used for business.

Hired and non-owned auto (HNOA): Can cover liability when employees drive rented vehicles or their own cars for work.

Commercial umbrella insurance: Adds extra limits above other liability policies, like general liability and commercial auto.

Professional liability insurance: Also called errors and omissions (E&O). Can cover claims that a mistake or negligence in your professional work caused a client financial harm.

Malpractice insurance: Professional liability for licensed professionals, such as medical and legal malpractice coverage.

Product liability insurance: Can cover claims that a product you make, distribute or sell caused injury or property damage.

Cyber liability insurance: Can cover costs after a data breach or cyberattack, such as notifying customers and recovering data.

Directors and officers (D&O) insurance: Can cover a company's leaders if they're sued over decisions they made running the business.

Employment practices liability insurance (EPLI): Can cover claims from employees or applicants alleging discrimination, harassment or wrongful termination.

Employee dishonesty coverage: Also called a fidelity bond. Can cover losses from theft or fraud by employees.

Inland marine insurance: Can cover tools, equipment and property while in transit or stored away from your main location.

Ocean marine insurance: Can cover vessels and cargo shipped over water.

Builders risk insurance: Can cover a building and its materials while it's under construction.

Commercial flood insurance: Can cover flood damage, which most standard property policies exclude.

Liquor liability insurance: Can cover claims tied to serving or selling alcohol.

Key person insurance: Life or disability coverage on an owner or employee whose loss would seriously affect the business.

Terrorism coverage: Coverage for losses caused by acts of terrorism. Under federal law, insurers must offer it on many commercial property and liability policies, and buyers can accept or decline it.

Insurance Industry Terms

Commercial lines: Insurance products designed for businesses, as opposed to personal lines like home and personal auto.

Underwriting: How an insurer reviews a business's risk to decide whether to offer coverage and at what price.

Admitted company: An insurer licensed and approved to do business in a particular state.

Non-admitted (surplus lines) insurer: An insurer that isn't licensed in a state but can cover certain risks admitted companies won't.

Direct writers: Insurers that sell straight to customers through their own employees, phone or website.

Agency companies: Insurers that sell through independent agents.

Affinity sales: Selling insurance through groups, such as professional or trade associations.

Reinsurance: Insurance that insurance companies buy to share part of their risk with another insurer.

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