Business Insurance Coverage Terminology
Unfortunately for most people, insurance is a mere after thought until disaster strikes. Sadly, this is the time when a significant number of business-owners learn about their insurance and the things that are actually covered under their policy. Here are some common insurance terms that may help you understand the proof of insurance and policy documents for your business a little better.
Additional insured is the addition to your current policy that will allow a third party, typically a sub contractor, contractor, or other organization, to be insured under that policy as well. Usually with restraints or restrictions, organizations will ask or require an additional insured endorsement as a way to protects themselves from lawsuits. For instance, a sub contractor is less likely to sue a contractor if that contractor is added on to his policy. It is advantageous to limit the coverage of the additional insured endorsement as much as possible. So, you may add clauses or phrases such as, 'as their interest may appear,' or with respect to a particular contract or agreement.
Certificate Holders are the individuals or organizations which your certificate or proof of insurance is made out to. Often confused with the additional insured endorsement, the title of certificate holder shows that a third party has a vested interest in making sure the insured maintains coverage. However, the certificate holder is not added to the policy. Yet, they should receive updates of any policy changes.
Business owners' policy is a type of packaged insurance policy that limits the extent of coverage to only those activities usual to the businesses activities. These types of packaged policies give business owners the opportunity of having aspects of a variety of coverage in one bag. Common policies include property and liability coverage.
Endorsements are simply any new additions to your policy. Exclusions to a policy are the actions, events, accidents, and instances that are not covered under a policy.
Small businesses must also pay attention to their occurrence and aggregate limits. The single occurrence or �each occurrence,� limit refers the maximum amount the policy will pay out for one single accident or event. The aggregate limit is the total amount payable by the insurance policy.
When talking to small business owners, you will often see a misunderstanding between the roles of agents, brokers, and underwriters. Insurance agents are the salesmen. Their job is to sell policies or packages for specific insurance companies. Brokers, on the other hand, are like the middleman. A broker matches organizations that need insurance with underwriters. Typically, brokers are not bound to any particular insurance company or underwriter. However, there are organizations being bought by major underwriters, as an attempt at creating a 'one-stop-shop,' approach.
General liability is a form of commercial insurance the covers a variety of different risks. Professional liability also known Errors & Omissions is commercial insurance coverage that is specific to professionals, such as CPAs, accountants, or architects. Professional liability may come in different forms, as the coverage can specific to particular industries. For example, medical providers may see the words medical malpractice on their policy.
The insurance coverage for a business should be reviewed annually, and small business owners must be knowledgeable about the type of risks that are covered and excluded from their policy. That way the risks that are faced by small businesses can be transferred to larger underwriting organization that can afford to take a major financial hit. The rule of insurance is 'to prepare for the worst, yet hope for the best.' Because for many small business, in the event of a disaster, insurance will be the deciding factor in whether you can afford to go on, or go under.