Running a business can be tricky enough without also having to navigate the complex world of business insurance. Whether you’re looking for a new commercial insurance quote for your business, or simply perusing an article in our Learning Center, you’ll likely come across phrases or coverages that leave you scratching your head.
And trust us, we get it. With everything that goes into running a business, it can be difficult to keep track of everything your company needs to be properly insured. That’s why the team here at Berry Insurance have compiled our own handy glossary of definitions for common commercial insurance terms and coverages.
So whether you’re a first time business owner or just want a refresher on certain policy details, read on to become familiar with the terms we commonly get questions on!
Top Terms and definitions:
- Actual cash value: Actual cash value (ACV) or market value is the value of your property, vehicle, or belongings if they were sold today. This takes multiple factors into account - such as depreciation, land value, location, and the current state of the market.
- Additional insured: An additional insured is an individual or organization that receives the benefits of an insurance policy in addition to the original policyholder. (Also see primary noncontributory)
- Adjuster: Adjusters investigate claims as well as determine the coverage and payment amount. Adjusters can work as an employee or contractor for insurance companies or as a public adjuster.
- Agent: Insurance agents are licensed persons or organizations that work on behalf of insurance carriers to provide clients with proper coverage. Agents will be your first point of contact after you suffer a loss, need to file a claim, or simply have an insurance question. To learn more about the benefits of buying insurance from an agent instead of directly from the carrier, read this article: Buying Insurance: Insurance Agent vs Buying Direct.
- Audit: An insurance audit is a review of a company’s financial records by an insurance company in order to determine if the policy meets the needs of the company and if they are insured for the proper amount of risk. Whether an insurance provider chooses to audit a business can depend on the industry or type of business. For example, the businesses carriers will typically deem auditable are the ones based on sales or payroll, as this could change throughout the policy period.
- Binder: An insurance binder is a legal document that provides temporary proof of insurance coverage before a permanent policy can be issued.
- Bond: A bond, also called a surety bond, is an agreement between three parties - the principal (the person purchasing the bond), the obligee (the person who receives the benefit) and the insurance company. An insurance bond is not meant to pay for claims, but to rather provide financial guarantee that the person or entity purchasing the bond (the principal) will reimburse the obligee should the principal default, fail to fulfill the obligations, or a claim is made.
- BOR/AOR letter: A Broker of Record or Agent of Record (BOR/AOR) letter is a letter that states a business’ intention to work with a specific broker or agent.
- Cancellation: The termination of insurance coverage during the middle of a policy period. To learn how you can avoid policy cancellations, check out this guide: Your Insurance Billing Options: How to Avoid Late Fees and Policy Cancellations.
- CCIP or OCIP: Sometimes referred to as wrap-up insurance programs, Contractor Controlled Insurance Programs (CCIP) or Owned Controlled Insurance Programs (OCIP) are blanket insurance policies designed to cover all of the contractors working on a project in one plan.
- Claim: Claims are the formal requests the insured policyholder files for reimbursement for losses covered by their policy. To learn all about the claims process for businesses, read the guide below:
- Class code: Class codes or general liability (GL) class codes refer to a designated number used by insurance companies to classify business into different categories of risk. These codes help the insurer determine a businesses coverage, exclusions, and rates when issuing general liability insurance policies.
- COI: A certificate of insurance (COI) is a digital or printed document that proves your business has insurance coverage. A COI outlines details about your business and insurance policy, and is often needed for general liability, auto liability, or workers compensation insurance coverage.
- Collision: This auto insurance coverage covers damages to your vehicle from a collision - whether you are at fault or not. These collisions can be with any object like a tree, pole, guard rail, pothole, or with another vehicle. To read up on how this coverage differs from comprehensive, read this guide: Do I Need Comprehensive or Collision Auto Coverage?
- Comprehensive: This auto insurance coverage covers damage to your vehicle resulting from incidents other than collisions with another car. This can include vandalism, theft, wind, flood, fallen objects, hail, pest infestations, animal collisions, and more.
- Deductible: The agreed amount that the policyholder is responsible for paying the insurance carrier after experiencing a loss or claim.
- Depreciation: A decrease in value due to age, wear and tear, and more.
- EIN or FEIN: Employer Identification Numbers (EIN) or Federal Employer Identification Numbers (FEIN) is your federal tax ID that is required for your business to pay taxes, hire employees, open bank accounts, and apply for business licenses and permits. It is free to apply for this number and should be completed once you register your business.
- EMR/Experience Modification Rating Factor: An experience modification rating (EMR) is a metric used to calculate a company’s workers’ compensation premium, based on their number of claims and the claims costs over the past three years - portraying the risk of insuring or working with your company when compared to a business’ competitors.
- EPLI: Employment Practices Liability Insurance (EPLI) protects businesses and business owners from claims that they violated the rights of their employees. This policy can be added onto a business’ general liability insurance or purchased as a separate policy.
- Exclusion: Certain causes or conditions listed on insurance policies that are not covered by the policy.
- Grace period: A designated period of time in which the insured policyholder can make a late payment to their insurance premium without losing their coverage.
- Inland Marine: Inland marine insurance is a “floater” policy, meaning it provides coverage when insured items are being moved or transported. Rather than covering the property in a specified location like property insurance does, inland marine covers the specified property in any location on land.
- Insured: The “insured” is the policyholder in the relationship. The insured is protected by the insurer in the case of a loss or claim.
- Insurer: The insurer is the actual insurance company/carrier that provides the coverage and approves policies. The insurer will work with insurance agencies to help cover clients.
- Limit: The maximum amount your insurer will pay out for a claim, stated in your policy.
- Peril: Any event, situation, or incident that causes harm to your property that is covered by your insurance policies. For example, covered perils on a commercial property policy can include fire, theft, vandalism, and more.
- Policy: A policy is the actual written contract of insurance.
- Premium: A premium is the amount of money the policyholder will be charged for insurance coverage.
- Primary noncontributory: This is often used in conjunction with additional insured, particularly in liability insurance policies. This refers to what insurance policy listed will be considered primarily responsible in the event of a loss or claim - meaning the “primary” will pay out first when a covered loss occurs, up to its policy limits. Non-contributory means a policy will not seek additional contribution from other additionally insured policies listed once the primary policy limits are exhausted.
- Quote: A quote is the estimated cost of insurance that you will receive based on information supplied to your insurance agency or carrier. Quotes for commercial insurance tend to work a little differently than for personal insurance, read this guide to learn more: Why You Shouldn’t Get Massachusetts Business Insurance Quotes with Multiple Agents.
- Replacement cost: Replacement cost value (RCV) is the cost it will take to replace something as new or in equal value. This reimburses you based on the value deemed by the insurance provider or what it was assigned on the insurance policy.
- Retention: Similar to deductibles, retention amount is how much the insured will pay to cover a claim before their coverage from the insurance company is triggered/goes into effect. So with retention, the insured must pay first and meet the retention amount before the insurer will cover the claim - as opposed to deductibles where the insurer will typically cover the claim and then the insured must reimburse them afterwards for the specified amount.
- Surcharge: Surcharges are an extra fee that are applied to your insurance premium. For example, your insurance provider may apply a surcharge fee to your auto insurance policy after you demonstrate a degree of risky behavior while driving.
- Underwriter: Underwriters work with or on behalf of insurance carriers to review potential policyholders for the risk that could come with insuring them. For more on underwriters, check out the links below:
- Waiver of subrogation: A waiver of subrogation is an agreed arrangement where an insurance provider will not pursue recovery or subrogation against a third party, even in the event that the third party is responsible for the loss covered by the policy.
Defining coverage for every business
Now that you’ve read through the definitions of important commercial insurance terms and coverages, you can ensure you have the proper coverage to protect your business.
Still need to know more? Check out our Learning Center and YouTube channel for various in depth articles and videos covering the subjects we listed above and more!
Looking to update your existing coverage? Download our guide below on when and how to update your existing commercial insurance policies.
