SMALL BUSINESS INSURANCE GLOSSARY
(TERMS & DEFINITIONS)
Small Business Insurance Glossary
Every industry has its own jargon, and the commercial insurance business is no exception.
We’ve curated a list of small business insurance terms – and their definitions – to help you better understand the confusing language of commercial insurance. Also see the Property And Casualty Insurance Glossary, Health And Life Insurance Glossary and Terminologies Used In Insurance And Their Meanings.
Following is the small business insurance glossary of terms and definitions that are commonly used in the commercial insurance industry:
Actual Cash Value – In property and auto physical damage insurance, one of several possible methods of establishing the value of insured property to determine the amount the insurer will pay in the event of loss. ACV is typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property’s “fair market value”; or (3) using the “broad evidence rule,” which calls for considering all relevant evidence of the value of the damaged property.
Additional Insured – A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured. A named insured’s impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., wanting to protect church members performing services for the insured church) or to comply with a contractual agreement requiring the named insured to do so (e.g., project owners, customers, or owners of property leased by the named insured). In liability insurance, additional insured status is commonly used in conjunction with an indemnity agreement between the named insured (the indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor’s commercial general liability (CGL) policy is viewed by most indemnitees as a way of backing up the promise of indemnification. If the indemnity agreement proves unenforceable for some reason, the indemnitee may still be able to obtain coverage for its liability by making a claim directly as an additional insured under the indemnitor’s CGL policy. In property insurance, additional insured status is most often used in conjunction with a premises lease agreement between the named insured as the lessee and the owner of the leased building, in which the insured tenant is required to purchase insurance on the leased building and name the building owner as an additional insured on the insurance policy with respect to the leased building.
Appraisal – An appraisal is an estimate of the market value of an item by a certified professional. Appraisals can be assigned to nearly any item, including real estate. Appraisals are conducted by individuals called appraisers. Appraisers are educated in a variety of market valuation methods and are recognized by a regulatory authority as being capable of issuing an accurate valuation.
Arbitration – Arbitration is a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments. Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute.
Assessed Value – An assessed value is the dollar value assigned to a property to measure applicable taxes. Assessed valuation determines the value of a residence for tax purposes and takes comparable home sales and inspections into consideration. It is the price placed on a home by the corresponding government municipality to calculate property taxes. In general, the assessed value tends to be lower than the appraisal fair market value of property.
Business Interruption Insurance – Most commercial property insurance policies provide coverage for business income loss by adding an endorsement to the insured’s property policy. This endorsement is designed to protect the insured for losses of business income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril. Although many such clauses are in use today, a typical business income insurance clause reads as follows: “We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.”
Business Owner’s Policy – A Business Owner’s Policy (BOP) combines business property and business liability insurance into one convenient policy. BOP Insurance helps cover your business from claims resulting from things like fire, theft or another covered disaster and from claims involving bodily injury, property damage and personal and advertising injury that could arise from your business’ operations.
Certificate of Liability Insurance – Sometimes referred to as a COI or accord certificate of liability insurance, it is often required in order to win contracts. This way, your potential client can know for sure whether you have business insurance. Many companies and individuals that hire contractors need to know that they won’t be held liable for damages, injuries, or substandard work, and therefore require that you have insurance.
Claim – An insurance claim is when you have a loss or sustain damage that is caused by a peril insured by your insurance policy. Your insurance policy provides coverage and compensation to your for covered losses or the damages you sustain by way of you making a claim.
Claimant – The person making a claim. Use of the word ‘claimant’ usually denotes that the person has not yet filed a lawsuit.
Claims Adjuster – A claims adjuster investigates insurance claims to determine the extent of the insuring company’s liability. Claims adjusters may handle property claims involving damage to structures, and/or liability claims involving personal injuries or third-person property damage. A claims adjuster reviews each case by speaking with the claimant, interviewing any witnesses, researching records (such as police or medical records) and inspecting any involved property.
Coinsurance – A property insurance provision that penalizes the insured’s loss recovery if the limit of insurance purchased by the insured is not equal to or greater than a specified percentage (commonly 80 percent) of the value of the insured property. The coinsurance provision specifies that the insured will recover no more than the following: the amount of the loss multiplied by the ratio of the amount of insurance purchased (the limit of insurance) to the amount of insurance required (the value of the property on the date of loss multiplied by the coinsurance percentage), less the deductible. The amount of the loss that is not payable to the insured as a result of failure to comply with the coinsurance provision is commonly referred to as a coinsurance penalty. In commercial property insurance policies, it is sometimes possible to avoid the possibility of a coinsurance penalty with an agreed value provision.
Commercial Auto Insurance – Business auto insurance helps your business cover the financial costs resulting from an auto accident if you or an employee is found at fault. Commercial auto insurance helps pay for damaged property and medical expenses – even in the event of a fatal accident.
Cyber Extortion – Cyber extortion is the act of cyber-criminals demanding payment through the use of or threat of some form of malicious activity against a victim, such as data compromise or denial of service attack.
Cyber Liability Insurance – A type of insurance designed to cover consumers of technology services or products. More specifically, the policies are intended to cover a variety of both liability and property losses that may result when a business engages in various electronic activities, such as selling on the Internet or collecting data within its internal electronic network.
Deductible – A deductible is a fixed amount or a percentage of an insurance claim which is to be paid by the insured – before the insurance kicks in.
Defendant – The party against whom a criminal or civil action (lawsuit) is brought .
Digital Assets – A digital asset is digitally stored content or an online account owned by an individual or business. Digital content includes individual files such as images, photos, videos, and text files. It also includes other digital content (perhaps as data in a database). These assets are stored either on a device owned by an individual “locally”, or on devices accessed via the Internet “in the cloud”, often as part of a service offered by a third party and governed by a contact with the individual or business.
Employer’s Liability Insurance – Employer’s liability insurance protects employers from financial loss if a worker has a job-related injury or illness not covered by workers’ compensation. Employer’s liability insurance can be packaged with workers’ compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses and deaths not covered under workers’ compensation. Employer’s liability insurance is also called “part 2” of a workers’ compensation policy.
Employment Practices Liability Insurance – Employment practices liability insurance, known in the trade as EPL insurance or EPLI, provides coverage to employers against claims made by employees alleging discrimination (based on sex, race, age or disability, for example), wrongful termination, harassment and other employment-related issues, such as failure to promote, as interpreted and enforced by The Equal Employment Opportunity Commission (EEOC).
Errors and Omissions Insurance – Also known as professional liability insurance, provides protection for your professional services business from claims of negligence or failing to perform your professional duties.
Expiration Date – The day your insurance coverage ends.
General Liability Insurance – A basic form of commercial insurance that protects small businesses from claims of bodily injury, associated medical costs & damage to property.
Grace Period – Depending on the insurance policy, the grace period can be as little as 24 hours or as long as 30 days. The amount of time granted in an insurance grace period is indicated in the insurance policy contract. Paying after the due date may attract a financial penalty from the insurance company.
Hired and Non-Owned Auto Insurance – Covers claims against your business if an employee has an accident while using their own (or rented) vehicle for business purposes.
Indemnity – Indemnity is a contractual obligation of one party (indemnitor) to compensate the loss occurred to the other party (indemnitee) due to the act of the indemnitor or any other party.
Inland Marine Insurance – Property insurance for property in transit over land, certain types of moveable property, instrumentalities of transportation (such as bridges, roads, and piers, instrumentalities of communication (such as television and radio towers), and legal liability exposures of bailees.
Insurance Broker – An insurance broker sells, solicits, or negotiates insurance for compensation.
Insurance Company – A business that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments. The company calculates the risk of occurrence then determines the cost to replace (pay for) the loss to determine the premium amount.
Insured – Entity or property covered under an insurance policy against insured perils.
Judgment – A decision by a court or other tribunal that resolves a controversy and determines the rights and obligations of the parties.
Legal Liability – Responsibility that someone has for their actions, for example the responsibility to pay another person for harm or damage that is a result of these actions.
Liability Insurance – Liability insurance is any insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence. Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.
Mediation – Mediation process where a neutral third party (mediator) assists disputing parties in resolving conflict through the use of specialized communication and negotiation techniques.
Named Perils – A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered.
Peril – Probable cause (such as an earthquake, fire, theft) that exposes a person or property to the risk of damage, injury, or loss, and against which an insurance cover (policy) is purchased.
Plaintiff – The plaintiff is the person bringing a lawsuit to court, by filing a plea or motion. More frequently these days, in civil law cases, a plaintiff is often called a claimant. That is, the plaintiff or claimant is the person bringing a claim against another person.
Premium – The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium compensates the insurer for bearing the risk of a payout should an event occur that triggers coverage.
Professional Liability Insurance – Professional liability insurance, more commonly known as errors and omissions (E&O insurance), is a special type of coverage that protects your company against claims that a professional service you provided caused your client to suffer financial harm due to mistakes on your part (errors) or because you failed to perform some service (omissions).
Proof Of Loss – An official, notarized, sworn statement from the insured to the insurer concerning the scope of damage to their property.
Property Insurance – First-party insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion. In this sense, property insurance encompasses inland marine, boiler and machinery (BM), and crime insurance, as well as what was once known as fire insurance, now simply called property insurance: insurance on buildings and their contents.
Qualifying Event – A large change to your business that affects your commercial insurance needs.
Quote – An estimate of premium for the small business insurance coverage you selected and information you shared.
Replacement Value – The amount that an entity would have to pay to replace an asset at the present time, according to its current worth.
Rider – A rider is an add-on to the primary commercial policy, which offers benefits over and above the policy subject to certain conditions.
Risk Management – The practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose. Traditional risk management, sometimes called “insurance risk management,” has focused on “pure risks” (i.e., possible loss by fortuitous or accidental means) but not business risks (i.e., those that may present the possibility of loss or gain). Financial institutions also employ a different type of risk management, which focuses on the effects of financial risks on the organization. For example, interest rate risk is a bank’s most important financial risk, and various hedging tools and techniques such as derivatives are used to manage banks’ exposure to interest rate volatility.
Settlement – A resolution between disputing parties about a legal case, reached either before or after court action begins.
Third Party – Someone who may be indirectly involved but is not a principal party to an arrangement, contract, deal, lawsuit, or transaction.
Tort – A tort is an act or omission that gives rise to injury or harm to another and amounts to a civil wrong for which courts impose liability. In the context of torts, “injury” describes the invasion of any legal right, whereas “harm” describes a loss or detriment in fact that an individual suffers.
Tortfeasor – A tortfeasor is a person or entity who commits a tort.
Umbrella Insurance – Extends liability coverage over base liaiblity policies, for an additional layer of insurance, to further protect business assets.
Underwriting – Underwriting is the process of evaluating the risk of insuring a business. After determining risk, the underwriter sets a price and establishes the insurance premium that will be charged in exchange for taking on that risk.
Workers’ Compensation Insurance – Coverage for an employee’s medical expenses, lost wages, and rehabilitation services that result from a workplace injury or illness.
Small Business Insurance Glossary - The Bottom Line
We hope this article on small business insurance glossary was informative. We intend to add more defintions as we find more terms that might useful to our users and commercial insurance consumers.