Commercial Insurance Terms That You Need to Know
November 15, 2021
The insurance industry uses a multitude of terms with which you may be unfamiliar. Becoming comfortable with relevant insurance terms and definitions can improve your understanding and facilitate a more productive conversation with your insurance broker. Consider the key terms below before buying insurance for your business.
Insurance coverage refers to the risks for which you are financially compensated when a claim arises. The terms of this compensation are stipulated in your insurance policy. A comprehensive review of your insurance coverage is imperative to the success of your risk management program, for it can help you identify the potential shortcomings of your policy. Specifically, it's important to note the limits and exclusions assigned to each risk included in your coverage.
While extensions of coverage added to your policy can help increase the range of your coverage, the limits included often cover a minimal loss amount. For example, extra expenses for construction companies are often insured for $50,000 in package-type policies. For the majority of companies in this industry, this coverage should carry a $500,000 limit, at minimum.
It's important to identify where coverage limits are too low according to your exposure and to resolve these issues within your policy. This analysis will help you to identify where you might need more protection via another line of insurance or other risk transfer tool.
Risk transfer is the process of shifting risk from one party to another. An insurance policy is a common risk transfer tool, in that it shifts a specified loss from an insured (your business) to an insurance company.
Commonly referred to as Commercial General Liability (CGL), this type of insurance policy covers your business if you are accused of or are responsible for damages for which you are legally liable. The trigger in the policy is being legally liable for damages because of bodily injury or property damage.
Professional liability insurance is a type of coverage that insures risks that you assume during your day-to-day operations in providing a service. It provides coverage for wrongful acts for which you are held legally liable due to negligence, malpractice, or misrepresentation in providing professional advice. Professional liability insurance helps transfer this risk, in that an insurance company will indemnify you for it. Depending on your business, professional liability insurance might be referred to as Malpractice Insurance or Errors & Omissions Insurance.
Not to be confused with claims handling, claims advocacy refers to the active participation of your insurance broker looking after your best interests when a claim arises. A claims advocate will often be an expert in your field and will know how to best communicate your loss to an insurance company during the claims process. Claims advocacy is not commonly offered by insurance brokers, but is a service that EQUA is pleased to provide to all of our clients.
A surety bond is a risk transfer method that relies on an underlying contract between three parties where a pledge is made by a surety to an owner. The pledge stipulates that a third party, such as a contractor, will faithfully perform their obligations in an underlying contract between both the third party and the owner. These are typically used by operators in the construction industry. Click here for a comprehensive breakdown of surety bonds.
While understanding these terms provides the basis for a fruitful conversation with your insurance broker, there is still more to know. At EQUA, we work with you every step of the way and empower you with the knowledge you need to make good decisions for your risk management program.
Speak with one of our experts today – email email@example.com to start the conversation.