Buying business insurance is often seen as a daunting task given the number of options and the jargon involved. There is also a “fear factor” involved, so customers often simply accept what they are offered without truly understanding what they are buying.
To help shed some light on the insurance buying decisions, we have summarized the 10 most common terms. This is not meant to be advice for your specific business or even a comprehensive review of insurance options. Rather, this is a “cheat sheet” to help you have a more informed conversation with whomever you buy your insurance.
- Binder: A temporary confirmation of insurance coverage until a full policy can be issued. From the standpoint of the business owner, he/she is considered to be fully insured unless otherwise told by the agent/broker
- BOP (Business Owner’s Policy): A bundled offering covering several types of insurance policies offered at a discounted price. The BOP typically includes General Liability Insurance and Property Insurance, and potentially several other types of policies. This is a good policy for small business to consider to get a variety of coverages at an affordable price
- Business Interruption Insurance: A type of business insurance that supports you if your business cannot operate as a result of a covered loss. It typically pays the fixed expenses (e.g., payroll, rent, utilities), and other expenses necessary to continue the operations. There are two types of protection offered: Gross Revenue (which supports you until your revenue is back to pre-loss levels) and Gross Profit (which supports you until your profits are back to pre-loss levels, within a certainly fixed timeframe)
- Certificate of Insurance: A document that confirms the types of insurance your business has purchased. You will often be asked for this if you are getting office space, signing a new contract or getting a loan
- Deductible: The amount for which the insured is responsible in the event of a loss. This amount can be adjusted in your policy, and the higher it is the lower your insurance premium will be. The deductible means insurance companies do not get involved small claims, but rather focus their efforts on more complex cases
- Endorsement/Rider: A document that revises the terms and conditions of a policy, such as changing the coverage or changing the address of a business
- Exclusion: Almost all insurance policies contain exclusions as a way for the insurer to clarify the exact scope of coverage being offered. This is a critical section to review. You must ensure that risks for which you need coverage are not excluded
- Liability: Insurance coverage that protects an individual or business in the event they are sued and held legally liable for something such as injury, malpractice or negligence. Policies typically cover legal costs and legal payouts for which the insured is found legally liable. Intentional damage and contractual liabilities are generally not covered
- Peril: A specific risk or cause of loss that the insurance policy covers (e.g., burglary, vandalism, fire). Policies may be named-peril, covering only for the specific list of risks, or an all-risk policy that covers all risks except those that are specifically excluded
- Premium: The amount of money the customer pays to the insurance company for the insurance coverage. This includes any commissions to be paid to the insurance broker/agent. Sometimes a brokerage may charge a fee above this amount to cover any additional costs incurred to write and manage the policy
- Per occurrence versus Aggregate: “Per Occurrence” limit refers to the total amount the insurance company will pay for any one incident, and “Aggregate” limit refers to the total amount the insurance company will pay for multiple claims in a given policy term (usually one year)
Purchasing business insurance should not be painful. However, to make a fully informed decision, you are sometimes forced to read through long policies and pages of exclusions. By learning the basics and understanding some of the common pitfalls, you can ask the right questions of your insurance provider and hopefully, have an easier time making an informed decision.
Zensurance, Canada’s leading online commercial insurance broker. We offer a full range of insurance products to small businesses, with a particular focus on startups. We understand what it is to be a startup, and know the most common risks of which you should be aware. Based on that (and a lot of analytics), we recommend the ideal insurance coverage for your business.