Small Business Insurance Glossary

Navigating the Complex World of Commercial Insurance

Understanding business insurance is crucial for protecting your company from financial risks, liability claims, and unexpected losses. However, insurance policies are often filled with complex terms that can be confusing for small business owners. Having a grasp of key insurance terminology can help you make more informed decisions and ensure your business is adequately covered.

To simplify the process, we’ve compiled a glossary of essential business insurance terms that every small business owner should know.

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Key Insurance Terms Every Small Business Should Know

1. Policy & Coverage Basics

• Policy – A written contract between a business and an insurer that outlines the details of coverage.
• Premium – The amount a business pays for an insurance policy.
• Deductible – The out-of-pocket amount a business must pay before insurance coverage kicks in.
• Policy Limit – The maximum amount an insurer will pay for covered claims.
• Exclusion – Specific conditions or types of losses that an insurance policy does not cover.

2. Liability Coverage

• General Liability Insurance (CGL) – Protects businesses against claims of bodily injury, property damage, and personal injury.
• Professional Liability Insurance (E&O) – Covers claims of negligence, mistakes, or failure to deliver promised services (also known as Errors and Omissions Insurance).
• Employment Practices Liability Insurance (EPLI) – Protects businesses from claims related to wrongful termination, discrimination, or workplace harassment.
• Product Liability Insurance – Covers claims related to defective products that cause harm to customers.
• Directors and Officers Liability Insurance (D&O) – Protects company leaders from personal liability in management-related lawsuits.

3. Property & Business Protection

• Commercial Property Insurance – Covers a business’s physical assets, including buildings, equipment, and inventory, against damage or loss.
• Business Interruption Insurance (BIC) – Helps businesses recover lost income due to a covered disaster or event that halts operations.
• Builders Risk Insurance – Protects properties under construction from risks like theft, fire, and natural disasters.
• Inland Marine Insurance – Covers business property while in transit over land, such as tools, equipment, or goods.

4. Employee & Workplace Coverage

• Workers’ Compensation Insurance – Pays for medical expenses and lost wages if an employee suffers a work-related injury or illness.
• Employer’s Liability Insurance – Covers claims against an employer for work-related injuries that are not covered by workers’ compensation.
• Fiduciary Liability Insurance – Protects business leaders who manage employee benefits, such as retirement plans, from legal claims.

5. Specialty & Additional Coverage

• Cyber Liability Insurance – Helps businesses recover from cyberattacks, data breaches, and other cybersecurity risks.
• Umbrella Liability Policy – Provides extra coverage beyond the limits of standard liability policies.
• Errors & Omissions Insurance (E&O) – Protects professionals from claims of inadequate work or negligence.
• Business Owner’s Policy (BOP) – A bundled insurance package that typically includes property, liability, and business interruption coverage.

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Why Understanding Business Insurance Matters

For small business owners, being familiar with these insurance terms is essential for:

✅ Choosing the right policies for your business needs.
✅ Avoiding coverage gaps that could leave your business exposed.
✅ Understanding your financial responsibilities in the event of a claim.
✅ Ensuring compliance with industry and legal requirements.

Investing in the right insurance coverage is one of the best ways to protect your business from unexpected risks. If you need guidance on selecting the right policies, contact Price & Ramey Insurance Group today.

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The Full Glossary

Commercial insurance can be complex and confusing. Policies often contain terminology that can be difficult to comprehend, especially for someone without an insurance background. For a small business, it’s critical to navigate the ins and outs of commercial insurance and understand what’s covered in your policies. By consulting this glossary, you can gain a clear understanding of insurance terms, enabling you to make more informed insurance decisions and better protect your business.

Accident: An unforeseen event or circumstance without deliberate intent.

Actual cash value (ACV): A valuation method for property insurance that is determined by taking
the replacement cost of the property and subtracting depreciation.

Additional insured: A person or entity that is added to an insurance policy as an insured,
typically through an endorsement to the policy.

Adjuster: An individual who investigates insurance claims, makes recommendations regarding
the payment of benefits from insurance policies, and negotiates payments and settlements.

Aggregate limit: The maximum amount an insurer will pay for all covered losses during the
policy period.

Agreed value: A method of valuing property in which the insurer and the insured agree, at the
time the policy is written, on the maximum amount that will be paid in the event of a total loss.
When this valuation method is used in a commercial property insurance policy, coinsurance
provisions are waived.

Application: A legal document that provides information from the business requesting insurance
to an insurer. Insurers use applications for underwriting and claims handling purposes.

Basic form: A causes of loss form used in commercial property insurance that covers losses
resulting from fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil
commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

Binder: A temporary insurance policy that provides insurance coverage until a formal policy is
issued by an insurer. A binder can serve as proof of insurance and meet the requirements of
lenders and other organizations.

Bodily injury: A physical injury including sickness or disease to a person.

Broad form: A causes of loss form used in commercial property insurance that covers losses
resulting from all of the perils covered under the basic form and plus falling objects; weight of
snow, ice or sleet; water damage; and, as additional coverage, collapse caused by certain perils.

Builders risk: A form of property insurance that is designed to cover property that is under
construction.

Business income coverage (BIC): A form of commercial property insurance that covers the
reduction in an organization’s income when operations are interrupted by damage to property
caused by a covered peril. Also referred to as business interruption insurance.

Business owners policy (BOP): A form of business insurance that provides both property and
liability coverages for eligible small businesses. Typically, BOPs will contain commercial property,
commercial liability, and business interruption coverage.

Business personal property: A type of property typically insured under commercial property
insurance policies. It refers to inventory, furniture, fixtures, equipment, and machinery property
owned by the insured other than buildings and structures.

Carrier: Another name for an insurance company. These two terms are often used
interchangeably.

Cancellation: The termination of an insurance contract by the insured or insurer before the end
of the policy period.

Certificate of insurance (COI): A document issued by an insurer that provides proof of insurance
coverage. This document outlines essential information about the insurance policy and verifies
its existence.

Claim: A demand by a person or entity seeking to recover from a loss that may be covered by an
insurance policy.

Claimant: A person or entity that makes an insurance claim.

Claims-made policy: An insurance policy that provides coverage that is triggered during the
policy period, regardless of when the wrongful act that gave rise to the claim took place. It’s
common for insurers to write certain liability policies on a claims-made basis.

Coinsurance clause: A provision often found in commercial property policies 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 of the value of the insured property.

Conditions: Provisions found within an insurance policy that qualify or place limitations on an
insurer’s promise to pay claims or perform. If an insured does not meet the policy conditions, an
insurer can deny or limit claims.

Commercial auto insurance: A form of insurance that covers a business against loss exposures
arising out of the ownership, maintenance, or use of automobiles. Commercial auto insurance
typically includes coverage for both first-party property risks and liability risks.

Commercial general liability (CGL): A form of insurance designed to protect businesses
against liability claims for bodily injury and property damage arising out of premises, operations,
products, and completed operations. Additionally, these policies provide coverage for claims
arising out of advertising and personal injury liability. CGL is also referred to as business liability
insurance.

Commercial property insurance: A form of insurance that covers a business’ buildings and their
contents against various types of property loss. These policies are generally written on one of
three causes of loss forms (basic, broad, and special) that define the perils covered by the policy.

Cyber liability insurance: A form of insurance that helps businesses respond to and recover
from a cyberattack. These policies can include coverage for both first and third-party claims.

Declaration page: The first page or first few pages of an insurance policy. Declaration pages
provide a summary of a business’ insurance policy, outlining key details like the insured
entity’s legal name, policy number, types of coverage, policy period, coverage limits, insured
locations, premiums, deductibles, and policy endorsements.

Deductible: The portion of a claim a business pays out-of-pocket before the insurance coverage
starts and helps pay for a loss.

Definitions: The section of an insurance policy defines key terms used in the policy. It may be a
stand-alone section or combined with another section. In some policies, the terms that appear in
the definition section will be bolded throughout the policy.

Directors and officers liability insurance: A form of insurance that covers a business’ directors
and officers against liability for their wrongful acts in managing an organization. These policies
also include coverage for businesses themselves.

Effective date: The date when an insurance policy goes into force.

Employer’s liability insurance: A form of insurance that is typically provided in Part 2 of a
workers’ compensation policy. This insurance provides coverage for an employer for liability to
employees for work-related bodily injury or disease, other than liability imposed on the insured
by a workers compensation law. It can be used to cover claims related to third-party actions, dual
capacity suits, consequential bodily injury, and care and loss of services claims.

Employment practices liability insurance (EPLI): A form of coverage designed to protect
organizations from the expenses of defending against employment-related claims made by
employees, former employees, or potential employees. It covers discrimination (age, sex, race,
disability, etc.), wrongful termination of employment, sexual harassment, retaliation, and other
employment-related allegations.

Endorsement: A written form attached to an insurance policy that alters the policy’s coverage,
terms or conditions. Endorsements are sometimes referred to as riders.

Equipment breakdown coverage: A form of insurance either included in commercial property
policies or purchased on a stand-alone basis that covers losses due to the accidental breakdown
of almost any type of equipment that operates under pressure or controls, transmits or uses
mechanical or electrical power.

Errors and omissions insurance (E&O): A form of insurance policy that covers liability for
committing an error or omission in the performance of professional duties. These policies are
often tailored by profession and are commonly purchased by lawyers, accountants, consultants,
engineers, architects, real estate agents, and other professionals. Also referred to as professional
liability insurance.

Excess liability policy: A form of insurance that provides limits in excess of an underlying liability
policy.

Exclusion: A provision within an insurance policy that eliminates coverage for certain risks,
people, property classes, or locations.

Exclusive remedy: A rule used in connection with workers’ compensation insurance. Under
the rule, if businesses maintain workers’ compensation coverage, an employee’s sole
remedy against the employer for workplace injuries and illnesses is the recovery of medical/
rehabilitation costs and lost wages. The rule is designed to prevent employees from suing their
employer for workplace injuries and illnesses if they receive workers’ compensation benefits.

Expiration date: The date on which coverage ends.

Exposure: A condition that presents a possibility of loss, whether or not an actual loss occurs.
Extended reporting period (ERP): A policy feature or endorsement used in claims-made
policies that provides insureds with an extended period of time to report a claim after the policy
expiration date.

Fiduciary liability insurance: A form of insurance that covers the fiduciaries of an employee
benefit plan against liability claims alleging breach of their fiduciary duties involving discretionary
judgment.

First party: The insured party in an insurance policy.

First-party claim: A demand by the insured seeking to recover from a loss that its insurance
policy may cover.

Inland marine insurance: A form of property insurance that provides coverage for property
in transit over land, certain types of movable property, instrumentalities of transportation and
instrumentalities of communication.

Insured: The person, business, or party named on a policy for which insurance coverage applies.

Insuring agreement(s): A statement or statements found in an insurance policy in which the
insurer promises to make payment to or on behalf of the insured.

Insurer: The party that issues insurance policies and agrees to pay for covered losses. This term
is used interchangeably with the terms “insurance company” and “carrier.”

Legal liability: Liability imposed by law on entities to pay for harm done to others. Such liability
can be derived from common law, statutes, and regulations. Legal liability can also be assumed
by parties under the terms of a contract.

Liquor liability insurance: A form of insurance that covers liability arising out of the serving or
selling of alcoholic beverages. This insurance is often purchased by bars, restaurants, caterers,
grocery stores, breweries, wineries, and liquor stores.

Loss: The financial damage a business suffers due to an insurable event. This term is often used
in place of the term “claim.”

Loss control survey: A report that contains information gathered through a survey of a business
by an insurer’s loss control representative at the request of an underwriter. These surveys are
often conducted when securing insurance through a new insurer or at the time of renewal.

Loss run: A report provided by an insurer to an insured that contains information about claims
filed under an insurance policy. Loss runs typically include the date of each reported claim, a
description of each claim, the type of claim filed for each loss, expenses paid by the insurer, the
amount the insurer has reserved for future claim costs, and the status of each claim.

Management liability insurance: A set of insurance policies that provide coverage to a business’
management team, which includes directors and officers liability insurance, EPLI, fiduciary
liability insurance, crime insurance, and kidnap and ransom/extortion insurance.

Named insured: A person, business, partnership or other entity identified as an insured party in
an insurance policy’s declarations page.

Named perils: A basis for writing property insurance that insures covered property against losses
caused only by the perils specifically listed as covered in the policy.

Nonrenewal: A decision by an insurer to terminate an insurance policy at the end of its policy
period.

Notice of loss: Notification required by an insurer when a loss or potential is sustained under an
insurance policy.

Occurrence-based policy: A liability policy that responds to claims for losses that took place
during the policy period, regardless of when claims are made.

Open perils: A basis for writing property insurance that insures covered property against losses
from all causes except those that are specifically excluded in the policy.

Package policy: A combination of two or more distinct policies providing several different
coverages in a single insurance contract.

Per-occurrence limit: The maximum amount the insurer will pay for claims resulting from a
single incident.

Peril: An event that causes a loss covered by an insurance policy.

Premium: The price of the insurance coverage provided by an insurance policy for a specified
period of time.

Premium audit: An audit conducted by an insurer of business records after the end of the
policy period for the purposes of making a final calculation of premium and premium taxes. In
particular, the insurer will audit the records related to the exposure basis for the insurance policy,
such as payroll, sales, employee, and vehicle records. These audits are common for CGL and
workers’ compensation insurance policies.

Premium financing: A process where a business works with a lender who pays the insurance
premium on behalf of the business. The business agrees to repay the lender for the cost of the
premium plus interest and fees.

Policy: A written contract for insurance between an insurer and a policyholder stating details of
coverage provided under the contract.

Policy limit: The maximum amount an insurance policy will pay either overall or under a
particular coverage.

Policy period: The time period during which insurance coverage is in effect.

Premises and operations liability: The possibility that an organization will be held liable
because of bodily injury or property damage that either occurs on the organization’s premises or
results from the organization’s ongoing (as opposed to completed) operations.

Products-completed operations liability: The possibility that an organization will be held liable
because of bodily injury or property damage caused by either the manufacture, distribution or
sale of an unsafe or defective product or the entity’s completed work.

Product liability insurance: Product liability insurance is a form of insurance that protects
businesses liability for bodily injury or property damage associated with the use of a product they
manufacture, sell, or distribute.

Professional liability insurance: Another term for E&O insurance.

Renewal: The continuation of an insurance policy (offer of renewal) into a new term from the
same insurer that issued the existing policy.

Replacement cost: A valuation method for property insurance that uses the amount it costs to
replace lost or damaged property with new property of like kind or quality.

Retroactive date: A feature found in claims-made policies that eliminates coverage for claims of
wrongful acts that took place prior to a specified date (the retroactive date).

Risk: The chance of loss. In insurance, this typically means the possible loss or destruction of
property or the possible incurring of a liability.

Special form: A causes of loss form used in commercial property insurance that covers all
causes of loss not specifically excluded by the policy.

Sublimit: A limitation in an insurance policy on the amount of coverage available to cover a
specific type of loss.

Subrogation: The process by which an insurer can, after it has paid a loss under the policy,
recover the amount paid from a party, other than the insured, who caused the loss or is
otherwise legally liable for the loss.

Supplemental application: A document that provides additional information about a business
and its policies and procedures to an insurer. This document is used by underwriters to
accurately assess a business’s risk and ensure adequate pricing.

Third-party: A person or entity that is not a party to the insurance policy.

Third-party claim: A demand against an insured by a third party seeking to recover damages that
maybe payable by the insured’s insurance policies.

Umbrella liability policy: A liability policy that provides excess coverage above the underlying
liability policy limits. Differs from excess liability policies in that it may also provide coverage not
available in the underlying liability policies.

Underwriting: The process used by insurers to select applicants for insurance and classify them
according to their degrees of insurability so that the appropriate premium rates may be charged.

Vicarious liability: A legal responsibility that occurs when a supervisory party is liable for the
negligent actions of a third party for whom they are responsible.

Workers’ compensation insurance: A form of insurance that pays for the medical care and
rehabilitation of workers who suffer a work-related injury or illness. It also helps to replace lost
wages while they are unable to work. These benefits are provided to workers with regard to fault.

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Price & Ramey is committed to helping you and your business. For additional risk management guidance, contact us today.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Employers should consult with legal counsel or safety professionals for specific compliance recommendations.