Expert answers to all your business insurance questions.
The simple glossary of small business insurance terms
- Workers' Comp Basics
- Business Insurance Basics
The world of insurance is full of unusual and complicated terms that can really slow you down when you’re making policy decisions for your small business. That’s where Huckleberry comes in—to make the whole thing simpler and faster.
Here’s a glossary of the most common insurance terms and definitions you’ll need to know when considering your options—all in plain English.
List of insurance terminology
Actual Cash Value (ACV)
The Actual Cash Value (often shortened to ACV) is the amount of money a covered item is currently worth. It’s one of two main methods insurers use to determine value when they’re calculating the size of an insurance claim payout.
To figure out the ACV of an object, an insurer will look up a covered item’s current market cost and then consider how much the item has depreciated due to its age and expected lifespan. To you, the ACV matters because it is what you can expect to receive should you have a claim.
If you ever need to file a claim with your insurance company, the insurance adjuster is the person who will be responsible for investigating and settling your claim. They’ll look into the incident, confirm your coverages, and figure out what it will cost to settle your claim.
The aggregate limit is the maximum amount your insurer will pay to settle all your covered claims during your policy period.
For example, if your business insurance policy has an aggregate limit of $500,000, your insurance company won’t pay more than that during your policy year—even if your individual claims add up to more than $500,000.
Your Annual Premium is the amount of money you pay your insurer every year to obtain insurance coverages.
Arbitration is a way to settle business disputes that uses a neutral third party—called an arbitrator—instead of the legal system. The arbitrator will look at the facts of the case and come to a judgment called an arbitration award.
If your business or insurance dispute goes to binding arbitration, you and the other party in the dispute will agree in advance to abide by the decision of the arbitrator. (In a non-binding arbitration, you and the other party will retain the right to take the case to court if you aren’t satisfied with the decision.)
Business Owner's Policy
A Business Owner’s Policy (often called a BOP) is a package deal of the insurance coverages that small business owners need most: general liability coverage, business property insurance, and business interruption insurance.
Business Interruption Insurance
Business interruption insurance provides financial support to your small business in case you ever have to shut down temporarily for a covered reason. It will pay for things like payroll, lost income, and ongoing taxes.
Business Property Insurance
Business property insurance is actually two coverages which are often sold together: business property insurance (which will pay to repair or replace your building if it’s ever seriously damaged for a covered reason) and business personal property coverage (which covers the stuff inside your building).
Certificate of Insurance
A Certificate of Insurance (often shortened to COI) is a document that proves to potential clients or landlords that you’re insured. (FYI, Huckleberry policy holders can generate their Certificate of Insurance online—instantly.)
Commercial General Liability Insurance
Commercial general liability insurance protects you and your small business in case anyone ever sues you for injury or property damage. It will pay to cover your legal fees, evidence costs, and financial settlements.
Coinsurance actually has two completely different meanings. Here are both:
- You might see the term coinsurance on your business property insurance policy. In this case, it means that you’re required to cover your building up to a certain percent of its value—usually 80%. For example, if your building is worth $250,000 and the coinsurance requirement is 80%, you’ll need to insure it for at least $200,000 to avoid being penalized. (This is the definition that’s most likely to apply if you’re a small business owner.)
- The other use of coinsurance is when an insurance policy is provided by more than one insurer. Basically, if your policy is backed by two or more companies, those insurers would be considered coinsurers.
Your deductible is the amount of money you’ll pay out-of-pocket on a covered claim before your insurance kicks in. (So, for example, if you purchase coverage with a $10,000 deductible and then file a claim for a loss that costs only about $7,000, your insurance company won’t issue a check at all. On the other hand, if the loss costs $50,000 to remedy, you’ll pay the first $10k and the insurance company will take over from there.)
Employee Dishonesty Insurance
Employee dishonesty insurance helps cover your financial losses if an employee ever steals from you. It pays out when your cash or property is taken or damaged by a member of your own team (and it has your back in cases of fraud and forgery, too).
Employment Practices Liability Insurance
Employment practices liability insurance—often shortened to EPLI—protects your business if a team member ever files a lawsuit against you for an illegal employment practice (such as harassment, discrimination, or wrongful termination). It will help pay for the cost of a legal defense and financial settlement.
An endorsement is a modification to your insurance policy. Typically, an endorsement either adds to the scope of what your policy covers or changes some aspect of your policy. For example, if you add a restaurant endorsement to your Business Owner’s Policy, you’ll get additional restaurant-specific coverages that aren’t automatically included in a BOP.
Equipment Breakdown Insurance
Equipment breakdown coverage protects your business equipment in case of electrical failure or mechanical breakdowns. If your electrical, mechanical, or computer equipment fails for a covered reason, equipment breakdown insurance will step in to help cover the cost of a repair or a replacement.
Errors & Omissions Insurance (E&O)
Errors and Omissions Insurance is a policy that will have you covered if you ever make an error which harms a client. It will help pay for legal fees and a financial settlement if you’re sued. (It’s also called professional liability insurance.)
An expense constant is a flat fee that is often added to a workers’ comp policy premium. It covers the insurance company’s administrative costs.
Experience Modification Rate
Your Experience Modification Rate (EMR) is a numerical score which represents how safe your business is when compared with other businesses in your industry. Insurance companies use it when they calculate your workers’ comp rate. The safer your business, the lower your EMR—and a low EMR usually means a lower insurance rate.
(Learn more about the Experience Modification Rate—and how to use it to get a better workers’ comp price.)
Fiduciary Liability Insurance
Fiduciary liability insurance is a coverage that can protect your business if you’re sued due to mismanagement of employee benefit plans.
General Liability Class Codes
General liability classification codes are numbers that represent how risky your small business is to insure. When you get a general liability insurance quote, your insurer will assign your business a classification code based on your industry (because different industries have different levels of risk).
If you don’t pay your insurance premium on time, the grace period is the set amount of time that your insurance policy will remain active after the due date. (It’s usually 30 or 31 days long.)
Hired and Non-Owned Auto Insurance
Hired and non-owned auto insurance is coverage that protects you and your company in case someone associated with your business causes damage with a vehicle the business doesn’t own (such as a rented delivery vehicle or the car of an employee).
In its simplest form, indemnity means that one party is responsible for compensating another party for financial loss or damages. It’s basically a form of protection against financial liability and is a pretty common term in business and insurance contracts.
An insurance broker is an intermediate third party between you and potential insurers. They’ll charge you a fee to guide the purchase process and find policy options for you.
Insurtech is the commonly-accepted term for a new generation of insurance companies that use technology to make the insurance experience faster, easier, and more efficient.
Legal liability describes what you are responsible for under the law, usually as a result of actions of omissions. In the world of small business insurance, it usually describes what you are (financially and legally) responsible for in case of damages caused to another person or entity.
Liquor Liability Insurance
Liquor liability insurance protects your business if you ever serve alcohol to a visibly-intoxicated person who goes on to cause damage to someone or something.
The loss payee is the person (or other entity) to whom a claim is paid—it’s the name that will be on the insurance check.
Your loss run is the report of all the claims you’ve made on your business insurance policy. Looking at your loss runs is one of the major ways insurance companies figure out how risky your business is to insure.
Minimum Earned Premium
The minimum earned premium is the absolute least amount of money an insurance company will accept for the risk of insuring your business. It’s generally not refundable if you cancel your policy.
NCCI is an acronym for the National Council on Compensation Insurance. It’s generally considered to be one of the best neutral sources of workers’ compensation insurance information.
Non-Admitted Insurance Carriers
Non-admitted insurance companies aren’t approved by your state’s insurance department—which means they aren’t guaranteed by the government. (Use these with extreme caution.)
Occurrence-Based Insurance Policy
An occurrence-based insurance policy will cover injuries and other events that happen during the time that you’re covered. (The alternative is a claims-made insurance policy, which only covers events for which you file a claim during the insured period.)
Your per-occurrence limit is the maximum amount your insurer will pay for all claims that result from a single incident. For example, if your per-occurrence limit is $100,000—and the total cost of all claims resulting from an incident is $120,000—your insurance company will only cover the first $100k.
Your premium is the money you pay for your insurance coverages.
Professional Liability Insurance
Qualifying events are any changes in your business situation that affect your insurance needs (such as moving your location, expanding your services, or hiring new employees).
A restaurant endorsement is a bundle of handy insurance coverages that are specific to the restaurant industry (such as spoilage coverage, food contamination coverage, and delivery error coverage).
Your retroactive date is the date in the past from which your insurance company has agreed to cover you. Any claims for incidents that happen before your retroactive date won’t be eligible for a payout.
A sole proprietorship is the simplest form of business organization—it’s a business that’s run by one person (and with no legal distinction between the business and the individual who runs it).
(Learn more about the different kinds of business structures here.)
Spoilage coverage will help pay for financial losses if any perishable goods go bad because of a refrigeration problem (such as an equipment breakdown or a power outage). It’s included in a restaurant endorsement.
A Standard Premium is one of several premium types that’s calculated when an insurer figures out your workers’ comp rate. It’s not your final premium, though. After your insurer calculates the Standard Premium, they still need to factor in a few costs before they issue your final quote.
(Learn more about how workers’ comp is calculated here.)
Subrogation happens when your insurance company takes your place in a lawsuit against a third party. (Basically, once your insurer reimburses you for a loss caused by someone else, they’ll be able to sue that third party and demand payment for the loss.)
A tort is a wrong act which causes harm to someone or something else. (A tort doesn’t have to be intentional, either! A slippery floor or a sharp tool left in the wrong place could both be torts—and turn into lawsuits—if either result in an injury to a customer or client.)
Umbrella Liability Policy
Umbrella liability coverage is a policy which gives your business extra liability coverage (in case your claims ever exceed your liability coverage amount). Without it, you’ll pay out of pocket for any costs that go beyond your regular general liability coverage limit.
Underwriting is the process by which an insurance company takes on your financial risk (for an agreed-upon price).
Vicarious liability is when someone is held legally responsible (or even partially responsible) for the actions of another party. (For example, you—the business owner—could be sued for a mistake that one of your employees made. Even though you didn’t make the error yourself, you could have vicarious liability.)
Workers’ Compensation Class Codes
A workers’ compensation class code is a category (represented by a number) that indicates what industry your business is in. Since your industry has a lot to do with how much risk you present to an insurance company, your class code directly affects how much you’ll pay for workers’ comp.
(Learn more about workers’ compensation class codes here.)
Workers’ Compensation Insurance
Workers’ compensation insurance (often shortened to workers’ comp) protects your employees if they ever get sick or injured because of their job. It’ll pay out for medical expenses, lost wages, and ongoing financial and medical support.
Workers’ Compensation State Fund
Your workers’ compensation state fund is a workers’ comp option that’s provided by your state government.
WCIRB is an acronym for Workers’ Compensation Insurance Rating Bureau of California. It’s a source of objective information and research about workers’ comp in California.
We hope this glossary of insurance information was helpful! Remember: You can get a no-obligation insurance quote for your small business in about five minutes—less time than it takes to brew a cup of coffee. Everything is online and easy (and explained in simple English).