If it’s your first time shopping for insurance for your business, insurance terms can be a real stumbling block. Even for old pros, a fresh perspective on a familiar topic can help you better understand what really matters.
Here’s a look at 10 common but confusing insurance terms explained in plain English to make your insurance buying experience easier.
1. Named Insureds
People who are insured are collectively known as “insureds” — a term that every new insurance professional has to teach their spellchecker is not a typo.
Whenever you’re reading your own policy documents and come across the phrase “named insureds,” pay attention, because that’s you, the policyholder, and/or your business entities that are covered under the insurance policy.
It’s always important to make sure the correct people and business entities are listed as named insureds on the policy, whether you are signing up for insurance, noting your coverage obligations or reviewing your coverage documents. That’s because these named insureds are the only ones who will be covered in the event of a loss or claim.
The last time you had to worry about “declarations” may have been filling out an in-flight customs form or studying the Founding Fathers in high school history class. But not to worry, when it comes to insurance declarations, you don’t have to declare goodies bought at duty-free shops or recite the Declaration of Independence.
In insurance, “the declarations” is the term for the first page of an insurance policy. The “dec page” is a summary of your entire insurance policy, specifying all the named insureds, the policy period, the location of premises, the policy’s liability limits and other key information.
It’s important to make sure the information in your policy declarations is accurate. Hold onto the document for your records as your personal proof of insurance.
3. Certificate of Insurance
If a client, customer, vendor or business partner asks to see your “certificate of insurance,” please don’t share your latest bill or full policy documentation. Those contain a bit too much information and it’s not the proof of insurance they are after.
Instead, contact your insurer to request a certificate of insurance or COI. (Current Lockton Affinity policyholders can request a COI by clicking here.) This is a document that summarizes the details of your insurance policy, including coverage type, limits, insurance provider, policy number, named insureds and the effective policy dates.
In some cases, people you do business with will request to be a “certificate holder,” meaning they keep a copy of your COI on file. In other cases, you may be asked to add them as an “additional insured.” In all cases, discussing certificates of insurance upfront is a smart risk management technique that helps make sure all parties are properly insured.
If you’re in the NBA, an “endorsement” is a lucrative deal that may put you on the front of cereal boxes. In insurance, an endorsement is still a good thing, but you won’t be the face of a breakfast food.
An insurance endorsement is an amendment that adds or modifies the coverage of the original policy. Policies are often built upon templates, so endorsements make sense as an easy way to customize your insurance agreement. They’re often used to clarify the scope of coverage, add specific coverage, add other parties as insureds or add additional covered locations to the policy.
Understanding the endorsements of your policy is key and helps make sure you’ve got all the coverage you need to protect your business.
The term “exclusion” is generally about deciding which things will and will not be allowed in a specific situation, and that meaning closely carries over in insurance.
An insurance exclusion is a type of policy amendment that defines a condition or event for which the policy does not provide coverage. Endorsements and exclusions go hand in hand, typically appearing together in a policy, since it is easier for insurers to exclude certain broad coverages and then add back in more specific coverage using endorsements.
Like with your endorsements, make sure to read your policy to understand the exclusions on the coverage you maintain.
If you ignore a warning meant to keep you safe, it’s often said you do so at your own “peril.” These perils out in the world can be any type of serious and immediate danger, but perils in insurance are often more nuanced.
In insurance, a peril is a danger that can adversely affect an insured entity, such as damage from fire, wind or water or a loss from theft. Often, an insurance policy will list these as “named perils” it insures against, along with the specific conditions under which the coverage will and won’t apply. Your insurance policy may also draw a distinction between these perils and hazards, which are defined as a condition that can worsen the threat of an existing peril.
Perils and hazards noted in your insurance agreement are important because the presence of certain avoidable hazards may limit coverage for perils according to the terms of your policy.
7. Covered Loss
Unlike declarations, endorsements and other terms, the idea of a “covered loss” doesn’t really have an easy-to-remember real life example to draw on. It’s fairly unique to the world of insurance.
In insurance, a covered loss is a specific type of financial loss suffered by your insured business entity. This type of loss ticks all the right boxes and meets the requirements for your insurance company to pay out benefits according to the terms of your policy.
Covered losses will be spelled out in your policy documents, in terms of the time period, the type of insured event and claim, the costs falling within your policy limits, the conditions for coverage all met, and other such variables defined in your policy. Careful study of these documents can help you understand which events qualify as a covered loss.
The term “premium” goes way back to the Latin word praemium, meaning “reward” or “prize.” In modern times, premium has a few different meanings, depending on the context.
In insurance, the premium is the purchase price of an insurance policy, whether it is paid in one lump sum or in regular payments, that is required by the insurer to provide coverage for a specific period of time. Some premiums are assessed yearly, while others are semiannual or even monthly. It just depends on the type of insurance.
The premium is one of the factors insurance shoppers care about most, but don’t forget that your coverage deductible and policy limits are also an important part of the buying decision.
In finance, certain costs are said to be “deductible,” meaning these costs are able to be subtracted from a larger sum. This meaning carries over to the insurance world.
An insurance deductible is an agreed-upon sum that will be subtracted from a claim payment made to you for an insured loss. In other words, a deductible is a way to share risk between you and your insurer. It’s an amount of money you agree to pay out of pocket to make yourself whole for a covered loss.
The choice of your deductible is an important factor when picking a policy. The larger the deductible, and the more risk you shoulder in the agreement, the less you pay in insurance premiums. The smaller the deductible, the more coverage you have, but at the cost of a more expensive policy.
10. Policy Limit
There are “limits” to everything and insurance is no exception. While you won’t risk a speeding ticket for exceeding the limit of your insurance policy, it’s not something you want to do.
A policy limit refers to the maximum amount of money the insurer will pay out as specified under the terms of the policy. Your policy likely has different kinds of limits. A per-claim limit, as the name implies, is the limit for a single covered loss. An aggregate limit sets the maximum amount payable for all claims during a policy period, usually a period of a year. Some insurers also offer shared limits that are shared between a group of insureds. But with Lockton Affinity, policies offer individual limits, so you always have access to your full policy limits.
Your policy limit is another important factor in your insurance decision and it’s important to make sure you choose a limit that provides enough coverage to protect your business.
When you insure your business with Lockton Affinity, you can be sure you’re getting great coverage at a great price. At Lockton Affinity, we offer tailored coverage packages, trusted insurance solutions backed by decades of experience, and best-in-class customer service to help answer your questions, provide you with a quote and assist you with switching over your coverage.
See what our coverage will look like for your business. Visit us at locktonaffinity.com or call 913.652.7500.