It’s important to be specific, especially when it comes to insurance issues. You need to know exactly what you’re covered for, when your coverage can be used, and what your responsibilities are in the event of a loss or a claim. But insurance terms can be difficult to decipher, and problems can arise when you don’t quite understand what the word or phrase is describing.
The good news is that many of the most common insurance terms are fairly easy to decode. Once you get a better handle on these general definitions, you’ll feel more confident when the time comes to make insurance decisions.
The A to Z of insurance speak
Not surprisingly, there’s a big catalogue of insurance terms out there. Instead of getting lost in the fine print, ensure you understand some of these common words and phrases:
Accounts receivable insurance: If your customers default on their payments, accounts receivable insurance can help protect your profit margin and free up your cash flow.
Act of God: It may sound supernatural, but in the insurance industry an “Act of God” is an event that is attributed to natural causes, involving no human intervention. These events can’t be predicted or prevented, and nobody is responsible.
Adjuster: This is the insurance company representative assigned to investigate your claim. They’ll determine the extent of your business’ liability for loss once your claim is submitted.
Business interruption insurance: If a covered loss interrupts your regular business operations, business interruption insurance will reimburse you for any lost net profits and expenses required to help you support your business until you can get it up and running again.
Coinsurance clause: The amount of a property’s true value, expressed as a percentage, for which you must purchase enough insurance so that you do not become a co-insurer. If you are a co-insurer then your share of a loss payment would be reduced.
COPE: An acronym from the first letters of the terms construction, occupancy, protection, and exposure. These are four of the main hazards considered when assessing a property for insurance.
Deductible: This is the portion of an insured loss that you have to pay yourself before your insurance company covers the remaining expenses pertaining to the loss.
Depreciation: The decrease in value of any type of property over a period of time resulting from use, wear and tear, or obsolescence.
Indemnity: Compensation or reimbursement for sustained loss or damage.
Insurance to value: The concept of making sure the amount of insurance you purchase will adequately reflect the value of what you are insuring. If you are insuring property, then you are responsible for maintaining the adequate amount of insurance.
General liability: This coverage protects you against injuries to customers, suppliers, employees, or visitors to your property. You would also be covered if you or your staff caused injury to a third party or their property while you conducted off-site business.
Hazard: A situation that increases the likelihood of loss or damage occurring. In the insurance world, a hazard is different from a peril.
Loss of use: Insurance protection against a loss resulting from the inability to use property due to damage or destruction.
Occurrence: The point in time when a loss happened or occurred. This can be different than the point in time when a loss is reported. Many insurance policies will provide coverage for only those losses within a certain occurrence period, commonly a 12-month timeframe from when they were reported.
Peril: The cause of loss. Fire, flooding, and collision are all examples of peril.
Product liability: This coverage protects you if a product you make or sell is found to be defective, or if there are inaccuracies in the assembly instructions or warnings.
Professional liability: This coverage helps with legal costs and expenses if a customer claims that you failed to deliver on what was outlined in a contract, or that you mismanaged a project. Professional liability would also apply to medical professionals being sued for malpractice.
Property insurance: This coverage protects your assets when they are damaged by certain causes of loss or damage. Property includes buildings, as well as equipment and stock.
Replacement cost: The cost to replace your damaged property with a new item of like-kind and quality.
Total loss: When the cost of damage repair exceeds the value of your property.
Getting to know your policy
It’s good to know some insurance lingo, but you don’t need to become an insurance expert to get the right coverage for your business. Your knowledgeable broker is always there to help you determine what coverage you need and to help with any questions or concerns, and there are plenty of resources for you to explore on the Northbridge resource center.