Insurance Glossary

Business insurance comes with its own vocabulary. Use this glossary to look up key terms, understand your policy, and make more informed coverage decisions.

82 terms defined

Actual Cash Value (ACV): The replacement cost of damaged or stolen property minus depreciation. ACV reflects what the property was worth at the time of the loss, not what it would cost to buy new.
Additional Insured: A person or organization added to an insurance policy that receives coverage under the named insured's policy. Contractors, landlords, and business partners often require additional insured status in contracts.
Agent: A licensed professional who sells insurance policies on behalf of one or more insurance carriers. Independent agents represent multiple carriers, while captive agents work for a single company.
Aggregate Limit: The maximum total amount an insurer will pay for all covered losses during a single policy period, typically one year. Once the aggregate limit is exhausted, no further claims are covered until the policy renews.
Audit (Premium): A review conducted by the insurer — usually at the end of the policy term — to verify that the premium charged matches the actual exposure (e.g., payroll, revenue, or subcontractor costs). Audits can result in an additional premium or a refund.

Binder: A temporary agreement that provides proof of insurance coverage until the formal policy is issued. Binders are commonly used to satisfy contractual or lending requirements while final paperwork is being prepared.
Blanket Coverage: A single limit of insurance that covers multiple properties, locations, or categories of property under one amount rather than scheduling each item separately. This offers flexibility when values shift between locations.
Bodily Injury: Physical harm, sickness, or disease sustained by a person — including death resulting from any of these. Bodily injury liability coverage pays for medical expenses, lost wages, and legal costs when your business is responsible.
Business Income Insurance: Coverage that replaces lost income and pays continuing expenses when a covered event — such as a fire or natural disaster — forces a business to temporarily shut down or reduce operations.
Business Owners Policy (BOP): A bundled insurance package designed for small to mid-sized businesses that combines commercial property, general liability, and business income coverage into a single, cost-effective policy.

Certificate of Insurance (COI): A document issued by an insurer or agent that summarizes key policy details — including coverage types, limits, and effective dates. COIs are routinely requested by clients, landlords, and general contractors as proof of coverage.
Claim: A formal request made by the policyholder to the insurance company for payment or coverage after a loss or event covered by the policy. The claims process includes investigation, evaluation, and settlement.
Claims-Made Policy: A type of liability policy that covers claims only if the wrongful act occurred and the claim is filed during the active policy period (or an applicable extended reporting period). Compare with occurrence policy.
Coinsurance: A clause requiring the policyholder to insure property to a specified percentage of its value (commonly 80%). Failing to meet the coinsurance requirement results in a penalty that reduces the claim payout proportionally.
Commercial Auto Insurance: Coverage for vehicles owned, leased, or used by a business. It provides liability, collision, comprehensive, and uninsured motorist protection for cars, trucks, vans, and other vehicles used for business purposes.
Commercial General Liability (CGL): A foundational business insurance policy that covers third-party claims of bodily injury, property damage, and personal/advertising injury arising from your operations, products, or premises.
Commercial Property Insurance: Coverage that protects a business's physical assets — buildings, equipment, inventory, furniture, and fixtures — against perils such as fire, theft, vandalism, and certain weather events.
Coverage: The scope of protection provided by an insurance policy, including the types of risks insured, the dollar limits, and the conditions under which the insurer will pay a claim.
Cyber Liability Insurance: A policy designed to protect businesses from financial losses related to data breaches, cyberattacks, ransomware, and other technology-related incidents. It typically covers notification costs, forensic investigations, legal fees, and regulatory fines.

Declarations Page: The front page (or pages) of an insurance policy that summarizes essential information: the named insured, policy number, coverage limits, deductibles, premium, and effective dates. Often called the "dec page."
Deductible: The amount the policyholder must pay out of pocket before the insurance company begins to cover a loss. Higher deductibles generally result in lower premiums.
Duty to Defend: The insurer's obligation to provide and pay for a legal defense when a covered claim or lawsuit is brought against the policyholder — even if the allegations are groundless or fraudulent.

Endorsement: A written amendment attached to an insurance policy that adds, removes, or modifies coverage. Also called a rider. Common endorsements include additional insured endorsements and waiver of subrogation endorsements.
Errors & Omissions (E&O): Professional liability insurance that covers claims alleging negligent acts, errors, or omissions in the performance of professional services. Also known as professional liability insurance.
Excess Insurance: A policy that provides additional limits above the limits of an underlying primary policy. Unlike umbrella insurance, excess policies typically follow the same terms and conditions as the underlying coverage.
Exclusion: A specific condition, hazard, or type of loss that is explicitly not covered by an insurance policy. Common exclusions include intentional acts, war, nuclear hazards, and wear and tear.
Experience Modification Rate (EMR): A multiplier applied to a business's workers compensation premium based on its historical claim experience compared to the industry average. An EMR below 1.0 indicates better-than-average loss history and results in lower premiums.

Fiduciary Liability: Insurance that protects individuals who manage employee benefit plans — such as 401(k)s and health plans — against claims alleging mismanagement, errors, or breach of fiduciary duty.
First-Party Coverage: Insurance that pays for losses sustained directly by the policyholder, such as damage to the policyholder's own property or lost business income. Compare with third-party coverage, which pays claims brought by others.
Franchise Deductible: A deductible that disappears once the loss exceeds a specified threshold. If the loss is below the franchise amount, nothing is paid; if it exceeds the franchise amount, the entire loss is covered.

General Aggregate: The maximum total amount an insurer will pay for all covered claims under a general liability policy during one policy period, excluding products-completed operations claims, which have their own aggregate.
General Liability: A broad category of insurance that protects businesses against claims of bodily injury, property damage, and personal injury caused by the business's operations, products, or premises. See also Commercial General Liability (CGL).
Grace Period: A set number of days after a premium due date during which the policy remains in force even though payment has not been received. If payment is made within the grace period, coverage continues without lapse.
Gross Premium: The total premium amount before any deductions, such as agent commissions or return premiums. It represents the full cost of the insurance coverage as calculated by the carrier.

Hazard: A condition or situation that increases the likelihood or severity of a loss. Hazards can be physical (e.g., faulty wiring), moral (e.g., dishonesty), or morale (e.g., carelessness due to being insured).
Hold Harmless Agreement: A contractual clause in which one party agrees to assume liability and not hold the other party responsible for certain losses or damages. Insurance policies are often required to back up hold harmless obligations.

Indemnity: The principle that insurance should restore the policyholder to the same financial position they were in before a loss — no better and no worse. It is the foundation of most property and casualty insurance.
Independent Agent: A licensed insurance professional who represents multiple insurance carriers rather than a single company. Independent agents can shop the market to find competitive coverage and pricing for their clients.
Inland Marine Insurance: Coverage for property in transit, movable equipment, and specialized items that are not adequately covered under a standard commercial property policy. Examples include contractors' tools, fine art, and mobile medical equipment.
Insurable Interest: A financial stake in the subject of insurance such that the policyholder would suffer a direct financial loss if the insured property were damaged or destroyed. Insurable interest is required for a policy to be valid.
Insurance Carrier: The company that underwrites and issues an insurance policy, assumes the financial risk, and is responsible for paying covered claims. Also referred to as the insurer or insurance company.

Joint Policy: A single insurance policy that covers two or more individuals or businesses. All named parties share the same policy limits and are subject to the same terms and conditions.

Key Person Insurance: A life or disability insurance policy purchased by a business on the life of an owner, executive, or critical employee whose death or disability would cause significant financial loss to the company.

Liability: A legal obligation or responsibility. In insurance, liability refers to the duty to pay damages to a third party who has been injured or whose property has been damaged due to the insured's actions or negligence.
Limit of Liability: The maximum amount an insurance company will pay under a policy for a covered loss. Limits can be expressed per occurrence, per claim, or as an aggregate for the policy period.
Liquor Liability: Insurance that protects businesses that manufacture, sell, distribute, or serve alcoholic beverages against claims arising from injuries or damages caused by intoxicated patrons or customers.
Loss: The amount of financial damage suffered by the policyholder as a result of a covered event. In insurance, a loss triggers the claims process and may result in a payout up to the policy limits.
Loss Ratio: The percentage of premium income that an insurer pays out in claims. A loss ratio of 60% means the carrier paid $0.60 in claims for every $1.00 of premium collected. It is a key measure of underwriting profitability.
Loss Run: A report provided by an insurance carrier that details a policyholder's claims history over a specified period — usually three to five years. Loss runs are required by carriers when quoting new or renewal business.

Malpractice Insurance: Professional liability coverage specifically for healthcare providers, attorneys, and other licensed professionals. It covers claims of negligence, errors, or omissions that result in harm to a client or patient.
Manuscript Policy: A custom-drafted insurance policy written to address the unique risks of a particular insured, rather than using a standard form. Manuscript policies are common for large or complex commercial accounts.
Minimum Premium: The lowest premium an insurer will accept to issue or maintain a policy, regardless of the calculated premium based on exposure. It covers the carrier's fixed costs of issuing and servicing the policy.

Named Insured: The person or entity specifically identified in the declarations page of an insurance policy as the policyholder. The named insured has certain rights and responsibilities that differ from additional insureds.
Negligence: The failure to exercise reasonable care, resulting in harm or damage to another party. Proving negligence is often central to third-party liability claims covered by insurance.
Net Premium: The premium amount after subtracting commissions, dividends, or return premiums from the gross premium. It represents the portion of the premium retained by the insurance carrier.
No-Fault Insurance: A system of insurance — used in certain states for auto coverage — in which each party's own insurer pays for their losses regardless of who caused the accident, up to specified limits.

Occurrence: An accident or event — including continuous or repeated exposure to conditions — that results in bodily injury or property damage during the policy period. It is the trigger for coverage under an occurrence-based policy.
Occurrence Policy: A liability policy that covers claims for events that occur during the policy period, regardless of when the claim is actually filed. This is the most common form of general liability coverage.
Omnibus Clause: A provision in an insurance policy that extends coverage to individuals or entities not specifically named in the policy but who are using the insured property with the named insured's permission.

Per Occurrence Limit: The maximum amount an insurer will pay for a single occurrence or event. This limit applies independently to each covered incident, unlike the aggregate limit which caps total payouts for the policy period.
Personal Injury: In insurance, personal injury refers to non-physical harms such as libel, slander, defamation, false arrest, invasion of privacy, and wrongful eviction. This is distinct from bodily injury.
Policy Period: The span of time during which an insurance policy provides coverage, defined by the effective date and expiration date listed on the declarations page. Most commercial policies have a one-year policy period.
Premium: The amount of money a policyholder pays to the insurance company in exchange for coverage. Premiums can be paid monthly, quarterly, semi-annually, or annually and are based on the level of risk and coverage selected.
Professional Liability: Insurance that covers claims arising from professional services — including negligence, errors, or omissions — that result in financial loss to a client. Also known as Errors & Omissions (E&O) insurance.
Property Damage: Physical injury to, destruction of, or loss of use of tangible property. Liability insurance covers property damage claims when the insured is legally responsible for damaging someone else's property.

Reinstatement: The restoration of an insurance policy or coverage limit after it has lapsed due to non-payment or been reduced by a paid claim. Reinstatement may require additional premium or proof of insurability.
Replacement Cost: The cost to repair or replace damaged property with materials of similar kind and quality at current prices, without deducting for depreciation. Replacement cost coverage generally provides higher payouts than actual cash value.
Retroactive Date: The date specified in a claims-made policy before which any wrongful act is excluded from coverage. Only claims arising from acts that occurred on or after the retroactive date are eligible for coverage.
Rider: An amendment or attachment to an insurance policy that modifies the terms, coverage, or conditions. Riders can add coverage, increase limits, or exclude specific risks. Also called an endorsement.
Risk Management: The process of identifying, assessing, and controlling threats to a business's assets and earnings. Risk management strategies include avoidance, mitigation, transfer (through insurance), and acceptance of risk.

Self-Insured Retention (SIR): The amount a policyholder must pay out of pocket on a claim before the insurance policy begins to respond. Unlike a deductible, the insured manages the claim up to the SIR amount, and the insurer's obligation starts above it.
Subrogation: The legal right of an insurer — after paying a claim — to pursue recovery from the third party responsible for the loss. Subrogation helps insurers recoup claim payments and can reduce future premiums.
Surplus Lines: Insurance coverage placed with non-admitted carriers (those not licensed in the policyholder's state) for risks that admitted carriers are unable or unwilling to insure. Surplus lines are subject to separate regulatory rules.

Tail Coverage: An extended reporting period endorsement purchased when a claims-made policy is canceled or not renewed. Tail coverage allows claims to be reported after the policy ends for wrongful acts that occurred during the policy period.
Third-Party Coverage: Insurance that pays claims made by someone other than the policyholder (a third party) for bodily injury, property damage, or other covered losses caused by the insured. General liability is a common form of third-party coverage.
Total Loss: A situation in which the cost to repair or replace damaged property exceeds its insured value or the applicable policy limit. In a total loss, the insurer pays the full coverage amount rather than repair costs.
Trigger of Coverage: The event or condition that activates coverage under an insurance policy. Common triggers include the date of the occurrence, the date of the claim, and the date the injury or damage is discovered.

Umbrella Insurance: A policy that provides additional liability limits above the limits of underlying policies such as general liability, commercial auto, and employers liability. Umbrella policies may also cover claims excluded by underlying policies.
Underwriting: The process by which an insurance company evaluates risk, determines whether to offer coverage, and sets the premium and terms of the policy. Underwriters analyze factors such as industry, claims history, revenue, and operations.
Uninsured Motorist: Coverage that protects the policyholder when they are involved in an accident caused by a driver who does not carry liability insurance, or in a hit-and-run situation. It is an important component of commercial auto policies.

Waiver of Subrogation: An endorsement in which the insurer gives up its right to pursue a third party for reimbursement of a paid claim. Waivers of subrogation are frequently required in construction contracts and lease agreements.
Workers Compensation: A state-mandated insurance program that provides wage replacement, medical benefits, and rehabilitation coverage to employees who are injured or become ill as a result of their job. In most states, businesses with employees are required to carry workers compensation insurance.

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