Insurance is a means to protect you and your business from financial loss. By having an insurance cover, you are able to receive payment in the event of a loss and manage your cash flows in the face of risk and uncertainty. This is essential, particularly if you own a small business in Alberta, or any other province in Canada.
Why understanding insurance terms are important?
While everyone agrees on the significance of insurance, the challenge that business owners often face is in understanding the common insurance terms and what they mean. They are aware that sooner or later they will have to buy business insurance for which they will have to engage a business insurance broker and at some point will get into a conversation with the broker on a policy quote.
Therefore, they want to prepare themselves for such a situation by familiarizing themselves with common business insurance terms to make their discussion meaningful.
Fear factor looms large in the minds of the business owners
Business owners who are not familiar with insurance often feel anxious when they hear insurance terms that they are unfamiliar with. Some even counter fear, especially when they receive the first insurance quote from their business insurance broker and come across words such as binder, peril, and rider, which they don’t understand and end up buying insurance without even understanding its broad terms.
A business insurance broker needs to be transparent
To avoid such a situation it is essential that a business insurance broker remove the jargon associated in an insurance quote and bring transparency in the dealing. The business insurance broker must ensure that its clients are insured against risks associated with their professional and business activities and have cover for slip-and-fall injuries and claims of negligence.
A business insurance broker acts as an intermediary between the insurer and business owners and facilitates the interactions between the two on all issues covering insurance.
Important insurance terms that we must be familiar with
Below are some important insurance terms that you as a business owner must be familiar with:
Sometimes it takes a few days for a full insurance policy to be issued. To provide you protection in this interim period, a temporary insurance policy known as a binder is issued. It provides you coverage against risks and is typically issued for thirty days. It automatically dissolves once the full policy is issued.
Certificate of insurance
When you enter into new business deals and sign new contracts, or are taking up new office space or applying for a loan, then you are typically asked to submit a Certificate of Insurance. This is a one-page document that summarizes all the important details of your insurance policy and is issued by the business insurance broker.
A deductible is the minimum amount of money that you have to pay while submitting a claim. When the claim is accepted, the insurance company bears the remainder amount of the claim, subject to policy limits. The insurance company allows the amount of deductible to be adjusted. If you keep the amount higher, your premium will be lower and the vice versa applies.
Insurance agreements can be quite broad and therefore in order to define the scope of the policy the term exclusion is used. It is a statement in your policy that defines which risks and conditions that are not covered in your insurance.
A business owner’s policy
Rather than buy different insurance covers separately, it may be worthwhile for business owners to buy a policy package known as a business owner’s policy (BOP) that includes several types of insurance policies at a bundled price. A BOP typically includes Commercial General Liability Insurance and Commercial Property Insurance, but may also cover several other foundational business policies, like Professional Liability Insurance.
The definition of liability is to be held responsible by the law. In insurance, liability is nothing more than an insurance cover that provides protection to an individual or business in the event they are sued and found responsible by law for a claim event, such as an injury, malpractice, or property damage. A typical liability policy covers legal costs and payouts, but intentional damage and contractual liabilities are normally excluded.
In insurance, a peril refers to a specific risk or cause of loss that is covered by insurance. Such risks might be for fire, vandalism, or theft. Policies may be issued for a specific peril, or could be for all perils, except those expressly excluded.
Per occurrence versus aggregate
‘Per occurrence’ and ‘aggregate’ are limits that apply to an insurance policy. Per occurrence refers to the amount an insurer will pay for one incident. An aggregate refers to the amount an insurer will pay for multiple claims that are filed under a policy in a year.
A rider is an adjustment in the terms and conditions of an insurance policy. For example, adding additional benefits or restrictions. A rider is also known as an insurance endorsement.
A premium is the amount of money paid to the insurer towards your insurance coverage. The cost may include any commissions paid to the broker, as well as additional fee to cover expenses incurred to write and manage the policy.
Purchasing business insurance
Ideally you should buy insurance with the help of a business insurance broker. This should be a pleasant experience as most brokers are quite forthcoming and eager to help you out.
The above terms will help you take an informed decision, as you would be required to peruse long policies and pages of exclusions. By grasping the basics and understanding some commonly used terms in insurance parlance, you will be able to ask the right questions to your business insurance broker and feel confident that you have made an informed decision.