Insurance Glossary
Commercial insurance has its own language. We've defined 43 key terms in plain English so you can understand your coverage, read your policy, and negotiate contracts with confidence.
Showing 43 of 43 terms
Additional Insured
A person or organization added to your liability policy via endorsement, extending your coverage to protect them against claims arising from your work. General contractors, property owners, and clients commonly require additional insured status in their contracts. It does not give them coverage for their own negligence — only for liability arising from your operations.
Admitted vs. Non-Admitted Carrier
An admitted (or standard) carrier is licensed and regulated by the state department of insurance, and its policies are backed by the state guaranty fund if the carrier becomes insolvent. A non-admitted (surplus lines) carrier operates outside state regulation and is used for hard-to-place or high-risk coverage. Non-admitted carriers offer more flexibility but less regulatory protection.
Aggregate Limit
The maximum total amount your insurance carrier will pay for all covered claims during the policy period. Once the aggregate limit is reached, the policy will not pay any additional claims. This is distinct from the per-occurrence limit, which caps individual claims.
Binder
A temporary proof of insurance issued before the full policy documents are prepared. A binder confirms that coverage is in effect and includes basic policy details. It's commonly used to satisfy contract requirements while the carrier finalizes underwriting.
Business Interruption Insurance
Coverage that replaces lost income and pays for ongoing expenses (rent, payroll, loan payments) when your business is forced to close temporarily due to a covered event like a fire, storm, or other insured peril. It's typically included in a BOP or added to a commercial property policy.
Business Owner's Policy (BOP)
A bundled policy that combines general liability and commercial property coverage into a single, often more affordable package. BOPs are designed for small to mid-sized businesses and may include business interruption coverage. They're a cost-effective starting point for many industries.
Certificate of Insurance (COI)
A one-page document that summarizes your insurance coverage, including carrier names, policy numbers, effective dates, and limits. COIs are frequently requested by clients, landlords, general contractors, and vendors as proof that you carry adequate insurance. Your agent can issue COIs on demand.
Claim
A formal request to your insurance carrier for payment under the terms of your policy after a covered loss or event occurs. The claims process typically involves reporting the incident, providing documentation, working with an adjuster, and receiving a settlement or denial.
Claims-Made Policy
A policy that covers claims only if both the incident and the claim filing occur during the policy period (or an extended reporting period). Professional liability and cyber liability policies are commonly written on a claims-made basis. If you switch carriers, you may need tail coverage to protect against late-reported claims.
Classification Code (Class Code)
A numeric code assigned to your business based on the type of work performed. Insurance carriers use class codes to group similar businesses for pricing purposes. Workers' compensation and general liability each have their own classification systems. Being assigned the wrong class code can significantly impact your premium.
Commercial Auto Insurance
Coverage for vehicles owned, leased, or used by your business. It includes liability for bodily injury and property damage you cause to others, plus physical damage coverage for your own vehicles. Personal auto policies typically exclude business use, making commercial auto essential for any company with a fleet or work vehicles.
Commercial Property Insurance
Coverage that protects your business's physical assets — buildings, equipment, inventory, furniture, and signage — against damage from fire, theft, vandalism, and certain natural disasters. It can also cover business personal property at rented locations.
Cyber Liability Insurance
Coverage that protects your business against losses from data breaches, ransomware attacks, network security failures, and privacy violations. It typically covers notification costs, credit monitoring, forensic investigation, legal defense, regulatory fines, and business interruption caused by cyber events.
Declarations Page (Dec Page)
The summary page of your insurance policy that lists key information: your business name, policy number, effective dates, coverage types, limits, deductibles, and premium. It's the first page of your policy and the document most often requested by clients, landlords, and lenders.
Deductible
The amount you pay out of pocket before your insurance coverage kicks in on a claim. A higher deductible typically means a lower premium, but more financial exposure when a claim occurs. Choosing the right deductible is a balance between cash flow and risk tolerance.
Duty to Defend
The insurance carrier's obligation to provide legal defense when a covered claim or lawsuit is filed against you, even if the claim is ultimately found to be without merit. The duty to defend is broader than the duty to indemnify — your carrier must defend you if there's even a possibility the claim falls within coverage.
Employment Practices Liability (EPLI)
Coverage that protects employers against claims by employees alleging wrongful termination, discrimination, sexual harassment, retaliation, or other employment-related issues. EPLI is increasingly important as employment lawsuits rise and can cover legal defense costs, settlements, and judgments.
Endorsement
A written amendment to an insurance policy that adds, removes, or modifies coverage. Also called a rider. Common endorsements include additional insured status, waiver of subrogation, and equipment floaters. Endorsements allow you to customize a standard policy to fit your specific operations.
Exclusion
A specific condition, situation, or type of loss that is not covered by your insurance policy. Every policy has exclusions — understanding them is critical to avoiding coverage gaps. Common exclusions include intentional acts, pollution, and professional errors (unless you carry E&O coverage).
Experience Modification Rate (EMR)
A multiplier used in workers' compensation pricing that reflects your company's claims history compared to the industry average. An EMR of 1.0 is average; below 1.0 means fewer claims than average (lower premium), above 1.0 means more claims (higher premium). Many general contractors require subcontractors to have an EMR below 1.0.
General Liability (GL)
Coverage that protects your business against claims of bodily injury, property damage, and personal/advertising injury caused by your operations, products, or premises. It's the foundation of most commercial insurance programs and is often required by contracts, leases, and licensing boards.
Hold Harmless Agreement
A contractual clause in which one party agrees to indemnify (financially protect) another party against claims or losses. In commercial insurance, hold harmless agreements often determine which party's insurance responds first in a claim. Understanding these clauses is critical before signing contracts.
Indemnification
A contractual obligation to compensate another party for losses or damages. In insurance, indemnification is the core principle — the carrier indemnifies (makes whole) the policyholder after a covered loss. In contracts, indemnification clauses determine which party bears financial responsibility for specific risks.
Inland Marine / Tools & Equipment
Coverage for tools, equipment, and materials that are transported between job sites or stored off-premises. Standard commercial property policies often exclude items in transit or at temporary locations, making inland marine essential for contractors, landscapers, and other mobile businesses.
Liquor Liability Insurance
Coverage for businesses that sell, serve, or distribute alcohol. It protects against claims arising from the actions of intoxicated patrons — such as drunk driving accidents, assaults, or property damage. Many states require liquor liability as a condition of your liquor license.
Loss Run
A report from your current or previous insurance carrier that details your claims history over a specified period (typically 3-5 years). Loss runs are required by most carriers when quoting new coverage, as they use your claims history to assess risk and determine pricing.
Named Insured
The person or entity specifically listed on the policy as the primary policyholder. The named insured has the broadest coverage under the policy and is the only party who can make changes, cancel, or renew the policy. All business entities (LLCs, corporations, DBAs) that need coverage should be listed as named insureds.
Occurrence
An event or series of related events that triggers insurance coverage. In an occurrence-based policy, coverage applies to incidents that happen during the policy period, regardless of when the claim is filed. This is the most common trigger for general liability and property policies.
Policy Limit
The maximum amount an insurance carrier will pay on a covered claim. Limits can be expressed per occurrence (the most paid for a single event) and in aggregate (the most paid during the entire policy period, usually one year). Contracts and leases often specify minimum limits you must carry.
Policy Period
The dates during which your insurance coverage is active, typically running for one year from the effective date. Claims that occur outside the policy period are generally not covered unless you have an extended reporting period (tail coverage).
Product Liability Insurance
Coverage that protects manufacturers, distributors, and retailers against claims that a product they sold or produced caused bodily injury or property damage. Even if you didn't manufacture the product, you can be held liable as part of the distribution chain.
Professional Liability (E&O)
Also called Errors & Omissions (E&O) insurance, this coverage protects against claims that your professional services or advice caused financial harm to a client. Unlike general liability, which covers physical injury and property damage, E&O covers economic losses from mistakes, negligence, or failure to deliver promised services.
Regulatory Compliance
The requirement to adhere to laws, regulations, and industry standards that govern your business operations. Many industries have specific insurance requirements set by state licensing boards, regulatory agencies, or professional associations. Failing to maintain required coverage can result in fines, license suspension, or contract termination.
Statute of Limitations
The legal time limit within which a claim or lawsuit must be filed after an incident occurs. Statutes of limitations vary by state and by type of claim (bodily injury, property damage, professional negligence). Understanding these deadlines is important for both filing and defending claims.
Subrogation
The process by which your insurance carrier seeks reimbursement from a third party who caused the loss after paying your claim. For example, if another driver damages your work vehicle and your carrier pays for repairs, they may pursue the at-fault driver's insurer for repayment.
Surplus Lines
Insurance coverage placed with non-admitted carriers when standard (admitted) markets cannot or will not provide coverage. Surplus lines carriers handle unusual, high-risk, or hard-to-place risks. A surplus lines broker must document that coverage was declined by admitted carriers before placing coverage in the surplus market.
Tail Coverage (Extended Reporting Period)
An extension purchased on a claims-made policy that allows you to report claims after the policy has expired, for incidents that occurred during the policy period. Tail coverage is critical when switching carriers or retiring from practice to avoid gaps in protection.
Umbrella / Excess Liability
Additional liability coverage that sits above your underlying policies (GL, auto, employers' liability) and kicks in when those limits are exhausted. An umbrella policy provides broader coverage and higher limits, protecting your business against catastrophic claims that exceed your primary policy limits.
Underwriting
The process by which an insurance carrier evaluates your business's risk profile to determine whether to offer coverage, and at what price and terms. Underwriters consider factors like your industry, revenue, claims history, safety practices, and years in business.
Waiver of Subrogation
An endorsement that prevents your insurance carrier from seeking reimbursement from a specified third party after paying a claim. Contracts often require a waiver of subrogation to prevent insurance disputes between parties on a project. It's commonly requested alongside additional insured status.
Workers' Compensation
State-mandated insurance that covers medical expenses, lost wages, and rehabilitation costs for employees who are injured or become ill due to their job. In most states, any business with employees is required to carry workers' comp. It also protects employers from lawsuits by injured workers.
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