Understanding certain terminology within your business insurance policy is crucial to knowing exactly what is – and what is not – covered. To get business owners familiar with insurance terms, the California Department of Insurance offers the following definitions.
- Quote – An estimate of the cost of insurance based on information supplied to the insurance company by the applicant
- Policy Limit – The maximum amount a policy will pay, either overall or under a particular coverage
- Underwriting – The process of selecting applicants for insurance and classifying them according to their degrees of insurability so the appropriate rates may be charged (the process includes rejection of unacceptable risks)
- Premium – The amount of money an insurer charges for insurance coverage
- Peril – The cause of a possible loss (i.e., fire, theft or hail)
- Endorsement – an endorsement is an amendment to the policy used to add or delete coverage
- Exclusion – Certain causes and conditions listed in the policy which are not covered
- Deductible – The amount of the loss which the insured is responsible for paying. The insurance carrier typically collects or deducts from settlement the amount of the deductible upon closing the claim. (choosing a higher deductible may lower your premium)
- Retention – similar to a deductible, but the insured pays the first dollar expenses of the claim up to the retention amount on the policy before insurance benefits begin to contribute. As such, insureds should be prepared to pay up front.