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12 Insurance Terms All Small Business Owners Should Know

September 30, 2015

Buying business insurance can be complicated, but it doesn’t have to be. If you’re looking to learn more, you’re already ahead of some of your peers. According to the 2015 DNA of an Entrepreneur Report, 1 out of 5 entrepreneurs don’t know if they’re insured against the most common small business risks. Here are some terms that will help you understand what you’re getting when you’re shopping for your next policy.

1. Business insurance quotes
When shopping for business insurance, ask several insurers for a price quote. Make sure the policies you’re comparing include the same coverage, coverage limits and deductibles. Don’t pay for coverage you don’t need.

2. General liability insurance
General liability insurance covers bodily injury and property damage to third parties. For example, if a client comes to your office and slips and falls, your general liability policy should cover the costs associated with their injuries, including medical costs and lost wages. Likewise, if you are at a client site and damage a piece of their equipment, the cost to repair or replace the item should be covered by your general liability policy.

3. Professional liability insurance
Sometimes called errors and omissions, or E&O insurance, professional liability insurance covers you if the professional services you provide are done incorrectly. This can include negligence, copyright or trademark infringement and libel or slander. Professional liability insurance should cover the cost to defend yourself, even if you did nothing wrong. Make sure your professional liability insurance covers the risks you face in your specific type of business.

4. Business owner insurance
A business owner policy covers the equipment you need to do your work. If you are a photographer, for example, a business owner policy would cover your cameras, developing or printing equipment and computers. This type of policy often includes business interruption coverage, which pays you for the revenue you lose if your equipment is stolen or damaged, until it can be replaced.

5. Deductible
The deductible is the amount of money you have to pay before your insurance covers the rest. If you have a claim for $10,000, for example, and your deductible is $1,000, you are responsible for the first $1,000 and the insurance company will pay the remaining $9,000. The higher the deductible, the lower the premium, since you are taking on more of the risk. When determining what your deductible should be, think about the amount of money you could afford to pay without putting your business at risk.

6. Claim
When someone feels your business made an error or they have been injured by you, they will make a claim for damages. A claim begins the process of negotiation between the injured party and you, or your insurance company, if you are covered. If the insurer determines that the claim is valid and covered, they will negotiate a settlement on your behalf according to your policy.

7. Lawsuit
If an incident is not resolved to the satisfaction of the parties, the injured party can file a lawsuit. This could lead to the parties negotiating a settlement, agreeing to arbitration, or possibly going to court.

8. Endorsement
An endorsement, sometimes called a rider, is an attachment to an insurance policy that modifies the policy’s terms and conditions. If your business has particular risks, make sure your policy has the appropriate endorsements.

9. Certificate of insurance
Certificate of insurance, sometimes called a ‘cert’ is proof that you have insurance for your business. The cert shows what type of insurance you have, the limits and deductibles, the name of the insured, the name of the issuer and the effective dates of your policy.

10. ACORD certificate
An ACORD certificate is a standard type of certificate of insurance governed by the Association for Cooperative Operations Research and Development (ACORD). Some clients may request this type of certificate for the sake of consistency. You can ask vendors, contractors and subcontractors for their ACORD certificates, too, to make sure that they have the proper insurance.

11. Primary policy
This is the first policy to respond to a loss of claim. If there are secondary policies, those would respond if the limits on the primary are reached and there is additional exposure.

12. Waiver of subrogation
A waiver of subrogation is something your clients may ask you for. It says that if you and the client are named in a lawsuit and your insurance company pays the judgement, your insurance company cannot then try to recover part of the judgement from your client.

Knowing these business insurance terms can help you get the insurance coverage you need to protect your business.


  • Maria Gomez

    I really appreciate this information on the terms of insurance for small businesses. I am glad that this clearly explains a deductible and how to achieve it. I also like that it explains a claim as well. I didn’t know that you could make claims for damages. Thanks for the information!

    • Hiscox Blog

      Thanks for your comment, Maria!