What are deductibles, limits and endorsements?
Sometimes it seems like insurance has a language all its own, with terminology that can be confusing. And while you don’t need to be ‘fluent’ in insurance-speak, there are some terms you should know. We’ll define some of them below.
What is an insurance deductible?
An insurance deductible is the amount you have to pay for a claim before your insurance coverage kicks in. Suppose you have a $500 deductible, and a covered claim for $2,500. You would pay $500 (your deductible) and the insurance company would pay $2,000. The deductible applies to each claim.
Increasing your deductible can decrease your premium, saving you money on your policy payments. So, a policy with a $5,000 deductible will cost less than the same policy with a $500 deductible. If you’re willing to absorb more of the cost of a claim, the insurance company will pay less, so they’ll charge you less for your coverage.
What is an insurance limit?
A limit is the maximum amount an insurance company will pay out. There are usually two limits on each policy: an occurrence limit and an aggregate limit. The occurrence limit is the most that your insurance company will pay for a single claim. The aggregate limit is the total amount that will be paid out while the policy is active (usually for a year).
Suppose you have an insurance policy that has a $1,000,000 occurrence limit and a $2,000,000 aggregate limit. You have a claim for $750,000, which will be paid in its entirety, less any deductible. You then have a second claim for $900,000. This one will also be paid completely, less the deductible. Then you have a third claim for $500,000. For this claim, your policy will pay $350,000, because that brings the total (aggregate) amount of all the claims to the $2,000,000 policy limit.
Here’s another example using the same policy. If your first claim is for $1,500,000, the policy will cover $1,000,000 of it. If you then have a second claim for $750,000, that would also be completely covered, since the aggregate amount paid on both claims is still under the $2,000,000 aggregate limit.
As with deductibles, limits also affect your premium. The higher your limits, the higher premium you will pay. So a policy with a $2,000,000 limit will be more expensive than the same policy with a $1,000,000 limit.
What is an insurance endorsement?
Not every business needs exactly the same insurance coverage. Rather than write an entirely new policy for every different situation, insurance companies offer endorsements, sometimes called riders. Endorsements are optional, and they add, enhance, or remove coverage according to your specific situation.
You can add or remove an endorsement when you buy your policy, when you renew it, or at any time during the term of the policy. Depending on the endorsement, your premium may be adjusted. To add, remove, or change an endorsement on your Hiscox policy, call us at 1-866-283-7545 and speak to a licensed agent.
If you come across other insurance terms that are unfamiliar, you may find their definitions in our Insurance Glossary.