Your Insurance Glossary
Committed to Approachable Risk Management
A for Andrew
Actual Cash ValueThere are a few different ways carriers calculate your protection, centered around how they will value your insured property (including your home, vehicle(s), and even personal belongings) after a damaging event. Actual Cash Value is one of these ways. This is not based on market value. Rather, a typical formula looks something like this… the Replacement Cost MINUS Depreciation (according to an insurance carrier’s formula) EQUALS Actual Cash Value. This is usually not enough to rebuild your house in the event of a total loss.
Auto LimitsEvery policy has limits, or the maximum amount of money an insurance company will pay toward a covered event. There are two ways an insurance company can organize Auto policy limits:
- Split Limits: These policies divide maximum payouts among three specific claim components:
- The maximum amount of money paid to an individual
- The maximum amount of money paid to all injured people (per occurrence)
- The maximum amount of money paid for property damage (per occurrence)
- Combined Single Limits (CSL): This type of policy lumps all claim components together into a single dollar amount. The insurance company will simply pay until your stated limit is reached.
B for Bryan
Business Overhead ProtectionOverhead expenses refer to ongoing, fixed bills that are required to run a business (like rent, insurance, etc.). In other words, these expenses are due even if you don’t make revenue. Business Overhead Protection is a type of insurance that reimburses a business owner for fixed overhead expenses if they become disabled.
Business Owners Policy (BOP)This policy packages together a few of the most common and necessary coverages for most small businesses, including General Liability, Business Property, and in some cases, Business Interruption. Once you have these core coverages determined, you can customize your policy by adding more coverages, or even Endorsements to tweak policy language.
Buy-Sell AgreementsLegally binding contracts between business partners that dictate how their shares will be distributed or sold upon death or forced/voluntary departure from the company. This type of agreement can be funded by a Life Insurance policy.
C for Carl
Commercial InsuranceDescribes different types of coverages that are packaged together to protect your company, employees, assets, and owners. It’s common hear terms like “Small Business Insurance,” or even industry specific names like “Farm” or “Retail Insurance.” These are all pointing to a Commercial policy tailored to a specific category of business.
Commercial RiskEvery industry holds various unique risks. The more risks you have, the more coverages you will need, indicating a higher policy premium. In general, an insurance company will gauge potential risk exposure with these four questions:
- Do you engage with other people as part of business? If so, you are exposed to legal liability and will need to specific liability coverages to address the risk of harm to others, even if it’s an accident.
- Does your business have assets – an office, equipment, inventory, just to name a few? If so, you will need specific property coverages to address the risk of damage or loss to business property.
- Do you or an employee drive a vehicle as part of your business? If so, you are exposed to liabilities associated with damage to/by your vehicle(s) and will need specific commercial auto coverages.
- Do you employ another individual(s)? If so, you will need Workers Compensation. This is wage replacement and medical benefits in case of a work-related injury or illness.
Coverage FormsInsurance companies use Coverage Forms to structure coverage conditions and exclusions. This helps everyone know which losses are included in your policy. For example, a Property Coverage Form will list which perils (damaging events) your policy will cover. In general, there are three types of coverage forms:
- Basic: Covers a more limited list of losses only.
- Broad: Covers the above “Basic” losses, plus a few additional ones that are more likely to occur.
- Special: This is the most extensive type of coverage. Special Coverage Forms often list exclusions, meaning that unless it’s written as an exclusion, the loss will most likely be eligible for coverage.
D for Detailed
Dec PageShort for Declaration page, this is a document summarizing your insurance coverage. These are often found on the front of your policy, provided by your insurance carrier. They outline essential information like limits, deductibles, named insured, endorsements, and more. Any time you’re shopping for new insurance, you will often be asked to submit your current Dec page.
DeductibleThis is the amount of money a policy holder must pay out of pocket before the insurance company provides financial aid. You often get to choose your deductible when you purchase your insurance policy. Typically, the higher the deductible, the lower the premium (what you pay to have coverage in the first place).
E for Expert
Elimination PeriodCommonly found in Medical or Disability Insurance, this is sometimes referred to as the “Waiting Period.” This is the time between an injury/illness and when insurance coverage kicks in. This allows the insurance company to avoid policy misuse and vet the need.
F for Focus on You
First-Party ClaimsA First-Party Claim is when the policy holder makes a claim against their own policy. In other words, if an accident occurs, a claim is initiated by the policy holder and for the policy holder. One very common reason for these types of claims are uninsured/underinsured car accidents. If someone hits you and doesn’t have proper coverage, you will most likely need to initiate a First-Party Claim.
Full CoverageWhile this is not an official policy, carriers use this term to describe a well-rounded Auto Policy that accounts for multiple scenarios. Here are a few coverages that can create a “Full-Coverage” effect.
- Liability Coverage (if you cause an accident, injuring another individual)
- Collision Coverage (in case you need to replace/repair your own vehicle)
- Comprehensive Coverage (in case your car is stolen or damaged from a non-collision accident, like hail)
- Rental Coverage (in case you need to rent a car while yours is in shop after an accident)
- Medical Payments Coverage (in case you need to pay your passengers medical bills)
- Uninsured Coverage (in case the person who causes the accident doesn’t have insurance).
Full GlassYou can add this Auto Insurance coverage to help pay for the replacement/repair of your vehicle’s windows and windshield. Glass damage can sometimes be accounted for in Comprehensive Coverage (defined above), but depending on your deductible, it may be worth adding Full Glass protection to your policy’s language.
H for Heritage
Hired/Non-Owned AutoThis is a Commercial Auto coverage that applies liability protection to both non-owned vehicles (like employee cars) and rented or borrowed vehicles that are being used for business purposes.
K for Knowledgeable
Key Person Life InsuranceA policy that businesses purchase to protect themselves in case a named “key person” (such as a partner, director, vice president) dies. The business owns the policy, pays the premiums, and is also the beneficiary. If a named person dies, the business will use the death benefit to support company interests.
L for Legacy
LiabilityLiability refers to mishaps that happen because of you, your car, home, family, or property. The person at fault for these accidents is also financially responsible for the damage, medical bills, legal fees, and more. Liability insurance is foundational to every insurance policy and can financially step in on your behalf if you cause an accident.
Liability OnlyThis is one of the most basic Auto Insurance policies you can purchase. It only covers 3rd party injuries or property damage if an accident occurs. This means that if your car needs repairs, you or your passengers need medical attention, or a rental car is required, you would pay out of pocket. For broader coverage, we recommend a “Full Coverage” policy (defined above).
P for Preston
Personal InsuranceCategorizes various insurance products, all of which are centered around your personal risks. Some of these policies include Homeowners Insurance, Auto Insurance, Renters Insurance, Travel Insurance, just to name a few. The main take away is that Personal Insurance allows you and your family to go about your day without risking significant financial loss from both major and minor accidents.
Probationary PeriodCommonly found in Medical or Disability Insurance, this is a set amount of time that allows insurance companies to complete their vetting process after you apply for coverage. During this time, you may not initiate a claim, meaning your risks are not yet covered.
Q for Quality
Qualifying EventThese are changes to or within your business that can impact your Commercial Insurance policy. For example, if you hire more employees or change your address, your insurance policy will need to be updated. Qualifying Events allow you to request an update prior to your annual renewal date. Even if you’re unsure if a particular change is a Qualifying Event, it’s best to keep your Insurance Advisor in the loop. If your policy language is out-of-date, you could have a hole in your coverage.
R for Risk Management
Replacement CostThere are a few different ways carriers calculate your protection, centered around how they will value your insured property (including your home, vehicle(s), and even personal belongings) after a damaging event. Replacement Cost is one of these ways. Time and use can dramatically depreciate the value of assets, so Replacement Cost requires the insurance company to help rebuild/replace your assets based on what they are worth “today,” regardless of depreciation. Replacement Cost is sometimes 40-50% more coverage and typically costs more for this reason.
T for Tony