21 Business Insurance Terms to Know

1. Actual Cash Value (ACV): When purchasing commercial property insurance, should you opt for the policy to be based on actual cash value (ACV) or replacement value (RV)? 

ACV is the depreciated replacement cost of damaged or stolen property. It is a method of valuing insured property while considering the property’s or item’s age and condition. It calculates how much something is worth over its expected lifetime.

2. Replacement Value (RV): RV, or replacement cost coverage, replaces or repairs damaged property with new items of similar kind and quality without deducting for depreciation. RV coverage reimburses a policyholder for the full cost of buying a new, equivalent item or property.

3. Additional Insured: Any person or organization that you add to your policy is considered an additional insured. Additional insureds are entitled to limited benefits under your policy and are insured for their third-party liability. Additional insureds are frequently used for general liability and commercial auto insurance policies.

4. Aggregate Limit: The aggregate limit, also known as a coverage or policy limit, is the maximum amount of money an insurance company will pay for an insurable loss during a policy’s one-year period. It applies to all covered losses. Once that limit is reached, the insurer will not pay for additional claims within the policy’s one-year period.

5. Binder: A binder is a document that serves as a temporary insurance policy until the full policy can be issued. As a business owner who has been issued a binder, you are fully insured unless told otherwise by your broker. Binders are typically issued for 30 days and dissolve once the full policy is issued.

6. Retroactive Date: When someone first purchases an errors and omissions (E&O) insurance – also called professional liability insurance – the start date of the initial policy is called the retroactive date. If they carry continuous coverage with no gaps, this retroactive date will follow their new policy. Therefore, if you initially purchased E&O insurance on January 1, 2010, and renewed that policy annually, in 2025 it will show a retroactive date of January 1, 2010. It applies even if you switch insurance companies. The retroactive date is important as many businesses who carry professional liability may not see claims arise for years after they actually provide a service.

For example, if an accountant with a January 1, 2010, retroactive date works with a client on June 1, 2010, and makes a critical error in their accounting work, this error may not be noticed for a while. Suppose the client realizes this mistake in February 2011 and sues the accountant. Although the accountant may have switched insurance companies from 2010 to 2011, but since they have carried the retroactive date to their new policy, they are still covered for this claim.  

7. Care, Custody, and Control: When you are in possession of someone else’s property, you are responsible for it. In other words, you have ‘care, custody, and control’. This means that if something happens to that property while it’s in your care, you could be held liable. For instance, an auto repair shop has the care, custody, and control over their customers’ vehicles they are servicing or have stored on their property. Care, custody, and control is a form of exclusion that outlines what is not covered by your policy and applies to many types of insurance.

8. Certificate of Insurance (COI): Also known as proof of insurance, a certificate of insurance is a one-page document issued by your broker summarizing the details of your policy. It confirms that you are actively insured. You will often be asked for this when you are leasing office space, signing a new contract, or getting a loan.

9. Claim and Claimant: A claim is when you request your insurer to cover any losses or damages you suffer or if you’re named in a third-party lawsuit, as per your policy. If you file a claim, you are the claimant.

10. Deductible: A deductible is the amount of money you, as the policyholder, pay after filing a claim before your insurance company pays. After you’ve paid the deductible, your insurance company will pay you for the remainder of the claim value (up to the policy’s limit). You can select the deductible amount in your policy, and the higher it is, the lower your annual premium will be.

11. Exclusion: An exclusion is a provision that removes coverage for certain risks, hazards, or events and outlines what is not covered by your policy. Exclusions are designed to help keep premiums affordable.

12. Grace Period: If you pay your annual insurance premium monthly, but miss a payment, the grace period is an amount of time your insurer will give you to pay your bill before it revokes your coverage for failing to pay.

13. Liability: To be liable is to be held responsible by the law. Liability is insurance coverage that protects an individual or business if they are sued and found accountable by law, such as injury, malpractice, or property damage. A liability policy will typically cover your legal costs and payouts if you are found legally liable. Intentional damage and contractual liabilities are usually not included. Talk to a licensed broker to understand the limitations and restrictions of your policy.

14. Loss: A loss refers to damages to an insured property or item. For example, if a windstorm damaged your commercial property’s roof, that is considered a loss. Therefore, you can file a claim to recoup the cost of those damages, provided you have the coverage minus a deductible.

15. Named Insured: A named insured, or policyholder, is a person or company that owns an active insurance policy.

16. Perils: A peril is a specific risk or cause of loss that is covered by an insurance policy, such as fire, vandalism, or theft. Policies may feature named perils (risks explicitly listed in a policy), specific perils (typically applies to a specific risk), or all perils (covers all risks except those excluded from a policy).

17. Per Occurrence Versus Aggregate: A ‘per occurrence’ limit refers to the total amount an insurance company will pay for one incident, whereas an ‘aggregate’ limit applies to the total amount an insurance company will pay for multiple claims in one policy, usually over a year.

18. Policyholder: The policyholder is an individual or company that owns an insurance policy. So, as a business owner, if you’re the policyholder, you’re also the named insured. That means you own the policy, pay for it, choose the coverages, and can change or cancel it as you wish.

19. Premium: A premium is the amount of money you pay to the insurance company for your coverage. It may include a commission paid to a broker and additional fees to cover the cost incurred to write and manage the policy. A premium is typically paid annually or monthly.

20. Rider: Also referred to as an insurance endorsement, a rider is an add-on to a policy, such as adding, removing, or changing coverage to customize it to suit your business better. For example, some general liability insurance policies include product liability insurance. If they don’t, and your business sells products, you can add product liability insurance to them as a rider or endorsement.

21. Underwriter: An underwriter is an individual who evaluates an insurance application they receive from an insurance broker, assesses risks, and determines whether an insurer should provide coverage to the applicant or business owner. The underwriter decides a policy’s premium, coverage limits, and exclusions.    

Understanding Common Business Insurance Terms

Wrapping your head around insurance terminologies and their definitions can be confusing and sometimes boring. It never hurts to have a conversation with a licensed broker to ensure you understand what’s in your policy and its terms and conditions.

Whether you’re seeking a business insurance policy for the first time or are shopping around before renewing a policy, fill out our online application for a free quote.

Let our knowledgeable team of brokers help you get the customized, comprehensive coverage you need at an affordable price so you can focus on growing your business.

– Updated February 10, 2025.