How to Read and Understand Your Insurance Policy
When business owners and contractors first get a glimpse of their insurance documents they can sometimes be overwhelmed by the terms, jargon, and concepts listed. This gap in understanding, though common, carries a big risk – it could mean there is a missed gap in coverage as well.
As an award-winning insurance brokerage firm, Contractors Insurance advocates insurance transparency. That’s why we have put together this comprehensive guide on how to understand your insurance policy thoroughly. We will cover the main parts and key terms used in typical commercial insurance documents.
Let’s get started!
Step 1: Know the Type of Insurance Policy You Have (or Don’t Have)
One of the first terms you will see on your insurance document is the type of insurance that it is. Understanding the rough scope of the insurance policy, based on this information alone, is the first step to thoroughly understanding what it has to offer.
Here is a glimpse of the most common types of business insurance out there and what they cover:
1. Business owner’s policy – An insurance bundle consisting of commercial general liability insurance and commercial property insurance.
2. Commercial general liability insurance – This is a type of insurance that covers the medical, repair, and/or legal costs associated with third-party injuries, third-party property damage, and third-party reputational/advertising damage.
3. Commercial property insurance – This type of insurance covers the repair or replacement costs when the commercial property of a business is subjected to damage, vandalism, or theft. It also covers office equipment, documents, and employee possessions therein. Lastly, it reimburses lost income when the property is damaged beyond use or temporarily inaccessible.
4. Business interruption insurance – This is a part of commercial property insurance that covers lost income in relation to property damage, loss, or destruction.
5. Commercial auto insurance – This is a type of insurance that covers repair, replacement, medical, and/or legal costs related to vehicular accidents. The business is also covered in case vehicles are stolen or vandalized.
6. Fleet insurance – This is a type of commercial auto insurance that covers multiple vehicles instead of just one.
7. Builder’s risk insurance – This insurance protects unfinished structures or structures that are being renovated or repaired. To an extent, it also covers the tools/materials used for construction. It will cover repair/replacement fees in the event of damage, theft, or vandalism.
8. Pollution liability insurance – This is a type of insurance that covers the legal/medical/cleanup/emergency response costs related to an incident of sudden pollution, gradual pollution, mould contamination, or legionella contamination that is linked to business operations.
9. Workers’ compensation insurance – This is a type of insurance that pays out medical costs, disability benefits, death benefits, and/or funeral expenses in cases of injury or death suffered by an employee on the job.
10. Crime insurance – This is a type of insurance that protects a business from financial losses related to acts of forgery, theft, and fraud.
11.Construction equipment insurance – this type of insurance covers the repair/replacement cost associated with the theft or vandalism of heavy construction equipment.
12. Installation and tool floater insurance – This type of insurance specifically covers the materials, tools, to-be installed fixtures, or to-be installed appliances for a project. It provides coverage for repair/replacement costs in the event of accidental damage, theft, or vandalism.
Step 2: Understand the Key Terms In Your Insurance Policy
Time to delve deeper into insurance lingo. Here are essential terms that you need to know:
1. Premium – This is the price a business regularly pays to their insurance provider within a set deadline.
2. Grace Period – This is the extra time given to an insuree to pay the due premium before the coverage expires.
3. Perils – These are events like a fire, earthquake, burglary, and so on that cause damage, destruction, or loss of property.
4. Liability – Something that a person/business owns or is legally responsible for.
5. Per occurrence limit – This is the maximum amount that the insurer will payout for a covered incident.
6. Aggregate limit – This is the maximum amount that the insurer will pay out within a policy period, which is typically one year.
7. Endorsements – These are modifications to a business insurance policy that can add, delete, or exclude points of coverage.
8. Deductibles – This is the amount that the business must pay out of pocket before insurance takes over and pays the remainder, up to the coverage limits. This could be expressed as a fixed amount, a percentage, or an aggregate amount. Typically, a higher deductible will also lower a business’s premium.
9. Riders – These are added modifications to an insurance policy to adjust its terms. Typically, these are added in order to extend the scope of coverage for a higher premium.
10. Claims – Making a claim is a process wherein the business formally requests money from the insurance company for a covered incident.
11. Proof of loss – This is a formal statement that a business must issue to their insurer after the occurrence of a covered incident, in order to start the claims process.
12. Insurer – This refers to the insurance company that issues the insurance policy.
13. Insurance agent – A person working for the insurance company to promote their insurance products and reach out to potential customers.
14. Insurance broker – A person who works with businesses to assist them in setting up and customizing their business insurance with a fitting insurer.
Step 3: Learn the Key Parts of Business Insurance Documents
1. The Declarations Page (Dec Page)
This first part of an insurance document summarizes the main details of your policy. It typically includes the following bits of information:
- The type of insurance coverage
- The policy period, the policy number, and the premium amount
- Coverage limits and endorsements
- Applicable discounts
This is a section where specific terms that are used in the insurance document are strictly defined in order to avoid ambiguities.
3. The Insuring Agreements
This section covers mainly what the business gets in exchange for the premium that they regularly pay. This section goes into detail about what the insurer or insurance company will pay for.
4. Exclusions and Limitations
This section serves to clarify excluded perils or exposures that are not covered by the insurance policy.
This section lists the conditions that the insurer has in place for a claim to be valid. A few examples of conditions include the regular payment of the premium and following a certain protocol or steps when an incident of loss occurs.
Get the Transparency That You Deserve
Contractors Insurance is an award-winning insurance brokerage firm based in Ontario. We provide proactive insurance transparency – a quality that has truly set us apart from our competitors. We will disclose everything about insurance documents and demystify any jargon therein. This way, our clients know their coverage through and through.
Are you tired of confusing insurance documents? Are you ready to have transparent and personalized insurance policies that you can really count on? Contact us today to learn more!