Similar to other specialized industries, small business insurance has unique words and phrases that might be unfamiliar to business owners exploring commercial insurance options for the first time. Three words that you’ll regularly encounter with most insurance policies are: premium, limits, and deductible. You’ll come across them when you buy almost any form of insurance.
Knowing their meaning will help you be a more informed shopper and save you time and money. Learn more about the definition of each word:
A premium is the price you pay for insurance. If you want a continuous safety net, always pay your premium when it is due – typically monthly, quarterly, semiannually, or annually. Oftentimes, insurers will offer a discount to business owners who pay their entire premium when a policy is initiated.
If you don’t pay your premium, your insurer will eventually cancel your policy (or in insurance lingo, your policy will lapse). Once you miss a premium, you will have a grace period to make a payment. If you still don’t pay, your policy will expire, leaving you vulnerable to future losses. If you wish to protect your business, it’s important to pay your insurance premiums on time.
Several factors affect how premiums are calculated:
Those factors are typically addressed when you apply to compare insurance quotes with Insureon, a free process that typically takes about 15 minutes. Because so many factors determine your premium, there are many opportunities to customize your policy to lower its cost.
If your business has a covered loss, your insurer will cap how much it will pay to settle your claim. These caps are known as policy limits (or limit of liability). Their size depends on how much insurance you decided to purchase.
How insurance limits work depends on the type of insurance. For example, there are two types of insurance coverage limits, per-occurrence and aggregate, for general liability, professional liability, and errors and omissions insurance:
The limits inform you of the maximum amount of funds your policy will provide in case you experience one or multiple covered losses.
For workers’ compensation insurance, policy limits depend on the type of loss. For example, when employees suffer a work-related injury or illness, they can be compensated for their lost wages and medical bills. The specific amount is determined by your state’s Workers’ Compensation Board. The limits for claims of employer negligence could vary from limits for injuries or illnesses.
Your policy deductible, sometimes called an annual deductible, is what you pay out of pocket before your insurance policy provides financial assistance and coverage. In effect, it’s a form of risk sharing between you and your insurance company.
Insurance companies typically offer a range of deductible amounts to small business owners. If you prefer to keep your claims low, then select a low deductible. However, this will typically raise your premium. Conversely, if you don’t mind paying more out of pocket on claims, then choose a high-deductible policy. This will typically reduce your premium.
Whether you’re buying general liability, professional liability, or errors and omissions insurance, policy deductibles are an excellent way to tailor your policy to reflect your risk appetite and budget.
Learn more about insurance terms you could encounter while shopping for policies with Insureon’s business insurance glossary.