What do these 25 common business insurance terms mean?
Plain definitions of the business insurance terms you will meet when buying coverage, from carriers and brokers to limits, deductibles, exclusions and endorsements.
Insurance is a promise you buy and hope never to use, and that promise is written in a vocabulary of its own, one that shows up in every quote, policy and contract you sign. A few dozen terms do most of the work: learn them once and you can compare quotes, ask sharper questions and see exactly what a policy leaves out. Use the index below to jump to any term; every definition draws on the International Risk Management Institute (IRMI) glossary. When you are ready to choose policies, see what coverage do I need?
Who is involved in a business insurance policy?
You, the insured, transfer risk to a carrier; an underwriter decides whether and on what terms to accept it, a broker represents you in placing it and an adjuster settles claims.
1. Insured (policyholder)
The person or organization protected under an insurance policy; the policyholder is the policy's owner, and the named insured is the party listed by name on it (IRMI).
2. Carrier (insurer)
The insurance company that takes on your risk: it agrees to indemnify you for covered losses and issues the policy (IRMI).
3. Underwriter
The person at the carrier who decides whether to accept a risk, and at what price and conditions (IRMI).
4. Broker
An intermediary who represents the insured rather than the insurer in placing coverage; some states impose a fiduciary duty or require disclosure of broker compensation (IRMI).
5. Claims adjuster
The person who investigates a loss, determines how much is covered and settles the claim; staff adjusters work for the insurer, independent adjusters work on contract and public adjusters represent the insured (IRMI).
What is the difference between exposure, hazard and peril?
An exposure is what you could lose, a hazard is a condition that makes a loss more likely, a peril is the cause of the loss itself, and a claim is your demand for payment once a loss occurs.
6. Exposure
The state of being subject to loss; the term also refers to the rating base a premium is calculated on, such as payroll or revenue (IRMI).
7. Hazard
A condition that increases the probability of loss, such as poor housekeeping in a factory (IRMI).
8. Peril
A cause of loss, such as fire, windstorm or collision (IRMI).
9. Claim
A demand to recover, under a policy, for a loss that may fall within that policy (IRMI).
Who regulates insurance?
Insurance is regulated by the states: each state's insurance department, led by an insurance commissioner, licenses and oversees the carriers and brokers operating there.
10. Insurance commissioner
The head of a state's insurance department or regulatory agency (IRMI).
11. National Association of Insurance Commissioners (NAIC)
The association of state insurance commissioners; it issues model laws that states can adopt and accredits state regulators (IRMI).
What do premiums, limits, deductibles and retentions mean?
The premium is what you pay for the policy and the limit is the most it pays; a deductible or retention is the share you bear, and the policy's trigger, claims-made or occurrence, decides which claims it answers.
12. Premium
The amount a carrier charges to provide the coverage described in the policy (IRMI).
13. Limit
The maximum a policy pays for a specified coverage; liability limits are usually set per occurrence and in the aggregate (IRMI).
14. Per occurrence limit
The most the carrier pays for all claims arising from a single occurrence, however many claimants there are (IRMI).
15. Aggregate limit
The most the policy pays for all covered losses during the policy period, usually a year (IRMI).
16. Sublimit
A cap on a specific type of loss that sits within the overall limit, rather than adding to it (IRMI).
17. Deductible vs retention
Both are the share of a loss you bear. With a deductible, the carrier pays the claim, including defense, and then bills you for the deductible; with a self-insured retention, you pay the first amount yourself, defense included, before the policy responds (IRMI).
18. Claims-made vs occurrence policy
A claims-made policy covers claims first made during the policy period, wherever the underlying act falls in time; an occurrence policy covers injury or damage that happens during the policy period, whenever the claim is made. Most professional liability is claims-made, while most general liability is written on an occurrence basis (IRMI; IRMI).
19. Retroactive date
A date in many claims-made policies before which wrongful acts are not covered, even when the claim is first made during the policy period (IRMI).
What do exclusions and endorsements do?
Exclusions remove specific perils, hazards or property from coverage, while endorsements change the policy, adding, restricting or clarifying coverage, often to meet a contract requirement.
20. Exclusion
A policy provision listing hazards, perils, circumstances or property the policy does not cover (IRMI).
21. Endorsement
A form that changes or adds to a policy, for example to broaden or restrict coverage or add insureds or locations (IRMI).
22. Declarations
The front page of a policy, listing the named insured, policy period, limits and other key details (IRMI).
23. Additional insured
A person or organization added to your policy at your request, often a landlord or customer that requires it by contract (IRMI).
24. Waiver of subrogation
A carrier's agreement that it will not pursue recovery from a third party after paying your loss, typically because you waived that right in a contract (IRMI).
25. Contractual liability
Another party's liability that you assume under a contract, such as an indemnity agreement (IRMI).
Ready to decide which policies apply to your business? See what coverage do I need?
Sources and further reading
Related guides
This guide is general educational information, not legal, tax, or insurance advice. Coverage depends on your business, the insurer's underwriting and the issued policy terms.