03/25/2021
6 KEY INSURANCE TERMS for SMALL BUSINESS OWNERS:
If you’ve ever been confused by small business insurance, you’re not alone. Sometimes it can feel like you need a code to decipher a secret language when reviewing coverage options.
That’s why I’m on a mission to make it easier to understand business insurance so you can make an informed decision and get back to focusing on your business.
In this article, I will explain six common insurance terms using jargon-free language that’s easy to understand. No dictionary, insurance industry specialist or decoder ring necessary.
1. Commercial insurance
Let’s start with the basics. Commercial insurance, also known as business insurance, protects your business from different risks.
But almost immediately it gets tricky because there are several different individual types of policies that are included in commercial insurance packages.
You can purchase different types of coverage depending on the type of business you have and how it changes as you grow. (Don’t worry, we help you through this with our easy instant quote process).
Here are five of the most common types of policies:
General liability — Helps pay for expenses related to the most common injuries and property damage risks for businesses.
Professional liability — Can help you if someone accuses you of making a mistake that causes them to lose money.
Commercial auto — Similar to personal auto coverage, but you need it for business driving.
Workers’ compensation — Helps pay the medical bills and lost wages after a workplace injury.
Commercial property — Can help cover the things you need to do business if it’s damaged or destroyed.
2. Premium
Simply put, your premium is your insurance bill. With Next, you can pay it in one lump sum or monthly (at no extra charge, we might add).
Ever wonder how your insurance costs are decided? It’s usually based on a combination of factors, including:
The type of work you do
Your risk of injury
The value of your property
The type of clients you work with
The number of employees you have
Your previous insurance history
How many vehicles you use for work
The state where your company is located
Generally, companies in higher-risk industries, such as construction, pay more for coverage than businesses in low-risk industries like consultants.
At Next, we use AI and machine learning to find you the right coverage at an affordable price — often at 30% less than other options.
3. Deductible
When you file a claim, a deductible is the amount you must pay before your insurance kicks in.
Deductibles are usually a fixed amount (e.g., $250, $500, or $1,000). But they may also be a percentage of the loss.
For example, let’s say you have a commercial property policy with a $500 deductible. If a pipe bursts and destroys $5,000 worth of your inventory, you’d pay $500 toward the claim and your insurance would cover the additional cost (up to your policy limit).
The good news is, when you purchase insurance with Next, you only have to pay a deductible for your commercial property coverage. Otherwise, you usually won’t have to pay anything out of pocket on a claim until you hit your policy limit.
4. Named insured
A named insured is just like it sounds — any person or business listed by name on the insurance contract. An insurance policy can have more than one named insured. If it does, the person who’s listed first is usually the primary policyholder.
The named insured often purchases the policy and pays the premium — but not always. Sometimes, a person may buy and pay for a policy in someone else’s name.
You see this a lot with health and disability insurance. Employers purchase coverage and pay for part or all of the premium on behalf of their employees. But this practice is much less common with liability and property coverage.
As the named insured, you can add other people to the policy, which brings us to our next insurance term.
5. Additional insured
An additional insured is a person or business you add to your insurance policy. They’re not responsible for paying the premium, but they are covered by the policy — with some limitations.
Additional insureds are covered under a policy only if the work they’re doing is related to the primary policyholder’s work.
Confused? Here’s an example.
Let’s say you’re a salon owner and several stylists want to rent a chair in your salon. But before they begin working on the premises, they ask you to add them as an additional insured on your general liability policy.
A few weeks after they start, a new product they are trying causes a chemical burn and a client sues because of her injury. Because the stylist is an additional insured, your insurance policy would cover the stylist.
But if the stylist has a side business she runs out of her home and the same thing happens, your insurance would not cover the lawsuit.
6. Employers Liability insurance
Even if you don’t have employees who work for you, you’ve probably heard of workers’ compensation insurance. It helps cover medical bills and lost wages for employees who get hurt or sick on the job. But that’s just the first part.
What you might not know is that in most states there is another aspect to workers’ comp coverage.
The second part is called employers liability insurance. It helps protect you if an employee sues you because they believe your actions (or inaction) caused or worsened their injury.
For example, let’s say one of your employees is working in a warehouse when a pallet of merchandise falls from a forklift and hits him in the head.
If the employee decides to sue you for not properly maintaining the forklift, workers’ comp would help pay for their medical bills and lost wages while employers liability insurance would help cover the cost of the lawsuit and any settlement that might be awarded.
