Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 6 minutes
Business insurance can be confusing. You have commercial insurance policy limits, endorsements, deductibles, and common exclusions. But what exactly does all of this mean to you, the business owner? We’ll review each of these and what they mean to you as the person buying and managing the insurance. Understanding your insurance is the best way to ensure that you have the right type and amount of insurance.
Commercial Insurance Policy Limits
Every insurance policy has limits, meaning coverage is limited to the amount defined by the coverage benefits in the policy. You can choose certain policy limits to make sure that you have the coverage you need. Available starting limits vary by carrier, class of business, and state.
.. You might opt for higher coverage, such as $1 million, to satisfy your lease terms and conditions.
But what does $1 million in coverage for a commercial insurance policy mean?
As a limit, this is the maximum that the policy will pay for a certain type of loss, and your policy will outline several limits that apply. Let’s take a closer look at how a policy can outline your limits.
Example of general liability limits:
- Each Occurrence Limit: $1 million
- General Aggregate Limit: $2 million
- Products-Completed Operations Aggregate Limit: $2 million
- Personal and Advertising Injury Limit: $1 million
- Damages to Premises Rented to You Limit: $100,000
- Medical Expense Limit: $5,000
Breaking Down Coverage Limits
Each occurrence is the maximum the insurance carrier will pay for all covered damages arising out of one occurrence. One occurrence can involve multiple claimants. The general aggregate then caps total payouts during the policy period.
Products-completed operations is generally applies to bodily injury or property damage arising out of products you sold or work you completed.
Personal and advertising injury is a defined coverage part within a standard commercial general liability (CGL) policy. It addresses non-physical harm caused by your business operations typically reputational, privacy-related, or rights-based offenses rather than bodily injury or property damage.
Medical payments is part of liability coverage and usually applies on a no-fault basis for non-employees injured on your premises or from your operations.
Damage to premises rented to you is mainly addressed to fire damage to premises you rent, plus broader short-term occupancy treatment in some forms.
What Are Policy Endorsements?
An insurance policy is a legal contract between your business and the insurance company. Most carriers use standardized policy language, so the base form is not usually customized for each insured. You can, however, modify and broaden or restrict coverage through endorsements, which are attached to the policy to better match your business’s specific needs.
A policy endorsement is a form added to a policy that amends the overall contract, changing the terms or conditions of the original policy. You can add an endorsement when you buy the insurance or in the middle of the term. There is usually a cost associated with adding an endorsement. There are many types of endorsements to consider; some common ones include the following.
Additional Insured Endorsement
An additional insured endorsement is a standard requirement in many commercial contracts, particularly from landlords, general contractors, and project owners. To add a third party such as a landlord to a commercial general liability policy, the policy is usually endorsed to provide additional insured status. Common ISO forms include CG 20 10 for ongoing operations and CG 20 37 for completed operations, although many carriers use their own proprietary equivalents. The endorsement typically identifies the additional insured and may schedule the party by name, project, contract, or location, depending on how the form is written.
Coverage for the additional insured is not automatic for every type of claim. It is generally limited to liability arising out of the named insured’s work, acts, or omissions, subject to the exact wording of the endorsement and the policy. In modern ISO forms, additional insured status can apply to bodily injury, property damage, and sometimes personal and advertising injury if the endorsement says so. Medical payments coverage generally does not extend to an additional insured in the same way liability coverage does. Coverage also does not make the landlord fully insured for its own unrelated operations. It is tied to liability caused, in whole or in part, by the named insured’s ongoing work or completed work, depending on the endorsement used.
Waiver of Subrogation
A waiver of subrogation endorsement prevents the insurer from pursuing recovery against a party that the insured agreed to protect by contract. This is common in construction and vendor agreements. For example, if your insurer pays a covered loss and a waiver applies, the insurer may give up its right to seek reimbursement from the protected third party. Because contractual risk transfer rules vary by state, this wording should be reviewed carefully before the job starts.
Primary and Non-Contributory Endorsement
Primary and non-contributory language deals with how insurance policies respond relative to each other. It does not tell the injured party whom they can sue. Instead, it is designed to make one policy respond first and to prevent the additional insured’s other applicable insurance from sharing in the payment when the contract requires that result. This is why it is often paired with additional insured wording in construction and landlord contracts.
Commercial Insurance Policy Limits and Deductibles
A deductible is the amount you are responsible for paying toward a covered loss before the insurer pays the remainder, subject to the policy terms. Commercial property policies commonly have deductibles, while many general liability policies do not, although some liability forms can use deductibles or self-insured retentions. In general, higher deductibles can reduce premium, but they also increase your out-of-pocket cost when a covered loss happens.
For example, suppose your business personal property limit is $20,000 and your deductible is $1,000. If you have a covered property loss of $15,000, the deductible would normally reduce the payment, and the insurer would pay the balance. But that is only part of the story. Property claims can also be affected by whether the policy pays replacement cost or actual cash value, and by any coinsurance requirement. If your limit is too low relative to the property value and the policy includes coinsurance, your payment can be reduced even further.
Common Exclusions
Exclusions are things the policy does not cover. The exact list depends on the policy form, endorsements, and line of coverage, but common examples include normal wear and tear, some natural catastrophe exposures, and entire categories of loss that belong in a different policy. Standard general liability does not cover damage to your own business property or employee injuries, and it is not a substitute for commercial auto, workers compensation, or professional liability coverage.
