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 want or need. For example, a commercial general liability policy might have a minimum coverage limit of $300,000. 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
As you can see, a $1 million limit doesn’t necessarily mean that you have $1 million in coverage. The first item, “Each Occurrence,” means that every time there is a claim, you have this maximum limit to the policy. The “General Aggregate Limit” is the total amount the insurance policy will pay in a given policy period, usually one year.
There is another limit for “Products-Completed” coverage which pays if something you sold leads to injury to the consumer. This has its own aggregate limit set by the policy. The “Personal and Advertising Injury Limit” applies explicitly to losses pertaining to things like libel, slander, copyright infringement, stolen ideas, or an invasion of privacy.
Then there are two smaller limits found even in a policy with a general limit of $1 million. This is the limit for the property rented to you. This limit covers the costs associated with claims where the building is damaged, say in a fire. There is also a small medical expenses limit that pays for claims where someone may need medical attention on your property, where general liability doesn’t apply.
You can increase your coverage by raising your liability limits. This will also increase your premium due.
What Are Policy Endorsements?
An insurance policy is a contract between you and the insurance company. Carriers write most policies using boilerplate language, and you can’t individualize them on their own. However, you can tailor a policy to better suit your needs by using one or more endorsements.
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 fairly standard endorsement required by landlords and third parties that hire your firm. The additional insured endorsement provides coverage up to the policy limits for the party named on the additional insured endorsement. For example, the landlord may require general liability insurance and also require that you name him as an additional insured.
To accomplish adding a third-party such as a landlord to the commercial insurance policy, you would use the additional insured form. The industry commonly refers to the forms as “CG 20 10” or “CG 3027” forms. Your insurance carrier may have their own equivalent form that they use. Ultimately, the form lists the third party’s name, address, contact details, and the location to which coverage applies. This coverage only applies to bodily injury and property damage claims. The third party does not get coverage for things like medical payments or personal and advertising injuries. Coverage exists only when the loss results from the business operations of the primary named insured on the policy.
Waiver of Subrogation
A waiver of subrogation endorsement is commonly used in general contractor policies but can be applied to any general liability policy when deemed necessary. This endorsement prevents the insurance carrier from seeking reimbursement for damages from a third party. Clients may require this waiver as a condition of employment.
For example, if a contractor is working at a property and someone slips and falls, getting hurt, there will be a claim. The contractor’s commercial insurance policy will pay the claim. Still, without a waiver of subrogation, the insurance carrier may seek damages from the property owner because the accident resulted from their negligence, such as a stair railing not being secured (and not part of the contractor’s work). When a waiver of subrogation exists, the insurance carrier cannot seek recovery of the money paid in the claim.
Primary Non-Contributory Endorsements
When multiple policies exist that could apply to any given claim, one commercial insurance policy would be considered the primary policy. Primary policies pay first, followed by secondary policies up to the commercial insurance policy limits. For example, a subcontractor may have a general liability policy for his business and be working for a general contractor who has a primary policy for the overall project. If the subcontractor has to include a primary non-contributory endorsement on his policy, a claimant can’t file a claim on the primary policy; he must first file a claim on the subcontractor’s policy. This is another form of providing protection for an additional insured.
Commercial Insurance Policy Limits and Deductibles
Just like a commercial insurance policy will have policy limits, it will also have one or more deductibles. The deductible is the amount you, the policyholder, will pay when there is a claim. While most liability policies don’t have a deductible, most commercial property policies do.
For example, you might have a commercial property policy that has $20,000 in coverage. This means that the policy will pay up to $20,000 to replace lost or stolen assets from your company. Assets include things like computers, furniture, inventory, and displays. If you have a $1,000 deductible, you will pay the first $1,000 of a covered claim. This amount is before the insurance company pays the $20,000.
Assume a claim of $15,000. You will pay the first $1,000, and the insurance company will pay the remaining $14,000. In cases where you are underinsured, and the claim is for more than the coverage limit, you will foot that cost yourself on top of the deductible. This would happen if the claim were for $25,000 with only $20,000 in coverage.
Commercial Insurance Policy: Common Exclusions
Exclusions are events that the commercial insurance policy does not cover. Common exclusions for commercial insurance policies are:
- Excluded perils such as floods or earthquakes
- Excluded losses such as those sustained from normal wear and tear
- Excluded property such as an automobile
When insurers exclude something, you won’t have a claim pay you for the loss or damages. These losses are entirely yours as the business owner to bear.