The world of commercial insurance is full of specialized jargon and easily confused abbreviations.

Here, we’ll demystify 26 tricky insurance terms you’re likely to encounter as a small-business owner:

Surety bonds guarantee that a party will fulfill their obligations under a contract or agreement.

  1. Arbitration
    A process in which two parties in a dispute agree to submit their disagreement to a third party who will review the evidence and make a binding decision to resolve the conflict.
  2. Automotive Liability
    In a business context, a type of insurance that protects businesses against legal and financial liabilities resulting from accidents involving vehicles used for business purposes.
  3. Certificate of Liability Insurance
    A document that verifies insurance coverage and details policy information, often required as proof of insurance before conducting business activities.
  4. Coinsurance
    A clause in an insurance policy that requires the policyholder to share the cost of covered losses with the insurance company by paying a percentage of the claim amount.
  5. Cyber Liability Insurance
    Insurance coverage that protects businesses from losses related to cyberattacks, data breaches, and other cyber risks.
  6. Deductible
    The amount that an insured party must pay out of pocket before an insurance policy provides coverage for a claim.
  7. Endorsement
    A written agreement that modifies the terms and conditions of an insurance policy.
  8. Errors and Omissions (E&O)
    Also known as professional liability, insurance coverage that protects businesses and professionals from claims of inadequate work or negligent actions that result in financial loss for clients.
  9. Exclusion
    A provision in an insurance policy that excludes certain types of losses or risks from coverage.
  10. Extended Reporting Period (ERP)
    An optional extension period that allows policyholders to report claims that occurred during the policy period but were not reported until after the policy expired.
  11. Fidelity Bond
    An insurance policy that provides coverage for losses resulting from fraudulent or dishonest acts committed by employees.
  12. General Liability
    Insurance coverage that protects businesses from financial losses related to third-party bodily injury or property damage claims.
  13. Indemnity
    A contractual agreement in which one party agrees to compensate another for losses or damages.
  14. Insurance Binder
    A temporary contract of insurance that provides immediate coverage until a formal policy is issued.
  15. Loss Run
    A document that provides a summary of all claims filed under an insurance policy, including the dates, amounts, and types of losses.
  16. Multinational Insurance
    Insurance coverage that provides protection for businesses with operations in multiple countries, including coverage for legal and regulatory requirements in each country.
  17. Premium
    The amount paid by a policyholder to an insurance company for coverage under an insurance policy.
  18. Proof of Loss
    A document that provides details of a loss and the amount of damages incurred, which is required by the insurance company before a claim can be processed.
  19. Rider
    An optional amendment or endorsement added to an insurance policy that modifies the terms and conditions of the policy to meet the specific needs of the policyholder.
  20. Risk Management
    The process of identifying, assessing, and prioritizing risks in order to minimize the likelihood and impact of potential losses.
  21. Specified Perils
    Insurance coverage that provides protection for losses resulting from specific named perils, such as fire, theft, or vandalism.
  22. Subrogation
    The process by which an insurance company assumes the rights of the policyholder to recover losses from a third party that caused the loss.
  23. Surety Bond
    A three-party agreement that provides a financial guarantee that a party will fulfill their obligations under a contract or agreement.
  24. Underwriting
    The process by which an insurance company assesses the risks associated with providing insurance coverage to a potential policyholder and determines the terms and conditions of the policy.
  25. Workers’ Compensation
    Insurance coverage that provides benefits to employees who are injured or become ill as a result of their job.
  26. Zone Rating
    A method used by insurance companies to determine premiums based on the likelihood of losses occurring in a specific geographic area.

Defining Success

If you’re ready to put your knowledge into action, consult your financial institution.

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