In a virtual world, your commercial insurance policy can seem like just so much more boring paperwork. However, if you’re a business owner, get over it; it’s essential you read and completely understand your policy, however boring. To get you to that place, here are some common – and important – business insurance terms you need to know:
Actual Cash Value (ACV): This refers to the cost of replacing destroyed or damaged property with like or similar property. However, depreciation is taken into account, so whatever the insurer pays to replace the property will have deductions for depreciation. For example, a surround-sound system installed in your restaurant 10 years ago is destroyed in an electrical fire. Your insurance would pay an amount to replace it with a similar or like item, less any depreciation value to account for value lost over a decade. If you have high-value items such as electronics, artwork, or antiques, consider replacement cost coverage, which allows a higher claim payout, because it doesn’t deduct for depreciation.
Act of God: These are naturally occurring perils over which policyholders have no control, such as earthquakes, devastating windstorms, typhoons, or similar events.
Aggregate limit: An aggregate limit is the maximum amount you can receive for a specified period of time. For example, you may have an aggregate limit of $200,000 for one year, which would mean that regardless of how many separate claims you make, once your policy pays out that amount for the year, it won’t pay more. Some policies have general aggregate limits, meaning the total amount your insurer will ever pay, regardless of how many claims.
Exclusion: These are “named provisions” that specifically identify items that aren’t covered, including losses occurring from specified actions or issues.
All-Risk policy: This policy will pay for losses regardless of the reason the loss occurred.
Named Perils policy: The exact opposite of an “all-risk” policy, “named perils” specifically defines what causes of loss will be covered. Usually, these include vandalism, fire, or acts of nature. This policy provides coverage ONLY for events listed in the policy, and although it’s usually very affordable, it offers very limited coverage.
Valued policy: Also referred to as an “agreed amount” policy, this states that an event resulting in a complete and total loss will be covered up to a specific, pre-determined amount as stated in the policy.
Endorsements: These are provisions added to a policy that provide extra coverage, alter a policy in some way to account for special coverage needs, or define exclusions or inclusions. Often referred to as “riders”, they can be thought of as amendments to policies.
Real Property: This refers to things such as the land or items permanently affixed or attached to it: sheds, detached garages, permanent fixtures like fences, and sometimes heavy machinery and equipment.
Personal Property: Personal property is different from real property in that personal property is easy to relocate. If you turned your building upside down, anything that falls out is considered personal property, such as furniture, computers, and office equipment.