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Insurance Terms in Plain English

New to insurance language? This glossary explains common business insurance terms in plain English so policies and quotes are easier to follow.

Terms are grouped by topic and listed A to Z within each group, so the word on your quote or certificate is quick to find.

Price and payment

Deductible: the portion of a covered loss you are responsible for under the policy.

Premium: the price charged for insurance.

How much and what kind of protection

Endorsement: a document that changes the policy. It can add, remove or modify coverage or other terms, so read it with the policy.

Exclusion: wording that removes specified losses, activities or circumstances from coverage.

Limit: the most a policy pays for a covered loss. Most liability policies carry two, a per-occurrence limit and an aggregate limit, both defined under How and when a policy responds below.

People and documents

Additional insured: another party insured under specified policy terms. The scope can be limited; being named on a certificate is not enough on its own.

Certificate of insurance: evidence summarizing insurance information. It does not replace the policy or change its terms.

Declarations: the policy summary identifying items such as the insured, policy period, coverages, limits and premium.

Named insured: the person or business identified as an insured in the policy.

Common coverage types

  • Business owner’s policy (BOP): general liability and business property packaged in one policy for an eligible small business, often with business income cover.
  • Commercial auto: liability and physical damage cover for vehicles your business owns or leases, and for the people who drive them for work.
  • Commercial property: cover for your building, improvements, equipment and stock against fire, theft and other covered damage.
  • Commercial umbrella: an extra layer of liability limits that sits above general liability, commercial auto and employer’s liability, and can respond once those limits run out.
  • Crime bond: coverage for money or property taken through employee theft, forgery or fraud. A client-property version addresses theft by your staff at a customer’s premises.
  • Cyber insurance: a policy for the fallout of a data breach, ransomware or a fraudulent payment request, such as forensic work, customer notices and income lost while systems are down.
  • Directors and officers (D&O): coverage for claims that the people running or governing a company, including a nonprofit board, made a wrongful management decision.
  • Employment practices liability (EPLI): coverage for claims by employees or job applicants alleging discrimination, harassment, retaliation or wrongful termination.
  • General liability: the policy for injuries to other people and damage to their property caused by your premises, your operations or your products.
  • Hired and non-owned auto: liability for accidents in vehicles your business rents, or that employees drive for work in their own cars.
  • Inland marine: the traditional name for coverage on property that moves, such as tools, equipment and goods in transit. Small businesses usually meet it as a tools and equipment floater.
  • Liquor liability: coverage for claims that alcohol your business sold or served contributed to an injury or property damage.
  • Product liability: the part of general liability, or a standalone policy, that answers a claim that a product you make, import or sell caused injury or damage.
  • Professional liability (E&O): coverage for a client’s claim that your advice or work was wrong and cost them money.
  • Surety bond: a three-party promise in which a surety backs your obligation to a project owner or public agency. Unlike insurance, the surety expects you to repay any loss it absorbs.
  • Workers’ compensation: the policy California requires from your first employee, paying medical care and part of lost wages for job injuries.

Contract wording you will meet

  • Additional insured endorsement: the policy change that actually extends coverage to another party. A blanket version applies to anyone your written contract requires, while a scheduled version lists each party by name.
  • Hold harmless (indemnity) clause: a contract promise to take on another party’s legal responsibility for certain losses. It lives in the contract, not the policy, so ask how your coverage treats the obligation you are accepting.
  • Primary and noncontributory: wording that makes your policy respond first for the other party, without asking that party’s own insurer to share the loss.
  • Waiver of subrogation: an agreement that your insurer will not go after the other party to recover what it paid on a loss that party caused.

How and when a policy responds

  • Aggregate limit: the most the policy pays for all incidents in the policy period combined. Once it is used up, that coverage has nothing left until the policy renews.
  • Claims-made policy: responds to claims first made, and usually reported, while the policy is active. E&O, D&O, EPLI and cyber are commonly written this way.
  • Occurrence policy: responds to injury or damage that happens during the policy period, even when the claim arrives long after the policy ends.
  • Per-occurrence limit: the most the policy pays for a single incident, however many people are hurt.
  • Retention (SIR): an amount the business pays on its own, often including defense costs, before the insurer steps in at all. A deductible works differently: the insurer usually handles the claim from the start and then collects the deductible from you.
  • Retroactive date: the earliest date of work or events a claims-made policy will consider. Keeping the same date when you change carriers keeps earlier work within reach of the new policy.
  • Tail (extended reporting period): extra time to report claims after a claims-made policy ends, often arranged when a business closes, sells or moves to a policy without matching prior-acts terms.

California employer terms

  • ABC test: the California standard for deciding whether a worker is an employee or an independent contractor for wage, payroll tax and workers’ comp purposes. The business must show that the worker is free from its control, does work outside its usual business and runs an independently established trade.
  • Employer’s liability: the second part of a California workers’ compensation policy. It addresses lawsuits tied to a workplace injury that fall outside the workers’ comp benefit system, such as a claim from an injured worker’s spouse, and a commercial umbrella can sit above it.
  • Experience modification: a factor that compares your past workers’ comp claims with those expected for businesses of similar size and type. A mod above average raises the premium and one below average lowers it; small employers often have none until they meet the rating thresholds.

Turn an unfamiliar term into a useful question

Choose a real activity your business performs and ask how the term applies to it. For example: “If equipment is damaged away from my premises, which limit, deductible and exclusions would apply?” These short definitions are a starting point; the wording in your own policy controls.

A few useful answers

Common questions

What is the difference between a deductible and a limit?

The deductible is the part of a covered loss you pay; the limit is the most the policy pays. On a $10,000 covered loss with a $1,000 deductible, the insurer pays $9,000, as long as that stays within the limit.

Does a certificate of insurance prove someone is covered?

It shows a summary of a policy on the day it was issued. The policy and its endorsements decide what is covered, so when a contract requires additional insured status, ask for the endorsement itself.

What is the difference between an additional insured and a certificate holder?

An additional insured gains rights under your policy, through an endorsement, for claims tied to your work. A certificate holder only receives the certificate as proof of insurance and gets no coverage from it, so a contract that asks for additional insured status needs the endorsement, not just a name in the holder box.

Related guides

Bring your questions to Mithril1.

Further reading: NAIC guide to endorsements.

More definitions: California Department of Insurance glossary.