There are many things to consider when owning a business. Some of the basic considerations include location, staff, investment, and others just to name a few. However, it would be a mistake not to consider the importance of having adequate and proper business insurance. If you are about to obtain your first business insurance quote then you probably will be having some questions about the terminology being used.
Most business insurance quotes are very complicated and they are not the easiest of documents to understand and digest. This article will help you to understand a few the basics principles so that you can make a wise decision when choosing the right business insurance policy.
The first item that we will consider in this article is the Limits of Liability. You will find that the Limits of Liability is the principal part of any business insurance quotation. It basically outlines exactly how much an insurance carrier will pay out for any occurrence (claim) and for the total policy duration (aggregate limit). If you are purchasing commercial insurance for the reason of a contract requirement then these Limits of Liability will be at the core of any requirement for your contract with the insurance company.
Is important to note that the very first thing that you should do as you are looking through an insurance quote is to make sure that the limits are matching the contract terms. There will be a direct correlation between the coverage limits and premium paids. Therefore, it is important to be extremely conscious of when you might require a future higher limit, for example $5 million or more. In addition, make a notation of when your company is putting up revenue numbers that are below the requested limits, still pre-revenue, or when coverage is actually more expensive (which may be most the time).
At first, this may seem counter-intuitive but it actually makes sense for a couple of reasons. The first reason is that a company that has bigger revenue numbers is a company that is usually more established. Since it is a well-established, large company it will also have a long track record in regards to claims. This will be something that an underwriter will be able to analyze thoroughly. A long track record is one of the criteria that will make a company less of a gamble which will then provide them with lower commercial insurance quotes.
The second reason is because the revenue matching policy limits will ensure that the insurance policy is much less of a target for any optimistic attorneys. It is always wise to remember that an insurance policy is simply an asset when considering it from an accounting perspective.
The next important consideration is retention. A retention is an insurance term that simply means a deductible. Obviously, it may be confusing because why would they need another term for deductible? A deductible is well-known to be the amount that a company will have to pay on their own for each claim that is made on the policy. To simplify this complicated term, retention, is simply a matter of making an example.
Let’s say that your company has a $10,000 deductible and you have made a $100,000 claim. This basically means that the insurance company will pay $90,000 and you will pay the other $10,000. A higher retention will allow you to reduce the premium paid. However, you will normally only save a few hundred dollars in comparison to a several thousand dollar bump up in retention. In most cases, it is not worth the bump.
Another item to be mindful of is whether or not the insurance company’s carrier is Non-Admitted or Admitted. Also note the A. M. Best rating of the carrier. The rating system that is used is quite similar to a standard letter grade rating system. The rating range will go from an F to A++. Like a standard grade rating system, the higher the letter grade the better.
A qualified admitted carrier will be one that has been approved by the state insurance department so that they can underwrite insurance policies. Once a carrier is admitted they will have to completely comply with any state regulations. If they are not able to satisfy insurance claims using their own resources then they may be disqualified from state backing.
Try to think of the carrier that has been admitted by the state insurance department similar to an FDIC member bank. If ever you have a claim that was not handled properly, in your opinion, then you can make an appeal to the state insurance department for relief. You should be advised that a rating is normally more important than an admitted status. However, there are times when an insurance policy contract may need to be covered by an admitted carrier.
The final consideration is the payment. A payment will often vary between agency billing (from the insurance broker) and the direct billing (from the insurance company). There are some general liability insurance companies that will provide you with an online portal so that you can have access to everything you require. Some of these things include electronic billing, certificates of insurance, payment, and so forth. These type of general liability carriers usually direct bill. There are times, however, where they will provide a payment plan for a direct bill policy.
The majority of Cyber, E&O, D&O, and EPLI policies will be of the agency bill type. An agency bill is where a broker can collect a payment in full via check or wire. This will be necessary before the policy becomes effective. Of course, if a company is cash strapped when starting out a carrier may provide a credit card option.
Established companies, and especially new companies, need to be knowledgeable about all of the above insurance terms when considering an insurance quote from Procominsurancecompany.com or when talking to their broker. If you have any questions, or if you do not understand something in your policy, it is important to get all of the facts before you sign the dotted line.
