
How to Read and Understand Your Commercial Insurance Policy
Welcome to the world of commercial insurance! If you own a business, having insurance can protect you when things go wrong. But reading an insurance policy? That can feel like trying to put together a 100,000 piece puzzle! Let’s break it down in a way that’s easy to understand.
1. The Basics: What’s in a Policy?
When you open up the policy jacket of an insurance policy, it might look like a huge wall of words, but really, it’s just a document that says what the insurance company will do for you if something bad happens. Here’s what you’ll find inside:
- Coverage Limits: This part tells you the maximum amount the insurance company will pay you in the event of a covered claim. Imagine it’s like the top line on a thermometer – once you reach that limit, that’s all the insurance company will pay.
- Exclusions: These are things the policy doesn’t cover. Think of it like a pizza order – if you don’t pay for extra cheese, you don’t get extra cheese!
- Deductible: This is the amount you have to pay first before the insurance company out toward your claim. It’s like making the initial down payment before the insurance company covers the rest of the claim.
2. Coverage Limits: How Much Protection Do You Have?
Your coverage limit is the maximum amount the insurance will pay for specific types of losses. Here’s an example:
- Imagine you have a limit of $500,000 for property damage. If a storm wrecks your building, the insurance company will cover damages, but only up to $500,000.
Let’s look at a simple chart to understand it better:
Type of Coverage
|
Coverage Limit
|
Example Scenario
|
Property Damage
|
$500,000
|
Covers damage to your building.
|
Liability Insurance
|
$1,000,000
|
Covers injuries if someone gets hurt on your property.
|
Business Interruption
|
$250,000
|
Helps if your business has to close temporarily.
|
So, if someone slips and gets hurt in your store, and your liability insurance limit is $1,000,000, you’re covered up to that amount. But if the claim exceeds your underlying $1,000,000 limit, in the absence of a commercial umbrella policy, you would be liable for the rest of the claim.
3. Exclusions: What Isn’t Covered?
Insurance policies always have exclusions, which are things they don’t cover. This part is important because it tells you when your claim will not be covered. . Here are some common exclusions:
- Natural Disasters: Many basic policies don’t cover things like earthquakes or floods. For example, if a flood damages your office, you will need flood insurance to cover that incident.
- Wear and Tear: Insurance won’t pay to fix things just because they get old. Insurance is not a maintenance policy, it is an indemnity policy. It’s designed to put you in the position you enjoyed prior to the loss. If your delivery van is 20 years old and has seen its’ best days, your insurance policy won’t cover replacing it, in the absence of a covered loss.
- Intentional Damage: If property is deemed to have been intentionally damaged, an insurance company will deny paying out a claim in that instance. (example: setting that 20 year old delivery van on fire so you can get a new one).
- Acts of War: If a conflict arises and your warehouse is damaged, in the absence of a terrorism endorsement, that claim will not be covered.
4. Deductibles: What You Pay First
The deductible is like your share of the cost. It’s the amount you pay upfront before the insurance kicks in. Let’s say you have a deductible of $1,000. If you have a covered loss of $5,000, you pay the first $1,000 and the insurance pays the rest.
Example Scenario:
Imagine you have a small fire in your shop. The repairs cost $10,000, and your deductible is $1,500. Here’s what would happen:
- Your Cost (Deductible): $1,500
- Insurance Pays: $10,000 - $1,500 = $8,500
The deductible means you have some “skin in the game”, but it also keeps your insurance premiums low.
5. Key Clauses: Little Rules That Matter
Policies also have some “fine print” rules called clauses. They are like instructions for how the policy works in different situations. Here are a few common ones:
- Co-Insurance Clause: This means you have to insure your property for a certain percentage of its total value (typically at least 80%). If you don’t, your claim payout could be less than you expect in the event of a covered loss.
- Subrogation Clause: This means if someone else is responsible for the loss, the insurance company can try to get their money back from them. Here’s an example, your delivery van is struck in a hit and run accident, but you got the license plate of the at-fault party. In that instance, your insurance carrier will most likely pay out a claim under the uninsured motorist portion of your policy and seek to recover that payout from the person who damaged your vehicle.
Understanding your insurance policy can feel a bit complicated, but if you break it down, it’s really just a way of planning for the unexpected.
Commercial insurance is a powerful tool that protects the source of your livelihood, so making sure you are properly covered is vital to your financial well-being.
If you’re ready to dive deeper and find the right insurance for you, visit www.tciins.net to learn more and get the guidance you need.