You’ve just gotten your insurance policy, started reading through the fine print, but the words all seem to blur together. Terms you’ve never heard before, legal phrases that read like a foreign language, and coverage detail descriptions that sound like a complex math problem…
If that sounds familiar, you’re not alone. Many small business owners find themselves in the same spot: confused, frustrated, and wondering if they’ve made the right decision. Let’s tear away the legalese and jargon to leave you with clear, simple terms! Here’s your small business insurance policy, explained.
What is an Insurance Policy?
An insurance policy is a contract between you and your insurer. It outlines:
- What the insurance company is responsible for
- What you are responsible for
- What you are and are not covered for
This contract is crucial because it helps protect your business from unexpected events, from property damage to liability claims.
Understanding your policy ensures you’re fully aware of your coverage, exclusions, and any conditions that might apply. Without this knowledge, you could be caught off guard when you need it most.
What’s the Difference Between an Insurance Policy vs a Certificate of Insurance?
A Certificate of Insurance (COI) is an official document that summarizes your entire insurance policy. You’ll likely hear the words “Certificate of Insurance” the most from people requiring you to carry insurance.
Your Certificate of Insurance is for external use and reference, often used to verify your insurance coverage with third parties like landlords, events, lenders, venues, or other municipalities. Your insurance policy is for your own internal use and reference.
There are a few different names you may come across that are used to refer to a Certificate of Insurance, like:
- COI
- Proof of insurance (POI)
- Certificate of liability insurance
- ACORD, ACORD 25,
- ACORD form
- ACORD certificate
You can access your COI through your online dashboard as part of your policy documents.
Understanding the Parts of an Insurance Policy
Insurance policies might look like a lot of fine print at first, but they’re divided into five key sections that each serve an important purpose:
- Declarations page
- Insuring agreement
- Exclusions
- Conditions
- Endorsements
Declarations Page
This is where the key details about your policy are listed, like your name, policy number, coverage limits, and more. Think of it as the “at-a-glance” summary of your coverage.
Example: You’ll find your coverage limits here, such as how much your policy will pay for a general liability claim.
Insuring Agreement
This section is the heart of your policy. It outlines the specific promises the insurer is making, such as paying for damages or providing defense in case of a lawsuit (so long as it’s for a valid, covered claim).
Example: This will specify what types of claims are covered, like fire damage or theft.
Exclusions
It’s just as important to know what’s not covered as it is to know what is. The exclusions list situations or types of damage that your policy won’t cover.
Example: If your business deals with hazardous materials, certain types of damage related to those materials might be excluded.
Conditions
These are the specific rules you must follow for your coverage to be valid.
Example: Depending on the policy type, you may be required to report a claim within a certain period.
Endorsements
These are changes or adjustments to your policy that modify the original base policy, like adding coverage, increasing limits, modifying exclusions, or extending the claims reporting period.
Example: If you need to increase your liability limits by $1M to meet specific insurance requirements, you may add an excess liability endorsement to your policy.
How to Read Your Insurance Coverage
The coverage section is where you’ll see what exactly your policy covers — and just as importantly, what it doesn’t.
Understand Your Coverage Limits
Coverage limits are the maximum amounts your insurance company will pay for a claim. Knowing these limits helps you understand if your coverage is enough for your needs.
When talking about limits, you’ll most commonly see these terms:
- Aggregate limits – This is the most your policy will pay out in total for all claims received in a 12-month policy period
- Per occurrence limits – Also known as “each occurrence” limits, this is the most your policy will pay out per claim in a 12-month policy period
Example: If your policy comes with a $2 million aggregate and $1 million per occurrence limit, this means it may cover up to $1 million for a single claim and up to $2 million for all claims you file in a policy period. Any expenses that exceed your policy limits are paid by the policyholder.
Know Your Deductibles
The deductible is the amount you’ll need to pay out of pocket before your insurance kicks in.
Example: If you have a $1,000 deductible and your equipment is damaged. You’ll pay the first $1,000, and your insurance will cover the rest.
Recognize Policy Types
Insurance policies can cover different aspects of your business, including liability, medical expenses, and even workers’ compensation. Make sure your policy includes all the coverage you need.
Example: A general liability policy protects against lawsuits, but doesn’t cover product-related claims. If you need both, make sure you have product liability coverage on your policy, too.
Common Problems When Reading an Insurance Policy
Many small business owners make the mistake of glossing over their insurance policies because they don’t understand all the terms.
Insurance jargon: Insurance terms can be confusing, like “endorsement” or “inland marine.” If you’re unsure, don’t hesitate to ask a member of our team!
We also highly recommend online resources, like the Insurance Canopy Glossary or the IRMI Glossary, to clarify unclear terms.
Missing details: Sometimes, policies may not include all the coverage you need. Always review your policy thoroughly and contact your insurer if anything seems missing or unclear.
For example, Sarah runs an at-home bakery and assumes her liability policy covers her kitchen equipment. After reading through her policy, she discovered this wasn’t the case, and she needs to add Tools and Equipment Coverage (Inland Marine) to her policy to protect her equipment.
Complex exclusions: Some exclusions can contain a lot of fine print. Take time to read through them so you aren’t surprised later.
If you’re unsure about any part of your policy, contact your insurance agent for clarification. It’s better to ask questions now than to realize you’re underinsured later (especially if you need to file a claim).
How to Ensure You Have the Right Insurance Coverage
Reviewing your policy regularly and asking questions when necessary is essential to keeping your business covered. Here’s what to do:
- Review annually: Your business may change over time, and so should your policy. Review your coverage every year, especially after major business changes.
- Update after major changes: If you expand your business, hire more employees, or purchase new equipment, make sure your policy reflects these changes
- Consult an agent: If you’re ever unsure whether you have the right coverage, don’t hesitate to speak to one of our licensed support agents. They can help you identify gaps and recommend the right policy for your needs.
Your Insurance Policy, Explained
Don’t let confusion hold you back. Take the time to understand your insurance policy today with the guidance of our licensed, non-commissioned support agents!
Talk to our Team
Call: 844.520.6993
Email: info@insurancecanopy.com
Live chat online!
Hours: Monday – Friday, 8 AM – 8 PM (EST)
Insurance Policy FAQs
What’s Included in an Insurance Policy?
An insurance policy typically includes:
- Declarations page
- Insuring agreement
- Exclusions
- Conditions
- Endorsements
It’s essential to understand each section to know what’s covered.
How Can I Tell What is Covered in My Policy?
You can tell what is covered in your policy by looking at:
- The declarations page for a summary of your coverage types and limits
- The insuring agreement to see what your insurance company has agreed to cover
- The exclusions to know what is not covered
- The conditions to understand what you must do to receive coverage
- The endorsements to show what additional coverages you have that change or modify the base policy
Why is it Important to Read the Entire Policy?
It is crucial to read your entire policy to stay informed on what you are and are not covered for. This helps you determine if your business is properly covered, especially if you ever need to file a claim.
Knowing your limits helps you operate safely and stay within the boundaries of your policy — or it can lead you to customize your plan to better suit your needs.
How Often Should I Review My Insurance Policy?
You should review your insurance policy at least once a year before you renew. You should also review your policy if you experience any changes in your business, such as:
- Changing daily operations
- Hiring employees
- Increasing revenue
- Introducing a new product
- Transitioning from part-time to full-time
Reviewing your policy routinely ensures your coverage aligns with your new needs.
Can I Change My Insurance Policy?
Yes, you can change your insurance policy and adjust your coverages as your business grows.
- Log in to your online account
- Locate the “Manage Policies” section
- Click “Change policy options” to increase limits, add additional coverage, and more
- Click “Add endorsements” to add required forms or coverage to your policy
If your business operations have changed and you need to modify your coverage beyond the controls of your dashboard or switch the type of policy you have, please contact us for assistance.
