Business insurance can be confusing. At Hiscox, we try to keep things simple, so to cut through the jargon, here are plain English definitions of the most common business insurance terms you may encounter as a small business owner or freelancer.
Business interruption insurance: Cover that pays out expenses and lost earnings caused by an event, such as flood or fire, which forces your business to close temporarily or relocate.
Continuous cover: Whereas most insurance policies run for a year before needing to be renewed or buying a new policy from a different insurer, continuous cover policies do not run out and do not need to be renewed. The policy remains in force until it is cancelled, either by you or your insurance company.
Cyber risks insurance: Also known as e-risks insurance, it protects your business from hacker attacks, computer viruses and online identity theft.
Corporate legal liability: Covers a company (as opposed to individual managers) against prosecutions or lawsuits for mistakes or negligence. Includes protection for prosecution for violations of health and safety, tax or trading standards laws.
Excess: The amount the client must pay towards an insured claim, e.g. “your policy has an excess of £250”.
Employers’ liability insurance: A legal requirement for all businesses that employ people (with some exceptions) – firms usually need to have at least £5 million coverage. This protects your business in the event of it being sued by an employee who suffers injury or illness at work.
Employment practices liability: Protects a company’s managers against claims by employees, or former employees, of discrimination, harassment, wrongful dismissal or unfair selection for redundancy.
Errors and omissions (E&O) insurance: Protects professionals, such as engineers and lawyers, against legal claims alleging negligence in their work. Also known as Professional Indemnity (PI) insurance.
Key person insurance: A variant of personal accident insurance, in which a lump sum is paid if someone who is vital to your business is unable to work as a result of illness or injury.
Limit of indemnity: This means the financial amount up to which you are covered by your policy. The limit will work in one of two ways: the first is called “any one claim” or AOC. This is the total amount an insurer will pay for each single claim (regardless of how many claims you make) during the policy period. The second is called “aggregate” and is the total amount an insurer will pay for all claims during the policy period.
Loss adjuster: An expert, hired by or working for the insurance firm, who assesses the size of an insurance claim and helps to find ways to get you back on your feet as soon as possible.
Office insurance: Covers your business’ buildings and contents against damage and theft. Some policies may include business interruption, liabilities and legal expenses protection.
Period of insurance: The length of time for which an insurance contract lasts. The dates when the policy begins and expires will be found in your policy documents.
Personal accident (PA) insurance: Compensates your business if you or an employee suffers an injury that prevents you or them from working, either temporarily or permanently.
Premium: The price to buy an insurance policy, calculated according to the risk of a claim occurring.
Professional indemnity (PI) insurance: Covers businesses against claims from customers, such as giving incorrect advice or making a mistake. It also covers claims from third parties, for example for breach of copyright or intellectual property.
Public liability (PL) insurance: Covers businesses against injury or property damage claims from third parties, resulting from incidents such as a visitor tripping over in your offices and hurting themselves or a faulty product causing property damage in a client’s office.
Sum insured: The maximum amount of money an insurer will pay in the event of a claim. This is typically used for building and contents insurance. It is important to accurately calculate the total cost of replacing your property in the event of a fire or flood, for example.
Underinsurance: This is when the sum insured or limit of indemnity in your insurance policy is too low and does not provide adequate cover for the risk insured. This can lead to you being left out of pocket in the event of a claim, so it is important to ensure you have adequate cover.