Insurance glossary
the words in your contract, in plain English.
Short answers to the terms that show up in GC contracts, audits, deals and household policies.
contracts and certificates.
- Waiver of subrogationA waiver of subrogation is a promise, usually made in a contract, that your insurance company won’t try to recover what it paid on a claim from the other party, like the general contractor or property owner you work for. Your policy needs an endorsement to honor it.
- Certificate of insuranceA certificate of insurance is a one-page summary that shows a customer which policies you carry, the limits, the dates and any endorsements they asked for. It reports what the policy says; it doesn’t change it.
- Additional insuredAn additional insured is a person or company added to your policy so they’re covered for claims that come out of your work for them, like a general contractor on your liability policy.
- Primary and noncontributoryPrimary and noncontributory wording means your policy pays first for a covered claim and doesn’t ask the additional insured’s own insurance to share the cost.
- Hold harmless agreementA hold harmless agreement is a contract clause where you agree to take on certain claims or costs on behalf of the other party, often the general contractor or property owner.
- Contractual liabilityContractual liability is the responsibility you take on for someone else’s losses when you sign a contract, like an indemnification clause. Your liability policy covers some of it, depending on the wording.
- Per-project aggregateA per-project aggregate gives each job its own total limit on your liability policy, so a big claim on one project doesn’t use up the limit for the rest.
- Completed operationsCompleted operations coverage responds to injury or damage caused by your work after you’ve finished the job and left, like a fitting that fails months later.
- Blanket endorsementA blanket endorsement extends a protection, like additional insured or a waiver of subrogation, to anyone you’ve agreed in a written contract to give it to, without naming each one.
- Notice of cancellationA notice of cancellation is a promise to tell a certificate holder before your policy is canceled. Many contracts ask for it, and it has to be endorsed on the policy to count.
workers’ comp and audits.
- Experience modification rateAn experience modification rate compares your workers’ comp claims with other businesses doing the same work. It raises or lowers your premium, and many GCs check it before they hire you.
- Class codeA class code describes the kind of work your employees do, and it sets the rate your workers’ comp premium is built on. The wrong code can mean a surprise bill at audit.
- Premium auditA premium audit is the insurer’s check, after the policy year, of your actual payroll or sales. It can return money or send a bill if the estimate at the start was off.
- Exposure basisThe exposure basis is what your premium is measured on, such as payroll, sales or the number of vehicles. Estimate it well at the start and the audit has fewer surprises.
- Uninsured subcontractor chargeAn uninsured subcontractor charge is premium an auditor adds when you paid a sub who didn’t have their own workers’ comp or liability certificate on file.
- Monopolistic state fundIn a monopolistic state, workers’ comp can only be bought from the state’s own fund, not from private insurers. Employer’s liability then has to be arranged separately.
- Ghost policyA ghost policy is a workers’ comp policy for an owner with no employees, bought mainly to produce a certificate a customer asks for. It usually covers no one.
how policies work.
- Occurrence vs claims-madeAn occurrence policy covers incidents that happen while it’s active, whenever the claim arrives. A claims-made policy covers claims made while it’s active, which is why switching needs care.
- Per-occurrence limitThe per-occurrence limit is the most a policy pays for a single incident, no matter how many people or claims come out of it.
- Aggregate limitThe aggregate limit is the most a policy pays for all claims during the policy period. Once it’s used up, the policy stops paying until it renews.
- Deductible vs self-insured retentionWith a deductible, the insurer handles the claim and bills you your share. With a self-insured retention, you pay your share first before the insurer steps in.
- EndorsementAn endorsement is a written change to a policy that adds, removes or changes coverage, like adding an additional insured or a new vehicle.
- ExclusionAn exclusion is a part of the policy that says what it won’t cover. Reading the exclusions is how you find out whether your riskiest work is really covered.
- Umbrella vs excess liabilityBoth add limits above your liability, auto and employer’s liability policies. An excess policy follows the rules of the policies below it; an umbrella can also fill some gaps they leave.
- Errors and omissionsErrors and omissions insurance covers claims that your advice, design or professional service caused someone a financial loss, which a general liability policy usually leaves out.
- Hired and non-owned autoHired and non-owned auto covers your business when employees drive rented cars or their own cars for work, a gap personal auto policies usually leave.
- Inland marineInland marine is the insurance name for coverage on property that moves, like tools, equipment and materials on a truck or at a job site.
- Business income and extra expenseBusiness income covers lost income and ongoing bills while a covered loss keeps you closed. Extra expense covers what it costs to stay open, like renting a temporary space.
- CoinsuranceCoinsurance is a property policy condition that expects you to insure close to the full value. Insure too little and the claim payment is cut in proportion.
- Replacement cost vs actual cash valueReplacement cost pays what it takes to replace damaged property with new. Actual cash value pays that minus depreciation, which can leave a gap on older equipment.
bonds.
- License and permit bondA license and permit bond is a guarantee a state or city requires before it licenses you, promising you’ll follow the rules that come with the license.
- Performance and payment bondA performance bond guarantees you’ll finish the job; a payment bond guarantees your subs and suppliers get paid. Public and larger private projects often require both.
- Bonding capacityBonding capacity is how much work a surety will back for you, per job and in total, based on your finances and track record. It sets how big a job you can bid.
deals and private equity.
- Representations and warranties insuranceReps and warranties insurance covers a buyer’s loss when a seller’s statements in the purchase agreement turn out to be wrong, so the claim goes to an insurer instead of the seller.
- Tail coverageTail coverage extends a claims-made policy after it ends, so claims made later about earlier events are still covered. It usually comes up at a sale or a switch.
- Change in controlA change-in-control clause says what happens to a policy when the company is sold or merged. For many management liability policies, coverage for new acts stops at closing.
- D&O Side A, B and CSide A protects directors and officers personally when the company can’t pay for them, Side B reimburses the company when it does, and Side C covers the company’s own securities claims.
- Insurance due diligenceInsurance due diligence is a review of a target company’s policies, claims and gaps before a deal closes, so the buyer knows what it’s inheriting and what it will cost to fix.
home, cars and valuables.
- Scheduled personal propertyScheduling lists a valuable item, like a ring or a painting, on its own with its own value, instead of leaving it under the home policy’s low limits for that kind of item.
- Agreed valueAgreed value means you and the insurer settle an item’s value up front, so a total loss pays that amount instead of a depreciated market price. Common for collector cars and art.