What is the purpose of business insurance? Definitions explained
Insurance Expert, Simon Taylor
What is the purpose of business insurance?
Business insurance allows companies to better manage the financial consequences of unforeseen events
Below we provide an insight into how business insurance works by looking at some of the key principles that underpin the contractual arrangements between policyholders and insurers.
What is business insurance?
Business insurance is essentially a contractual agreement between the policyholder and the insurer, which in the event of certain events occurring will provide financial compensation
Financial protection from business insurance arises with a contractual agreement that in the event of a claim for compensation, loss or damage, the insurer will seek to cover the cost and indemnify the policyholder.
Business insurance definitions
Business insurance definitions, conditions, exclusions and insuring clauses will vary from product to product, however the structure of insurance policies remains consistent
Business insurance definitions are specific terms used in the policy. The word will usually be highlighted to ensure you understand that a specific definition is used and not the common understanding of the word in the English language.
Business insurance exclusions will seek to remove cover. Typically, policy wordings are designed to provided broad protection under the affirmative insuring clauses, then narrowly define the circumstances the insurer will not make payment.
Glossary of insurance terms
What is business liability insurance?
The most commonly purchased business liability covers include employers liability, public liability and professional liability insurance, each offering financial protection from demands for compensation whereby you may be legally liable.
What is business property insurance?
Business property insurance covers are commonly purchased under office insurance policies for professionals, contractors all risk insurance for construction firms, or commercial combined insurance for a range of business activities.
What are the underlying principals of business insurance?
What is indemnification?
The insured cannot profiteer and recover more than his or her actual loss. There are however exceptions to this rule, such as personal accident and life insurance policies where the amount is paid on occurrence of accident or death.
What are long-tail liabilities?
In addition, it can also take an extended period to settle the claim. This potential for a long settlement period means liability insurance claims are often called long-tail liabilities.
What are limits of liability?
For example, some business liability insurance policies work on an 'aggregate' basis (the total amount payable), or on a 'any once claim' basis (the total amount payable for claims arising from any single event).
What are defence costs?
For example, it is recognised that defence costs for products such as directors and officers insurance can typically amount to over 60% of the total cost of the claim.
What is the duty to defend?
Whereas, with some insurance policies (i.e. D&O insurance) it is the duty of each insured person to select legal counsel and control the defence of a claim. The insurer will reserve the right to be consulted prior to any spend against the policy.
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.