Give and Take in Business Insurance Policies - Guest Post by Jesse Olson

Jun 27, 2024

If you are a business owner, you have very likely purchased business insurance in the past to help protect your business from losses. Have you actually ever read the policy though? My guess is most of you have not; these are long, confusing documents full of insurance and legal jargon!

If you are looking for a basic way to read your policy, the first thing you need to know is the pattern that almost all policies follow: the policy gives coverage, takes away some of it, and then for some coverage types – gives it back again in some manner. There is a lengthy explanation for why this pattern is used but my fingers don’t have the energy to type that out here!

So, how do you, as a business owner go about reading your insurance policy without being put into a zombie-like trance? First, know the pattern above. Second, follow the steps below to help you make some sense of what is going on in your policy. Lastly, have a conversation with your agent about anything that still seems confusing or incorrect.

Step 1: Make sure the correct entity name(s) are listed on the policy. I’ve seen policies where a business owner started getting quotes before they named their business and forgot to update that later. A policy with the incorrect name on it is very likely of little use when it’s needed!

Step 2: Look at the limits of the insurance to make sure it is what was discussed with your agent. The minimum limits you need may be prescribed by a licensing authority or through contracts or some other manner. Make sure they are correct!

Step 3: Make sure all locations that are supposed to be covered are listed. If a location is not on the policy, it isn’t normally covered. Additionally, if you add a location during the policy year, have your agent add it.

Step 4: If your policy is for vehicles or large tools/equipment, make sure those are all listed. Again, if they aren’t listed, they probably won’t be covered.

Step 5 (longest and most difficult – but most important step): Read the forms list with your policy. This list will have all the names of the endorsements and exclusions on your policy. This is where coverages that were “given” in the limits are taken away, and sometimes partially given back.

Due to the importance of this step, I think an example is appropriate. The forms discussed below come from a quote for a retail hemp store that I recently worked on. This store

requested $500,000 in property coverage as part of the quote. This limit was shown in the policy documents, so the assumption for most people would have been that their products were covered up to this limit. Below are the forms that show this is not the case for this particular quote!

Special Causes of Loss: This endorsement states what types of losses are covered, and theft is normally a covered loss type with Special Form. However, further down on the forms list is a form that should draw your attention.

Theft Related Damage Sublimit Endorsement: By reading the title of this form, you can tell there is some sort of sublimit for damage due to theft. This should get your attention and get you to read, or talk to your agent, about this particular form. In the case of this quote, any type of property damage due to theft was limited to $25,000.

Theft Sublimit Endorsement is another form title. Again, reading this title should tell you that there is a sublimit for theft. The reading of this form showed that theft of any property was limited to $25,000.

Since there are 2 forms limiting theft, I decided to look more closely at the Special Causes of Loss form. Within that form, there were 2 exclusions for theft. So, this form took away any coverage for theft even though the assumption would have been that it was covered. This led to the 2 endorsement forms above being VERY important in adding back some coverage for theft with this policy!

Step 6: Talk to your agent! The above example could certainly be confusing for someone not well versed in speaking the language of insurance. When your agent presents a quote to you, he/she should be discussing the forms with you and pointing out ones like what is mentioned above. If they are not doing this, talk to them or find an agent who will discuss these very important forms with you. It’s your business, you should know something about how it is protected!