What are deductibles, limits and endorsements?

Sometimes it seems like business insurance has a language all its own, with terminology that can be confusing. And while you don’t need to be “fluent” in business insurance-speak, there are some terms you should know. We’ll define some of them below.

Related: Business insurance 101: Everything you need to know

What is a business insurance deductible?

A business insurance deductible (sometimes referred to as a retention) is the amount you have to pay for a claim before your insurance coverage kicks in. Suppose you have a $500 deductible, and a covered claim for $2,500. You would pay $500 (your deductible) and the insurance company would pay $2,000. The deductible generally applies to each claim.

Increasing your deductible can decrease your premium, saving you money on your policy payments. So, a policy with a $5,000 deductible will likely cost less than the same policy with a $500 deductible. If you’re willing to absorb more of the cost of a claim, the business insurance company will pay less, so they’ll charge you less for your coverage.

What is a business insurance limit?

A limit is the maximum amount a business insurance company will pay out. There are usually two limits on each policy: an occurrence limit and an aggregate limit. The occurrence limit is the most that your insurance company will pay for a single claim. Some policies refer to this as an “each claim limit.” The aggregate limit is the total amount that will be paid out while the policy is active (usually for a year).

Suppose you have an insurance policy for your business that has a $1,000,000 occurrence limit and a $2,000,000 aggregate limit. During one policy year, you have three covered claims. The first claim is for $750,000, which will be paid in its entirety, less any deductible or retention. The second claim is for $900,000. This one will also be paid completely, less the deductible. The third claim is for $500,000. For this claim, your policy will pay $350,000, because that brings the total (aggregate) amount of all the claims to the $2,000,000 policy limit.

Here’s another example using the same policy. If your first covered claim is for $1,500,000, the policy will pay $1,000,000 of it. If you then have a second covered claim for $750,000 within the same policy year, that would also be completely paid, since the total amount paid on both claims is still under the $2,000,000 aggregate limit.

As with deductibles, limits also may affect your business insurance premium. The higher your limits, the higher premium you will likely pay. So a policy with a $2,000,000 limit will generally be more expensive than the same policy with a $1,000,000 limit.

Related: What kind of business insurance do I need?

What is a business insurance endorsement?

Not every business needs exactly the same insurance coverage. Rather than write an entirely new policy for every different situation, business insurance companies offer endorsements, sometimes called riders. Endorsements add, modify, or remove coverage according to your specific situation.

Certain endorsements can be added or removed when you buy your business insurance policy, when you renew it, or during the term of the policy. Depending on the endorsement, your premium may be adjusted. For questions regarding an endorsement on your Hiscox policy, call us at 1-866-283-7545 to speak to a licensed agent.

Additional business insurance terms you should know

Outside of deductibles, limits, and endorsements, there are a few other terms that may help you navigate the world of business insurance.

Commercial insurance rider

An additional clause or amendment to a commercial insurance policy that expands or restricts coverage, often tailored to meet specific needs of a business.

Liability insurance rider

A specific type of rider that adjusts the liability coverage of an insurance policy, which can add or limit coverage based on the policyholder's requirements.

Business insurance rider

A specific type of endorsement that adjusts a business insurance policy, offering added protection or tailored coverage modifications.

General liability insurance rider

A specific endorsement within a general liability policy that modifies coverage terms, limits, or conditions tailored to the needs of the insured.

Commercial insurance retention

The amount of loss that an insured is responsible for before the insurance coverage responds in a commercial insurance policy context. This is often synonymous with a deductible.

Professional liability insurance retention

The amount of financial responsibility that an insured must retain before professional liability insurance coverage begins to pay out for claims. This is often synonymous with a deductible.

If you come across other insurance terms that are unfamiliar, you may find their definitions in our Insurance Glossary.