What is a Business Insurance Policy?


What is a Business Insurance Policy?
Every small business owner should protect his company against a variety of risks

through a small business insurance policy. Defending against lawsuits and claims

can be costly, time-consuming, and draining. Yet, many small business owners are

unsure about the details of a business insurance policy.


A business insurance policy is a contract between the insured (the policyholder),

and the insurer (the insurance company). The contract determines what claims the

insurance company will cover and pay. In exchange for payment for covered peril

damages, the insured policy holder pays premiums to the insurer.


Understanding your small business insurance policy helps you verify that


  • the coverage meets your needs
  • what conditions need to be met in order to obtain coverage
  • what exclusions take away coverage
  • what the insurance company’s responsibilities are should a loss occur


To better grasp the key areas of your business insurance policy, it’s important

to learn about the major parts of the business insurance contract.



Declaration Page – The declaration page is typically

the first part of an insurance policy. It describes what risks are covered, what

properties are covered, the business insurance policy limits, the deductible, the

premium, the policy period, and who is the insured.


Definitions – The definitions section defines

significant terms used in the business insurance policy language.


Insuring agreement –The section of the business

insurance policy describes what is covered and includes promises made by the insurance

company; the latter of which typically includes paying for covered perils and providing

spelled-out services.


Exclusions – The exclusions section describes

the major types of exclusions, which are commonly excluded perils, excluded losses,

and excluded property. Examples of exclusions may include flood, earthquake, and

normal wear and tear of an automobile.


Conditions –Qualifiers or limitations on the

insurers promise to perform or pay are known as conditions. Common conditions examples

include a proof of loss requirement or cooperation during a defense or investigation.

If the business insurance policy conditions aren’t met, the insurer has the right

to deny coverage of the claim.


Endorsements and Riders –An endorsement or rider

is a written provision to the business insurance policy language that adds, deletes,

or modifies the original provisions in the insurance contract.



While all small business owners don’t have to be small business insurance policy

experts — after all, that’s what we here for — it’s important to at least have

a basic understanding of the major building blocks that comprise a small business

insurance policy.