How to Read Commercial Insurance Policies

Understanding your commercial insurance policy is essential for adequate protection and security.

Commercial insurance, just like other types of insurance, can provide as little or as much protection as you require. For the most part, the coverage you choose depends on factors specific to your business, such as whether you have employees, specialized equipment or own/rent your building. Because commercial insurance policies contain information relating to your responsibilities as well as your coverage, taking the time to read and understand what yours contains is important to ensure that you have adequate coverage and to ensure timely payment in the event you must file a claim.

Instructions

Review

1. Look over your policy and identify each section. At a minimum, most policies contain a declarations section, an insuring agreements or coverage section, an exclusions section and a conditions section. Depending on your insurer or the coverage you choose, you may also see a definitions section and an endorsement section.

2. Read the endorsement section first if your policy has one. Even though this section is usually on the last page of your policy, it contains changes to main policy information. Reading this section first can alert you to deletions or changes within the policy, making it easier to read and understand.

3. Read the policy in its entirety and compare it to a copy of your insurance application. Look for any differences or omissions, such as errors in spelling, coverage types and amounts and forms.

Analyze

1. Perform an analysis of each section, starting with the declarations section. Look at rating classifications in this section that determine your premium amount and ask your agent to explain the process and criteria used to determine your rating.

2. Compare possible claims against your company to the insuring agreement. This section spells out details of policy coverage, so performing this comparison can help ensure that you not only have an adequate level of coverage, but also that you know your deductible amount. If your policy has a definitions section, refer to it to make sure you understand the language in this section or call your agent for further clarification.

3. Read through policy restrictions and exclusions so you know exactly what your policy does and does not cover. Pay special attention to conditions your company must comply with, such as installing fire safety or security equipment, to reduce the possibility of a claim denial.

Tips & Warnings

• Contact your insurance agent immediately if you find incorrect information, if information is missing or if the policy contains information you do not understand.

References

• Foley & Lardner LLP: What Every Lawyer (And Other Executives) Should Know About Commercial Insurance (PDF)
• Nonprofit Practice Solutions: How to Read an Insurance Policy