You pay a premium, and in return the insurer agrees that for a fixed stretch of time it will help pay for losses the policy covers, up to the limits you picked and after you’ve paid your deductible. That’s the whole deal. Every other page of a business policy, from the exclusions at the back to the endorsements stapled on at renewal, exists to settle three questions about it: which losses count, how much the insurer pays, and what you have to do to get paid.
The pieces are easier to see in motion than in a glossary, so this article follows one hypothetical business, a small gift shop, through a policy year. Every dollar figure is made up to show the mechanics and says nothing about what you’d pay or need.
Key takeaways
- The premium buys coverage for a fixed policy period, usually a year, and the policy responds to events or claims that fall inside that window.
- Liability policies usually have a per-occurrence limit for each incident and an aggregate limit that caps everything paid during the policy period.
- The deductible is the part of a covered loss you pay yourself, and property policies typically have one even when liability policies don’t.
- Exclusions remove coverage, conditions set out your duties, and endorsements add to or change the standard policy, so the wording often decides a claim before the limit does.
- If your premium was based on estimated payroll or revenue, a premium audit after the policy ends can lead to a refund or an extra bill.
The premium buys a window of time
Think of the premium as rent on a promise. You might pay it all at once or in installments, but either way it buys coverage for a defined policy period, which for most small-business policies runs 12 months, and the exact start and end, often down to the time of day, sit on your declarations page.
How big the premium is comes from underwriting, which is the insurer sizing up how likely you are to have a claim and how expensive it could get. For general liability, that usually means your type of business, where you are, your revenue and the limits you choose; for workers’ comp, it’s mostly payroll and the class code for each kind of work; and for property, it’s what you own, what it’s worth and how the building is built and protected, among the other things that move the price.
The dates do more than set the billing cycle. General liability is commonly written as an occurrence policy, which covers injuries and damage that happen during the policy period even if the claim shows up years later, while professional liability is often a claims-made policy, which looks at when the claim is reported instead. Most days that difference is invisible, but it matters a great deal the day you switch insurers, and occurrence vs. claims-made explains why.
How the limits get used up
A limit is the most the policy will pay. Liability policies usually carry two of them that work as a pair, and the easiest way to understand the pair is to watch what happens to each one as a policy year goes on and claims start coming in.
- The per-occurrence limit applies first. It caps what the policy pays for any single incident, such as one fall or one leak, no matter how many people that incident hurts.
- Each paid claim then comes off the aggregate limit. The aggregate is the total the policy will pay for all covered claims in the period, so every claim spends some of it.
- The aggregate resets at renewal. A fresh policy period brings a fresh aggregate, which is why an old claim doesn’t shrink next year’s coverage.
Some policies also carry a sublimit, a smaller cap inside the main limit for one kind of loss, and the limits table on your declarations page lists them. Read that table once with a highlighter, because a sublimit is the kind of thing nobody mentions until a claim runs into it.
Property limits work on a different idea. The limit is the most the policy pays for covered damage to what you own, so it should match what it would cost to replace your equipment, stock and improvements today, and if you set it too low, the gap comes out of your pocket. Whether the policy pays replacement cost or actual cash value changes the check as well, and replacement cost vs. actual cash value shows that math.
One more line to look for on a liability policy: whether defense costs sit inside the limit or on top of it. General liability policies often pay defense on top of the limit, while professional liability policies more often count it inside, where every hour a lawyer bills is money that’s no longer available to settle the claim. The policy’s limits section or declarations page says which you have, and it’s worth knowing before you choose a limit.
Pick a deductible you could pay tomorrow
The deductible is your share of a covered loss, paid before the insurer pays its part, and any loss smaller than the deductible is yours alone. The gift shop’s September claim, further down, shows the arithmetic.
Property policies typically carry one. Many small-business general liability policies don’t, though some do, garagekeepers often applies a deductible per vehicle, and business income usually swaps the dollar deductible for a waiting period, a set number of hours after the damage before lost income starts to count.
Our advice is blunt. A higher deductible generally means a lower premium, and that trade can make sense, but only up to the amount you could pay tomorrow morning without missing payroll, because a deductible you can’t cover turns a covered loss into a cash crisis anyway. Pick that number first and let the premium follow it when you choose a deductible.
The wording decides more than the limit
Here’s the catch. Owners tend to judge a policy by its limits, which makes sense, since they’re the biggest numbers on the page, yet most disputes over a claim are about whether the loss counts at all, and that’s decided by three other parts of the policy.
- Exclusions take coverage away. A general liability policy typically excludes injuries to your own employees, damage to your own property and professional mistakes, because other policies are built for those, and a property policy typically excludes flood, earthquake and wear and tear.
- Conditions are the rules you agree to follow. The Kentucky Department of Insurance describes them as provisions that qualify or limit the insurer’s promise, and says that if the conditions aren’t met, the insurer can deny the claim. Common ones include protecting property after a loss, filing a proof of loss and cooperating with the investigation.
- Endorsements add to, remove or change the standard policy. Adding your landlord as an additional insured, adding a location or adding a waiver of subrogation are all done by endorsement, and each one changes your coverage, so read every one you receive.
Each of these has a fixed place in the document, and knowing how to read a business insurance policy makes them quicker to find.
Two claims in one year
In June, a shopper trips over a display base and breaks a wrist. The medical bills and a settlement come to an illustrative $30,000, which general liability can help pay, and because that policy has no deductible, the shop pays nothing toward the claim itself. The per-occurrence limit was never close to being tested, and the aggregate now has $1,970,000 left for the rest of the year.
In September, someone breaks in overnight and takes $7,000 of stock, doing $2,000 of damage to the fixtures and register on the way out. The property policy can help pay the $9,000 loss minus the $1,000 deductible, so the shop receives $8,000, subject to the policy’s terms.
Notice the difference in who does the work. In the liability claim, someone else asked the business to pay, and the insurer investigated, handled the defense and paid the settlement, whereas in the property claim the owner had to prove the loss: receipts, photos, a list of what was taken and what it cost. The steps that keep either kind of claim on track are the same, though:
- Deal with safety first, and stop further damage if you can.
- Tell your insurer promptly, as the policy’s conditions require.
- Document what happened with photos, receipts, names and dates.
- Don’t admit fault or promise to pay a third party yourself.
- Work with the adjuster or claims specialist on the investigation and any proof of loss.
After paying, the insurer may go after whoever caused the loss to recover what it spent, which is subrogation. With Corgi, one claims specialist handles your claim from the first call until it’s closed, and how to file a business insurance claim covers each step in more detail.
Why did a bill show up after the policy ended?
That’s the premium audit. It catches a lot of first-year owners off guard, because some premiums are set on estimates, so general liability may be priced on the revenue you expected and workers’ comp on the payroll you expected, and after the period ends, the insurer may run a premium audit to compare those estimates with what actually happened.
If the gift shop’s sales came in well above the owner’s estimate, it may owe extra premium, and if they came in lower, money may come back. Either way it’s a true-up, though an unbudgeted bill in the slowest month of the year can feel like a penalty, which is why an accurate estimate at the start is worth more than a low one, and why it pays to prepare for the premium audit before the auditor calls.
Renewal itself is the other moment to pay attention. The policy either renews for another term, with an updated premium and possibly updated terms, or it ends, and the Kentucky Department of Insurance says that in most states the insurer has to send you a copy of changes to your policy, though your own state’s insurance department sets the notice rules where you are. Read them. A renewal can add an exclusion, and nobody calls to point it out. It’s also the time to check the fit against the business you run now: a new location, a first hire or a contract asking for higher limits all call for changes, and with Corgi, limits can be raised the same day and workers’ comp can be added to an existing policy without a new application.
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Frequently asked questions
What’s the difference between a premium and a deductible?
The premium is what you pay the insurer for the policy, whether or not you ever make a claim. The deductible is what you pay toward a covered loss when you do make a claim, before the insurer pays its share, and choosing a higher deductible generally lowers the premium.
Does paying a claim use up my policy?
Paying a claim reduces what’s left of the aggregate limit for that policy period, but the policy stays in force. If a liability policy has a $2 million aggregate and pays a $30,000 claim, $1,970,000 remains for the rest of the period, using illustrative figures, and the aggregate resets when the policy renews.
Do I pay a deductible on a liability claim?
It depends on the policy. Many small-business general liability policies have no deductible, while property policies typically do, and your declarations page shows any deductible that applies to each coverage.
What happens if I don’t renew my policy?
Coverage ends on the expiration date shown on the declarations page. An occurrence policy still covers incidents that happened while it was in force, but a claims-made policy generally covers only claims reported while it’s in force, unless you buy an extended reporting period.
