Key Terms: First Time Buying Commercial Insurance

May 24, 2024 Blog

Table of Contents

Do you need commercial insurance but don’t understand what your advisor is telling you? Do you feel lost when you see terms used by companies on their social networks, not knowing what they refer to? In the world of insurance, it is essential to understand and properly manage these terms so you know what you are buying and don’t fall into the trap of many agencies that take advantage of the lack of knowledge to sell you insurance policies you don’t need firsthand.

In this blog, we will provide the most important terms along with their definitions so you can understand how policies, claims, and operational procedures work. This glossary has been designed to provide a reference for the most common terms used in the insurance industry. Whether you are a professional in the sector, an insured person, or simply someone interested in how insurance works, this information is for you. Let’s get started!

A

Additional Insured (AI): An entity added to a policy that receives the benefits of the coverage and defense offered by the insured’s policy. Usually, AI is only added to a Liability policy. When the client enters the port it could be requested in coverages such as Motor Truck Cargo (MTC), Trailer Interchange (TI), or General Liability (GL).

B

Bill of Lading (BOL): A transport document that serves as a transport contract along with other conditions between a shipper and a carrier. It lists the details of the transported cargo.

Binder: A document through which the activation of coverage is requested.

Binder Confirmation: A temporary or preliminary agreement that provides coverage until a policy can be activated or delivered.

Bobtail: Covers any type of liability that may arise to a third party in an accident if the vehicle is being used for personal or business/commercial purposes as long as no trailer or other type of cargo is being used.

Bond: Coverage that exists between contractors, i.e., between people or entities that through a contract execute a material work or are in charge of a service for the government, a corporation, or an individual, such as electricians, plumbers, carpenters, or drivers. A Bond guarantees payment when the conditions of a signed contract are not met.

C

Certificate of Insurance (COI): A document issued by the agency that verifies the existence of an insurance policy and summarizes the key aspects and conditions of the policy. For example, a standard COI lists the insured’s name, effective date, coverages, policy limits, and other important details.

Claim: Notification to an insurer that according to the terms of a policy, an incident has occurred.

Collision: Provides coverage for damages suffered in a collision or crash with another car. For example, you accidentally crashed into another object while leaving the parking lot and caused damage to the bumper and fender of the vehicle.

Combined Single Limit (CSL): The mandatory coverage for working on the road. It is also known as Commercial Auto Liability or Liability. It covers property damage or bodily injuries to third parties that may occur while one of the listed drivers is operating a commercial vehicle.

Commercial Auto Insurance: The mandatory commercial insurance required by all transport companies for their trucks to operate on the road. It covers property damage (PD – Property Damage) and bodily injury (BI – Bodily Injury) to third parties that may occur while one of the listed drivers is operating the commercial vehicle registered in the insurance policy. It is also known as Combined Single Limit (CSL) auto liability or commercial auto liability.

Commercial Driver License (CDL): A driving license that allows the operation of commercial vehicles. It is only required when operating vehicles with a Gross Vehicle Weight (GVW) of 26,001 pounds or higher.

Commercial Insurance

Insurance for transportation businesses that offers various policies to protect the company’s trucks and other specific aspects such as protection against legal events or illnesses caused by workplace incidents.

Commodities: The products or merchandise transported by each commercial vehicle. Commodities are fundamental in quoting a commercial insurance policy.

Cyber Liability: Cyber liability coverage helps cover expenses if tracking systems based on track and trace (ELD) devices or vehicles suffer ransomware attacks (malicious code that prevents the use of infected equipment or systems) or even physical damage for those vehicles equipped with autonomous driving technology.

D

Deductible: The amount that the insured must pay before the insurance company covers the expenses of the damages caused during the accident. A higher deductible can be chosen to reduce the premium.

Doing Business As (DBA): The legal name under which a company wants to be recognized by its clients or suppliers.

DOT: The U.S. Department of Transportation (DOT) requires carriers to have a unique identification number used to collect and monitor safety information, inspections, accident investigations, etc.

Downtime: Compensates for the money the insured loses by being unable to operate due to damages suffered by a truck or trailer due to an insured risk, such as a collision or fire. Typically, this coverage is linked to Physical Damage.

Down payment: When the insured subscribes to a policy, they must make the first payment installment for it, which is called this.

E

Endorsement

Any type of modification to the policy to make changes to the originally agreed conditions, such as adding or removing coverages, vehicles, and drivers, among many others.

Electronic Logging Devices (ELD)

It is an electronic device that connects to a vehicle’s diagnostic port and records the driver’s hours of service. Additionally, it records data related to the truck’s operation and the driver’s activity.

Exclusion: Causes and conditions listed in the policy that are not covered by the commercial policy from the insurance company.

Excess – Umbrella: Both coverages serve to increase the limits of the Underlying Policies. On one hand, “Umbrella” provides broader coverage, outside the established limits or not covered by the initial policy; on the other hand, “Excess” is coverage that provides additional limits to those covered by the Underlying Policy.

Expiration Date: It is the date on which the policy ends. It is a key date to mark on the calendar, as this date marks the pace to initiate the process of renewing your policy.

F

Freight Broker: An intermediary between a shipper and a transport company. A freight broker is responsible for securing loads under the conditions required by the trucking company, such as specific routes, days of the week, and types of commodities.

H

Hazmat: Refers to a substance or material that the Secretary of Transportation determines to pose a risk to health, safety, and property when transported in commerce.

Hired and Non-Owned Auto: This policy provides liability coverage for accidents involving personal, leased, or rented vehicles used by the insured. It protects vehicles used by the insured’s business but not owned by it. This coverage is linked to the Combined Single Limit (CSL). It is also known by the abbreviation HNOA.

Hours-Of-Service (HOS): Refers to the driving hours allowed in a truck according to FMCSA regulations, to ensure protection and avoid any type of accident due to fatigue after long hours of hard work.

I

Insurance: Insurance or insurance policy.

Insurance Agency: A licensed and certified company authorized to sell insurance on behalf of one or several insurance companies.

Insurance Advisor: A person responsible for advising and accompanying you to solve any doubts you may have about your insurance policies.

Interstate Trucking Company: A trucking company that operates across state lines.

Intrastate Trucking Company: A trucking company that operates only within a single state and does not cross state lines.

L

Life Insurance: A contract between a person (insured) and an insurance company where the insured pays monthly premiums and the insurer pays an insured sum to the beneficiaries if the insured decides to make their policy effective in case of illness or accident, dies, or decides to withdraw their savings. All life insurance policies have different conditions, so it is recommended to know the details of the acquired insurance.

Loss Runs: It is a necessary report provided by the insurance company with which the policy is active. They report the claims for each of the policies, and even if no claims have been declared on a policy, a report reflecting the absence of losses must be generated. This report is indispensable at the time of commercial insurance renewal.

M

Motor Truck Cargo (MTC): Mandatory coverage for commercial truck carriers. This coverage is required by brokers, shippers, and companies that want to establish a business relationship with the transportation company. MTC coverage protects third-party products or cargo transported in the trailer, covering damages in the event of fire, collision, or impact.

Motor Vehicle Record (MVR): A document that shows a driver’s driving history. It is typically required by the insurance agency to provide a quote for a commercial insurance policy

N

National Association of Insurance Commissioners: A non-profit, non-partisan organization governed by the chief insurance regulators from the 50 states that sets standards and establishes best practices for the insurance sector.

P

Personal Auto Insurance: A contract between the insured and an insurance company that protects a car against financial losses in case of an accident or theft.

Personal Injury Protection (PIP): This coverage helps cover necessary expenses after a car accident. Also called “no-fault” insurance, it is mandatory in some states and can help pay medical bills, lost wages, and funeral costs. It is purchased as an addition to a Liability policy and cannot be bought separately.

Physical Damage (PD): Covers physical damages to the vehicles or trailers listed in the policy against a variety of damages such as collisions, vandalism, fire, and theft. Lenders generally require this type of coverage for leases and loans. It is also known by the abbreviated names PD and APD (Auto Physical Damage).

Pollution Liability: Helps protect businesses against unexpected pollution risks that may not be covered by standard Liability policies. It covers insureds who need protection against pollution caused during transport. This coverage can also include loading and unloading if the insured’s cargo causes a pollution situation. It is also known as environmental insurance or TPL (Transportation Pollution Liability).

Power Unit: The power unit or head of the truck without the trailer.

Premium:It is the amount of money an insurance company charges for insurance coverage.

Preventty: An insurance agency in the United States certified in 21 states to advise the Spanish-speaking community and the American community in the process of their commercial insurance, life insurance, health insurance, and personal auto insurance.

Property Damage: Material damage to another person’s property. The purpose of liability insurance or commercial auto liability is to cover material damages caused to a third party due to negligent or intentional acts of the insured.

O

Obamacare: A term used by some people to refer to their health insurance; however, there is no health insurance by this name. It is how people know the Affordable Care Act (ACA), which since 2010 has provided millions of people the opportunity to access low-cost private health insurance during the special Open Enrollment season.

Open Enrollment: Three months, usually from November to January, when individuals with a defined immigration status, who declare taxes or plan to do so, can apply for low-cost private health insurance.

Operating Authority: All for-hire carriers must receive authorization from the Department of Transportation (DOT) to operate. This dictates what type of cargo they can transport.

Out-Of-Service Order (OOS): It is a declaration by an authority from a federal, state, Canadian, or Mexican jurisdiction, notifying that a driver, commercial motor vehicle, or commercial transportation company is out of service and can no longer operate legally.

Owner-Operator: It is a person who owns their vehicle but does not have the necessary permits to operate on their own, so they operate under the authority of another transportation company.

Q

Quote: An insurance quote. It is an estimate of the insurance cost based on the information provided to the insurance company by the applicant.

R

Radius or Radius of Operation: Describes the distance a commercial vehicle will travel from the main parking address. It is a determining factor in the insurance value; the greater the radius of operation, the higher the insurance value can be.

Rejection: The insurance company refuses to accept the insurance coverage application. Usually, the reasons for rejection are due to high risk or pre-existing conditions.

Roadside Assistance: Roadside assistance is a service offered to help drivers physically and economically when their vehicle breaks down. This service is usually offered for an annual fee.

S

Surcharge: Additional economic charge applied by the insurance company.

T

Third-party Damages: Damages to another person’s property. The purpose of Commercial Auto Liability insurance is to cover the material damages caused to a third party due to negligent or intentional acts of the insured.

Trailer Interchange: Provides Physical Damage coverage that can be caused to a trailer while it is being transported by a party that is not the owner of said trailer; this protects against collision, fire, theft, explosion, and vandalism. Usually, this coverage is linked to MTC but can also be linked to PD.

Transport Company: A company dedicated to the transport of products by land, sea, or air.

V

Vehicle Identification Number (VIN): A 17-digit vehicle identification number used to identify trucks.

By familiarizing yourself with these terms, you can navigate the world of insurance with greater confidence, understanding better the coverages and procedures explained by your insurance agency or insurance advisor when acquiring commercial insurance for your transport company, health insurance, life insurance, or personal auto insurance