Insurance Industry Language Every Cannabis Business Owner Should Know
As the cannabis industry continues to grow, it is essential for business owners to understand the importance of insurance and the different terms associated with it. The complex and evolving regulatory landscape of the industry makes it imperative to have adequate insurance coverage to protect your business from potential financial losses. But do you know what the terms in your contract even mean?
Here’s a glossary of some of the key insurance terms that cannabis business owners should know.
The aggregate is the total amount of coverage available for a specific policy period. For example, a business may have a general liability policy with an aggregate of $1 million. Once the policy limit is reached, the insurance company will not pay any more claims for that policy period.
A deductible is the amount that the insured must pay out of pocket before the insurance company pays for a claim. For example, if a business has a property damage claim of $10,000 and a $1,000 deductible, the business must pay $1,000, and the insurance company will cover the remaining $9,000.
ACV (Actual Cash Value)
ACV is the value of an item at the time of the loss. It takes into account the item’s age, depreciation, and condition. For example, if a 5-year-old computer is stolen, the ACV of the computer will be less than its original purchase price.
The premium is the amount of money that the insured pays to the insurance company for coverage. The premium can be paid in installments or as a lump sum.
The name insured is the individual or entity that is covered by the insurance policy. For example, the actual person who owns a cannabis business may be the named insured on a commercial property insurance policy but it can also be the organization as a whole.
An additional insured is someone who is added to an insurance policy, in addition to the named insured, and who is covered under the policy. For example, the landlord for a warehouse may be added as an ‘additional insured’ to a tenant’s liability insurance policy.
The declarations are the first few pages of an insurance policy that provide important information about the coverage provided. The declarations include the name of the insured, policy period, limits of coverage, and the policy premium.
Indemnity is the protection against financial losses. An insurance policy provides indemnity to the insured for covered losses.
Endorsements are changes made to an insurance policy to provide additional coverage or to modify existing coverage. For example, a CBD business may add an endorsement to a liability policy to cover a new product or service.
Minimum Earned Premium
The minimum earned premium is the minimum amount that the insurance company will charge for a policy period, regardless of whether the policy is canceled or changed during that time.
An occurrence is an event that results in a loss covered by an insurance policy. For example, a slip and fall incident at a business would be considered an occurrence for a general liability policy.
The per-occurrence limit is the maximum amount of coverage available for each occurrence. For example, if a business has a general liability policy with a per occurrence limit of $1 million, that is the maximum amount that the insurance company will pay for each occurrence.
The per-claim limit is the maximum amount of coverage available for each claim made against an insurance policy.
Subrogation is the process by which an insurance company seeks reimbursement from a third party for a loss paid to the insured. For example, if a cannabis cultivation site has a property damage claim caused by a third party, the insurance company may seek reimbursement.
Finding the right coverage
Understanding key insurance terms is crucial for every business owner in the cannabis industry. It is important to have adequate insurance coverage to protect your business from potential financial losses, and understanding the different terms associated with insurance policies can help you make informed decisions when choosing the right coverage for your business.
CannGen is the longest tenured and largest cannabis-specific MGU in the United States. Learn more about our comprehensive insurance solutions for the cannabis, CBD, and hemp industries here.
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Disclaimer: Information shared is for general purposes only.