Commercial Insurance Terms in Plain English
Intro
Quick answerThis glossary explains, in plain English, the terms you'll actually meet in a commercial insurance policy, schedule, renewal letter or claim, from "sum insured" to what your policy document means when it says "ISR". Where a term has its own full guide, we link to it; this page gives you the short, honest answer first.
Start here: New to commercial insurance? These seven terms come up on almost every policy, and the rest of this glossary builds outward from them.
- Insurer (below): the company that carries the risk and actually pays a valid claim.
- Insured / Policyholder (below): the person, trust or business the policy protects.
- Policy (below): the contract itself, your schedule plus the wording.
- Premium (below): what you pay your insurer for a period of cover.
- Claim (below): your formal request to the insurer to pay for a loss the policy covers.
- Excess (below): what you pay towards a claim before your insurer pays the rest.
- Sum insured (below): the figure your insurer pays out against, and the number a co-insurance clause tests you against on a partial claim.
What is accidental damage cover?
Accidental damage cover pays for loss or damage caused by a sudden, unintended event, a forklift backing into a wall, a dropped tool cracking a benchtop, a spill that ruins stock, rather than only the specific perils named on a policy. It is the opposite structure to a defined events or listed events policy, which only responds when the cause of loss actually matches something on its list. For commercial property and contents, accidental damage cover is the broader, more forgiving option, because most real-world mishaps do not arrive neatly labelled as a "fire" or a "storm".
Compare with "defined events" and "listed events", below.
What does "aggregate limit" mean on a policy?
An aggregate limit is the total amount an insurer will pay across all claims in one policy period, not per claim. Once claims add up to that figure, the policy has nothing left for the rest of the year, even if each individual claim was well within any per-claim limit.
What is "agreed value" cover, and how does it differ from market value?
Agreed value cover fixes your payout for a total loss at a figure you and your insurer settle on before anything happens, rather than a figure worked out after the event. It matters most on motor fleet policies, where an agreed value stops an argument over what a written-off vehicle was genuinely worth on the day of the loss. Market value cover, below, does the opposite: it pays whatever the vehicle or item is assessed to be worth at the time, which is exactly the argument agreed value is designed to avoid.
What is "average relief" (a co-insurance waiver)?
Average relief is where an insurer agrees not to apply the co-insurance clause at all, either because your claim falls under a small-claim threshold in the wording, or, on several of the business-pack wordings brokers place, because the property was insured to full value on a professional valuation updated within roughly the last year. It rewards an accurate declared value rather than penalising it.
Full mechanics and the wordings that offer it: The Co-Insurance Clause: What Every Building Owner Must Know.
What is a "benefit" under a policy?
A benefit is what a policy actually pays or provides once your claim is accepted: a cash payment, a repair, a replacement, or a specific extra like temporary accommodation or emergency repairs cover. Some benefits are automatic, built into the base cover, while others are optional extensions you choose and pay extra for. Reading what benefits a policy actually includes, not just its headline sum insured, is how you find out what a claim will really get you.
What does "betterment" mean in an insurance claim?
Betterment is the value added when a repair leaves something newer, stronger or more compliant than it was before the damage, such as a full roof replacement when only half was actually damaged. Insurers can deduct betterment from a payout, or ask you to contribute towards the improved standard, because a claim restores you to where you were, not somewhere better.
What is the difference between an insurance broker and an agent?
A broker acts for you, searching the market and advising on what fits your risk. An agent acts for one insurer, selling only that insurer's own products. The difference shows up at claim time: your broker is accountable to you for the advice given, while an agent's first duty is to the insurer whose name is on the policy.
See Direct Insurer vs Insurance Broker: What's the Difference? for the full comparison.
What is business interruption insurance?
Business interruption insurance replaces the profit, and the ongoing fixed costs like rent, wages and loan repayments, that a business loses when it can't trade after an insured event such as fire, storm or flood. It runs for a chosen indemnity period and belongs to the business trading from the premises, not the building's owner.
Full product detail: Business interruption insurance.
What is a certificate of currency?
A certificate of currency is a one-page document from your insurer or broker confirming a policy is currently in force, including the policy number, insurer, period of cover and what's insured. Lenders, landlords and head contractors ask for it as proof of cover before settlement, a lease start or a contract begins, rather than taking your word for it.
What is an insurance claim?
A claim is your formal request to your insurer to pay for a loss your policy covers: a fire, a storm, an injury on your premises, a piece of equipment failing. Once you lodge one, the insurer checks it against the policy wording and your sum insured, then pays what is owed, in full, in part, or not at all if the loss sits outside what you actually bought. A broker's job does not stop at the sale; arguing your case at claim time, not just placing the policy, is where good advice actually earns its keep.
What does "claims-made" mean?
On a claims-made policy, the policy in force on the day a claim is actually made or notified is the one that responds, not the policy running when the work was done or the conduct happened. Professional indemnity and management liability insurance are written this way, which is why the retroactive date and unbroken cover matter as much as the premium.
See professional indemnity insurance and management liability insurance. Compare with occurrence-based cover, below.
What is a co-insurance clause (average clause)?
A co-insurance clause, also called an average clause, lets your insurer scale down a partial claim payout if your sum insured sits below a set percentage of the true rebuild cost, typically at least 80%. On a total loss the clause does not apply at all: you receive the full sum insured, and any gap to the real rebuild cost is yours.
Full mechanics, the partial-versus-total distinction, and worked examples: The Co-Insurance Clause: What Every Building Owner Must Know.
What does "consequential loss" mean in an older policy?
If your policy document or an older wording refers to "consequential loss", it generally means indirect financial loss that follows physical damage, such as lost profit or extra costs, rather than the cost of the damage itself. Modern Australian commercial policies mostly do this job through business interruption insurance instead, in clearer language.
See business interruption insurance. If you see this term in your own paperwork, ask your broker exactly what it does and doesn't cover.
What is the cyclone pool (ARPC)?
The cyclone pool is a government reinsurance scheme, run by the Australian Reinsurance Pool Corporation (ARPC), that takes on the cyclone and related flood risk sitting behind eligible small business and strata property policies with a total sum insured of $5 million or less across all locations on the policy. It exists to widen the market and ease premiums in cyclone-exposed parts of northern Australia, including North Queensland.
What are "defined events" or "listed events" on a policy?
A defined events, or listed events, policy only pays a claim when the cause of loss matches one of the specific perils actually named in the wording, fire, storm, impact or theft, for example, rather than covering loss from any sudden accidental cause. If what happened to your building or contents is not on that list, the policy simply does not respond, no matter how genuine the loss is. Broader commercial wordings move away from this listed-perils structure toward accidental damage cover, above, because owners rarely know in advance which narrow category their real-world mishap will fall into.
Compare with "accidental damage", above.
What is the "duty of disclosure"?
The duty of disclosure requires you to tell your insurer, before a contract starts, everything you know that a reasonable person in your position would know is relevant to the insurer's decision to offer cover and on what terms. It applies to business and commercial insurance contracts. Getting it wrong, even innocently, can let an insurer later reduce or refuse a claim.
What is the "duty to take reasonable care not to make a misrepresentation"?
Since October 2021, individuals buying insurance wholly or mainly for personal, domestic or household purposes, a "consumer insurance contract", have a lighter duty: answer the insurer's questions honestly and carefully, rather than volunteer every possibly relevant fact unprompted. Most commercial and business clients sit outside this definition and remain under the duty of disclosure above.
What is an endorsement?
An endorsement is a written change to your policy made after it starts: adding, removing or varying a section of cover, such as noting a new vehicle on a fleet policy or a new tenant's occupation on a property schedule. Endorsements are legally part of your policy, so check them against your certificate of currency whenever your circumstances change mid-year.
What is EPS / sandwich panel, and why does it affect my insurance?
EPS, expanded polystyrene, is the foam core inside sandwich panel, a lightweight insulated wall and roof panel common in sheds, cool rooms and factories. Because EPS burns fast and fuels a fire once alight, most mainstream commercial insurers decline or heavily restrict cover once EPS panel makes up around 20% or more of a building's floor area, pushing the risk to specialist insurers.
Relevant on warehouse insurance and industrial building insurance.
What is an excess?
The excess is the amount you agree to pay towards a claim before your insurer pays the rest. A higher excess usually lowers your premium, because you're carrying more of the small, common losses yourself while keeping cover for the losses that would actually hurt.
See the full excess-versus-premium trade-off, with a real client example, in Why We Sometimes Recommend a Higher Excess.
What is an exclusion?
An exclusion is something a policy specifically does not cover, stated in the wording rather than left to guesswork. Common commercial exclusions include gradual deterioration and wear and tear, tenant rent default, and uninsured perils like flood unless added. Reading the exclusions, not just the cover list, is how you find out what a policy actually won't do for you.
The gradual-deterioration exclusion in depth: How Your Roof Condition Affects Insurance Claims.
What is the difference between general advice and personal advice?
General advice is information about a product given without considering your specific situation, which is what most direct insurer call centres and comparison sites are legally set up to give. Personal advice takes your actual circumstances into account and recommends what suits you, which is what a licensed broker is engaged, and accountable, to provide.
See Direct Insurer vs Insurance Broker: What's the Difference?.
What does "gross profit" mean in a business interruption policy?
In a business interruption policy, gross profit isn't the figure on your tax return. It's built from your turnover, adjusted for stock movements, minus the costs that stop automatically when you stop trading. Declaring the accounting figure instead of the insurance figure is one of the most common and costly mistakes in this cover.
Full explanation: Business Interruption Insurance Explained; the cover itself is on business interruption insurance.
What is an indemnity clause in a commercial lease?
An indemnity clause in a commercial lease is the paragraph where a tenant agrees to cover the landlord's losses arising from the tenant's use of the premises, an injury to a visitor caused by something the tenant did, for example. It sits alongside, and does not replace, the landlord's own property owners liability policy, because a promise in a lease is only as good as the tenant's ability to pay it.
See property owners liability insurance.
What is an indemnity period?
The indemnity period is how long your business interruption or loss of rent cover keeps paying after an insured event, not how long the physical rebuild takes. Consolidated Insurance Brokers sets 18 months as the practical default, actively recommends 24 months, and only uses the 12-month floor where a client won't pay for more or specifically instructs it.
See Business Interruption Insurance Explained for how the period is chosen, and business interruption insurance for the cover.
What is indemnity value?
Indemnity value is what your building or contents are worth today, allowing for age, wear and depreciation, closer to a second-hand price than the cost of a brand-new equivalent. Most commercial property policies insure on a replacement value basis instead, precisely because indemnity value would leave you with a depreciated payout that won't fund a full rebuild.
See "replacement value" and "market value", below, and Underinsurance: The Biggest Risk to Commercial Building Owners.
Who is "the insured" (also called the policyholder)?
The insured, also called the policyholder, is the person, trust or business a policy is written to protect: the party who can make a claim, and who the insurer owes a duty of good faith and fair claims handling to. On a commercial building policy, the insured is usually the legal entity that actually owns the building, which is why getting the exact right entity named matters (see "the named insured", below). More than one party can hold an insurable interest and be named on the one schedule, an owner and a mortgagee, for example.
What is an insurer?
The insurer is the company that actually carries the risk and pays a valid claim: the underwriting party named on your policy schedule. It is a different role to your broker: the insurer prices and accepts the risk you are transferring, while your broker searches the market on your behalf, negotiates terms, and advises on what actually fits your risk (see the difference between a broker and an agent, above). Consolidated Insurance Brokers deals across a panel of insurers rather than being one itself, so whether a claim is paid, or declined, is always the insurer's decision to make, not ours.
What does "ISR" mean if I see it in my policy?
ISR, Industrial Special Risks, is an older name for a broad commercial property wording that bundles building, contents and business interruption cover into one policy, common on larger or higher-value commercial and industrial risks. If your policy document or schedule uses the term ISR, it's describing this style of broad-form package, not a separate product you need to buy on top of what you already have.
What is loss of rent cover?
Loss of rent cover replaces a landlord's rental income when an insured event, such as fire or storm damage, makes a property untenantable. It runs for the chosen indemnity period and does not cover a tenant who simply stops paying rent. That is rent default, a separate cover with different rules by property type: worth having on a residential landlord policy, rarely worth paying for on a commercial one.
See the full canonical answer on commercial property insurance and commercial landlord insurance; the what-not-to-buy detail is in the commercial landlord insurance guide.
What is market value, and why isn't it my building's sum insured?
Market value is what a buyer would pay for your property, including the land it sits on. It's the wrong number for a building sum insured, because land doesn't burn down. A rising property market can put market value well above, and a struggling one well below, the actual cost of rebuilding the structure.
See Underinsurance: The Biggest Risk to Commercial Building Owners. Compare with "agreed value", above, which is how a motor fleet policy fixes the figure upfront instead of leaving it to be assessed after a total loss.
What does "material damage" mean in a policy document?
"Material damage" is the traditional insurance-industry term for physical loss or damage to buildings, contents or stock, as opposed to the financial loss that follows it (see business interruption insurance). If your policy wording still uses "material damage" as a section heading, it's describing the part of the policy that pays to repair or replace the physical thing that was damaged.
Why does it matter whose name is on the policy (the "named insured")?
The named insured is the exact legal person or entity written on the policy schedule, and it's the only party the insurer pays or defends. A policy taken out in a director's personal name when a trust or company actually owns the building won't respond correctly for the true owner, regardless of who paid the premium.
Full explanation: the canonical answer on commercial building insurance.
What is occurrence-based cover?
On an occurrence-based policy, the policy in force on the date the incident actually happened is the one that responds to a claim, even if the claim isn't made until years later. Public liability insurance is typically written this way, which is why, unlike claims-made cover, it generally needs no run-off cover when a business closes.
See public liability insurance. Compare with "claims-made", above.
What does "padlock" mean when a broker mentions a padlock quote?
"Padlock" is industry shorthand for a simplified, standardised small business property wording, named after CGU's Padlock Insurance product, built for straightforward risks rather than complex or higher-value ones. Brokers sometimes use a padlock-style quote as a competitive option alongside a full business pack panel, particularly for simple, lower-risk premises.
What is a PDS (Product Disclosure Statement)?
A PDS is the legally required document that sets out what a policy covers, excludes and costs, so you can compare and decide before you buy. It's longer and more detailed than the policy schedule, and it's the document that actually governs a claim, so it's worth having your broker walk you through the parts that matter for your risk, not just skimming the summary.
What is an insurance policy?
A policy is the legal contract between you and your insurer: what is covered, what is excluded, the sum insured, the excess, and the conditions both sides agree to. It is made up of two parts read together, the schedule (the details specific to you) and the wording (the standard terms that apply to everyone who buys that product), not either one on its own. A policy renews into a new contract period each year, which is exactly why it pays to check the schedule again at renewal rather than assume nothing has changed.
See "What is a PDS (Product Disclosure Statement)?", above, for the document that explains a policy before you buy it.
What is a premium?
A premium is what you pay your insurer for a period of cover, calculated from your risk: the building or activity insured, its location, your claims history, your sum insured, and the cover options you choose. It is a different cost to your excess, which you only pay if you actually claim, and different again from stamp duty, a government charge added on top rather than something your insurer keeps. Premium funding, below, lets you spread this cost over the year instead of paying it as one lump sum.
What is premium funding?
Premium funding is a separate loan that pays your full annual premium to the insurer upfront, which you then repay to the finance company in instalments, usually monthly, with interest. The insurance itself stays a normal twelve-month policy either way. If instalments stop, the funder can cancel the policy to recover its money, so it's a financing choice, not a different kind of cover.
The full explainer, including what it costs and the one risk to understand, is at insurance premium funding, explained.
What is professional indemnity insurance?
Professional indemnity insurance covers the financial loss a client suffers because of your advice, design, report or professional service, when the loss comes from an error, omission or negligence rather than a physical accident. It's written on a claims-made basis, so the retroactive date and run-off cover matter as much as the limit you choose.
Full product detail: professional indemnity insurance.
What is property owners liability insurance?
Property owners liability insurance covers a landlord's own legal liability when someone is injured, or their property is damaged, in connection with a building the landlord owns, separate from the tenant's business liability policy or a strata scheme's insurance. It responds because the owner's name, not the tenant's or the body corporate's, is the one that gets named in a claim.
Full product detail: property owners liability insurance.
What is public liability insurance?
Public liability insurance covers your legal liability for injury to another person or damage to their property caused by your business, and pays your defence costs as well as any damages awarded. It's written on an occurrence basis, so the policy running on the day of the incident is the one that responds.
Full product detail: public liability insurance.
What is replacement value (rebuild cost)?
Replacement value, also called rebuild cost, is what it would genuinely cost today to demolish, redesign, get approvals for and reconstruct your building from scratch, including professional fees and debris removal. It's the number your commercial building sum insured should match, and it's usually quite different from what you paid for the building or what it would sell for.
See Underinsurance: The Biggest Risk to Commercial Building Owners and desktop building replacement valuation.
What is a retroactive date?
The retroactive date is the earliest point in time your current claims-made policy, such as professional indemnity or management liability, will respond to a claim about. Work or conduct from before that date has no cover under the current policy, even though the claim is being made now, which is why switching insurers without checking this date can quietly reopen years of past exposure.
See professional indemnity insurance and management liability insurance.
What is run-off cover?
Run-off cover extends a claims-made policy for a defined period after you stop practising, sell the business, or wind up a company. Cancelling the policy on your last working day doesn't end your exposure to a claim about past work, so run-off is what keeps that door covered after you've walked out of it.
See professional indemnity insurance.
What is salvage in an insurance claim?
Salvage is what remains of damaged property after a claim, such as a written-off vehicle or fire-damaged stock, which the insurer usually takes ownership of once it has paid the claim in full. If you want to keep the damaged item yourself, tell your insurer before settlement, because the value of the salvage is often deducted from your payout either way.
What is stamp duty on an insurance premium?
Stamp duty is a state and territory government tax added to most Australian insurance premiums, on top of the base premium and GST, at a rate that varies depending on where the insured property or risk is located. It shows up as a separate line on your invoice and isn't something your broker or insurer keeps. It's remitted to the relevant state revenue office.
What is a sub-limit?
A sub-limit is a cap on how much a policy will pay for one specific type of loss inside a broader section of cover, even though the overall sum insured is higher. A common example is a cap on cover for portable contents like laptops or tools, set well below the total contents sum insured. It's worth checking what sits inside your headline number rather than assuming it all applies evenly.
What is subrogation?
Subrogation is your insurer's right, once it has paid your claim, to step into your shoes and recover its money from whoever was actually at fault, such as a negligent contractor or a tenant who started a fire. It's why an insurer may ask you not to accept blame or sign anything with a third party before the claim is settled, so as not to compromise that right to recover.
What is the sum insured?
The sum insured is the figure you nominate as the maximum your insurer will pay for a total loss, and the number your co-insurance clause tests you against on a partial one. Setting it too low is one of the biggest causes of a disappointing claim payout in commercial property insurance.
See Underinsurance: The Biggest Risk to Commercial Building Owners for how to get it right.
What is underinsurance?
Underinsurance means your sum insured sits below the real cost of rebuilding your property. Only around one in ten Australian businesses think they're underinsured (Insurance Council of Australia research, 2015; Vero SME Insurance Index, 2025), but when quantity surveyors actually measure it, buildings come up about 24% short on average, and 31% short for industrial property (MCG Quantity Surveyors, 2024).
Full picture and the fix: Underinsurance: The Biggest Risk to Commercial Building Owners.
What does "utmost good faith" mean in insurance?
Utmost good faith is the legal standard, written into the Insurance Contracts Act, requiring both you and your insurer to act honestly and fairly with each other at every stage of the relationship, not just when a policy is first taken out. For you, it underpins the duty of disclosure; for the insurer, it means claims must be handled honestly and fairly, not searched for reasons to decline.
What is a vacancy clause, and how long can a commercial property sit empty?
Vacancy clauses restrict or exclude cover once a commercial property sits substantially empty, because an unoccupied building is a higher risk for fire, vandalism and undiscovered damage. On the small business policies Consolidated Insurance Brokers usually places, full vacancy cover is commonly standardised around 90 days. The key underwriting question is whether 50% or more of the building is vacant: a building with several tenancies that stays more than half occupied is generally not treated as vacant, so the clause would not bite. Either way, tell your insurer about a change in tenancy during the year, not just wait for renewal.
See the full answer on commercial property insurance.
What is a write-back?
A write-back is an insurer adding a section or protection back into a policy that the standard wording would otherwise exclude, usually because a broker specifically negotiated it. Seeing a write-back in your policy schedule is a sign someone read the base wording closely enough to notice the gap and asked the insurer to close it. A form-based online quote never does that.
Closing note
Still not sure which of these applies to your policy? Ask a broker a direct question.