Commercial Insurance Terms in Plain English
Quick answerThis glossary explains 54 commercial insurance terms in plain English, so you can look up a word from your policy, schedule or renewal letter, from excess and sum insured to co-insurance clause and indemnity period. It's written for commercial building owners and small business owners. Ring us if you want a term explained against your own cover.
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:
- Insurer (below)
- Insured / Policyholder (below)
- Policy (below)
- Premium (below)
- Claim (below)
- Excess (below)
- Sum insured (below)
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, rather than only the specific perils named on a policy. It is the opposite structure to a defined events or listed events policy.
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.
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.
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.
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, while others are optional extensions you choose and pay extra for.
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.
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.
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. There is no legal standard for what one has to contain, and "certificate of currency" and "certificate of insurance" are used across the market as though they meant the same thing, so what appears on a certificate is what the issuer chooses to put there. We set ours to what the person asking actually has to satisfy and nothing beyond it, because a schedule of everything a business insures, and for how much, should not be circulating on paper we no longer control. We will not issue a certificate of currency until the policy is paid and the cover is confirmed in force, because an unpaid policy is one that can be cancelled out from under whoever is relying on it. Premium funding is not an exception to that: a funded premium is paid to the insurer in full on day one, so a funded policy's certificate issues in the ordinary way.
Related: how premium funding works.
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. 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.
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.
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.
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. Endorsements are legally part of your policy.
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.
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. Common commercial exclusions include gradual deterioration and wear and tear, tenant rent default, and uninsured perils like flood unless added.
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.
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. 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.
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. On a commercial building policy, the insured is usually the legal entity that actually owns the building (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 (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 how loss of rent cover is set on commercial property insurance and commercial landlord insurance.
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.
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 that section.
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.
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). A policy renews into a new contract period each year.
See "What is a PDS (Product Disclosure Statement)?", above.
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. Premium funding, below, lets you spread this cost over the year.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.