Three words you will come across regularly with most insurance policies are: premium, limits, and deductible. You will come across them when you buy almost any type of insurance.

Knowing what they mean will help you be a more informed shopper and save you time and money. Learn more about the definition of each word:

Premium

Premium is the price you pay for insurance. If you want an ongoing safety net, always pay your premium when it’s due – usually monthly, quarterly, semiannually, or annually. Insurers will often offer a discount to business owners who pay their full premium when a policy is initiated.

If you don’t pay your premium, your insurer will eventually cancel your policy (or in insurance lingo, your policy will lapse). Once you miss a premium, you will have a grace period to make a payment. If you still don’t pay, your policy will lapse, leaving you open to future losses. If you wish to protect your business, it is important to pay your insurance premiums on time.

Several factors affect how premiums are calculated:

• Type of insurance you buy
• How much attention do you need?
• Policy limits you choose
• Your desired deductible
• Additional coverage you buy, also known as policy riders
• Your type of business
• Your insurance history
• Where your business is located
• Your business revenue
• Your business assets (type and value)
• Your loss control program
• Discounts applied based on your profile or on your multiple policies

Those factors are usually addressed when you apply to compare insurance quotes with Insureon, a free process that takes just a few minutes. Because so many factors determine your premium, there are many opportunities to adjust your policy to lower its cost.

Policy limits

If your business has a covered loss, your insurer will cap how much it will pay to settle your claim. These caps are called policy limits (or liability limit). Their amount depends on the amount of insurance you decided to buy.

How insurance limits work depends on the type of insurance.

For general liability insurance and professional liability insurance (also known as errors and omissions insurance), there are two types of insurance limits:

A limit per occurrence determines the most money your policy will provide for one particular occurrence.

An aggregate limit establishes the most your policy will pay for each claim during the policy period.

The limits inform you of the maximum amount of money your policy will provide in case you experience one or more covered losses.

For workers compensation insurance, policy limits depend on the type of loss. For example, when employees suffer a work-related injury or illness, they can be compensated for their lost wages and medical bills. The specific amount is determined by your state’s Workers’ Compensation Board. Limits for employer negligence claims may vary from limits for employee injuries or illness.

removable

Your policy deductible, sometimes called the annual deductible, is what you pay out of pocket before your insurance policy provides financial assistance and coverage. In fact, it is a form of risk sharing between you and your insurance company.

Insurance companies usually offer a range of deductibles for small business owners. If you prefer to keep your claims low, then choose a low deductible. However, this will usually raise your premium. Conversely, if you don’t mind paying more out of pocket on claims, then choose a high deductible policy. This will usually reduce your premium.

Whether you’re buying general liability, professional liability, or errors and omissions insurance, policy deductibles are a great way to tailor your policy to reflect your risk appetite and budget.