What are Premiums, Deductibles, and Limits?

Despite experts predicting global cannabis sales reaching $33.6 billion by 2025, cannabis companies face a myriad of risks, from legal compliance to crop protection. Surprisingly, some professionals don’t even know that cannabis insurance exists! Nevertheless, this post explains some foundational elements of commercial insurance that cannabis company leaders need to know. Let’s dive in.

What Are Premiums?

Commercial insurance works in a trade-off manner, swapping premiums for protection. When you pay your insurance premium on time and in full, you enable the carrier to fulfill their policy promises. Miss a payment, though, and your coverage might lapse, leaving the insurance carrier unable to follow through on their end of the deal. 

Remember that a premium isn’t the same as a quote; instead, a quote is merely an estimate for insurance coverage. A premium is the actual cost of your policy. That said, the cost of a premium depends on many factors, including:

• Industry
• Location
• Company size
• Developmental stage
• Revenue
• Claims history

Although most executives would enjoy it, you can’t pick your premium, per se. After answering a series of questions regarding your business operations, an underwriter reviews your insurance submission. Through this underwriting process, an actuary — a person who calculates premiums — lands on a particular figure. 

Although your premium will remain the same throughout the life of the policy, you can make changes to the policy during renewal time. With the help of a commercial insurance broker, most company leaders reevaluate their insurance needs annually. 

Also, your carrier evaluates how risky it is to insure your company based on activities during the policy year, such as active claims or industry trends. You might experience an increase or decrease based on these factors.

What Are Deductibles?

Like premiums, the policyholder is also responsible for the cost of their insurance deductible. On that note, a deductible refers to a part of the loss that the insured has agreed to cover. However, deductibles only come into play once you’ve filed a claim instead of a monthly or yearly fee. 

To some, deductibles might seem like a silly idea or a nuisance. But without deductibles, your insurance carrier would have to pay for every loss that occurred. Naturally, insurance costs would skyrocket across the board. Deductibles work as leverage so that coverage stays affordable. Two main types of deductibles exist, which are:

• Flat deductible: A predetermined specific dollar amount that applies to each loss.
• Percentage deductible: A specific dollar amount determined by the loss, usually a percentage of the overall covered loss amount. 

It’s not uncommon for leaders to try to improve their insurance costs by manipulating their deductibles. However, this approach is risky, often resulting in companies operating underinsured. A better strategy is to work closely with a trusted commercial insurance broker who can navigate the insurance world savvily — benefitting your business in the meantime.

What Are Limits?

Everyone and everything has limitations, including insurance carriers. Strangely enough, policy limits or the limits of coverage are often the most confusing part of any insurance policy. But it’s straightforward; your policy limit is the amount of insurance you buy. In other words, it’s the maximum amount your carrier will pay for a specific loss. 

The confusing part is that many insurance policies consist of a collection of coverages, and each one has a limit. More than likely, you’ll see several different limits within one policy. For example, bodily injury usually has its own limit, as does property damage. Of course, these limits are subject to your insurance policy’s terms and conditions. 

Although several policy limit types exist, we only cover the two most common in today’s post, including: 

• Per occurrence limit: The maximum amount a carrier will pay for all claims due to a single occurrence.
• Aggregate limit: The maximum amount a carrier will pay for all covered losses during the active policy year or policy period.

As mentioned, limits are typically the most confusing part of any insurance policy. What’s more, commercial insurance for cannabis companies tends to be more challenging to understand because laws and standards are ever-changing. We recommend that you partner with a commercial insurance broker who knows the cannabis industry by heart, not to mention the insurance market. 

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 to learn more about your cannabis insurance options.