Many of us remember the good old days when a business deal was consummated by a person’s word or a handshake. Times have changed. Most successful businesses today put any formal business agreement in writing as a method of protection.

How many of us take the time to read—really read—what’s in the contract? As an insurance advisor for more than 30 years, I have read a lot of contracts. It is shocking how often people do not know what they are agreeing to.

Most standard contracts include an Insurance Requirements section which shifts risk from one party to another party. In the insurance world, we call this risk transfer.

There are three common risk transfer terms seen in contracts. First, “additional insured” gives away part of your limits of liability. You are now sharing these limits with someone else. The second term, “primary,” means your insurance coverage will pay first. Lastly, “waiver of subrogation” does not allow your insurance company to collect from the guilty party after they pay for the injury and/or damage.

If reading these definitions stresses you out—good! They are major agreement terms and conditions that you should understand and be able to negotiate.

If you read a contract and are not completely sure what it means, contact your legal counsel for interpretation. Also, your insurance advisor always needs to be made aware of these contractual requirements. If your insurance coverage is not changed to comply with the requirements contained in the contract, you may be responsible for the risk that is being transferred and not your insurance company.

So, read before you sign and call your insurance advisor.

By: Cathy King, CPCU, ARM, CIC, AAI, CPIW

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