The Fundamentals of Business Insurance: The following four types of insurance are required for most businesses insurance:
1. Homeowners’ Insurance / property insurance
Property insurance covers a company’s assets if they are lost or damaged due to various common perils, such as fire or theft. Property insurance covers the structure of a building and its contents, such as office furniture, inventory, raw materials, machinery, computers, and other items critical to a company’s operations. Property insurance may cover equipment breakdown, debris removal after a fire or other destructive event, some types of water damage, and other losses, depending on the type of policy.
Business Interruption Insurance
Business interruption insurance, also known as business income insurance, is a type of property insurance. A company that suffers a direct physical loss, such as fire or a damaged roof due to a tree falling on it in a windstorm and has to shut down completely while the premises are being repaired may lose out to competitors.
After a disaster, it’s critical to get back to business as soon as possible. That is why it is critical to have business interruption insurance. Business interruption insurance is usually divided into three categories. A company can purchase any one or a combination of these.
Coverage for Business Income:
If a company has to vacate its premises due to disaster-related damage covered under the property insurance policy, this coverage compensates for lost income. Business income insurance compensates the company for the profits it would have made if the disaster had not occurred, as determined by financial records. The policy also covers ongoing costs, such as electricity, even if business operations have temporarily ceased.
Additional Income Protection:
Reimburses the company for a reasonable amount compared to its normal operating expenses to avoid having to shut down during the restoration period.
Business Interruption Insurance (Contingent)
Protects a business owner’s earnings in the event of physical loss or damage to the insured’s suppliers or customers’ property, rather than the insured’s own. Floods, earthquakes, and acts of terrorism are generally not covered by standard commercial property insurance, but who can purchase them through various markets.
Protection from Flood Damage
Flood damage is typically not covered by homeowners’ insurance policies. Businesses should find out if their location is in a flood zone and if it has been flooded in the past by contacting their local government office or commercial bank.
Private carriers service the federal government’s National Flood Insurance Program (www.FloodSmart.gov), and a few specialty insurers offer flood insurance.
Protection Against Earthquake Damage
Most property insurance policies, including business owners’ package policies, exclude coverage for earthquake damage. A special earthquake insurance policy or a commercial property earthquake endorsement is required for businesses in earthquake-prone areas.
Losses from Terrorist Attacks Protection
Only businesses that purchase optional terrorism coverage are covered for losses resulting from terrorist acts under the Terrorism Risk Insurance Act of 2002 and its extensions. Workers’ compensation is an exception, as it covers work-related injuries and deaths, including those caused by terrorist acts.
2. Liability Insurance Coverage
Any business can be sued. Customers may claim that the business has harmed them due to a defective product, a service error, or a disregard for the property of others. Alternatively, a claimant may allege that the company created a dangerous environment. Liability insurance covers damages for which the company is found liable and attorneys’ fees and other legal defense costs up to the policy limits.
It also covers the medical expenses of anyone injured by the business or on its premises. The first line of defense against many common claims is a Commercial General Liability (CGL) insurance policy. CGL policies cover claims in four basic categories of business liability:
• Physical harm
• Property damage
• Injuries to the person (including slander or libel)
• Injuries to the advertising (damage from slander or false advertising)
CGL policies also cover the costs of defending or settling claims, in addition to the claims listed above. The maximum amount the insurer will pay during the policy period is always stated in general liability insurance policies.
A business can choose between two liability insurance policies: occurrence and claims made. Both policies have their own set of benefits.
• Occurrence Policy:
An occurrence policy protects a company from liability for incidents that occur while the policy is in effect, regardless of when the claim is filed. For example, a person may sue a company in 2010 for an injury sustained in 1999 due to a fall.
Even if the company has a policy with higher limits, the policy in place when the incident occurred (i.e., 1999) will apply. Some states, as well as certain industries and professions, may not have occurrence coverage.
• Claims Made Policy:
A claims-made policy covers a company based on the policy in effect when the claim is filed, regardless of when the incident occurred. The policy limits in effect in 2010 would apply in the example above.
Businesses with claims-made policies can purchase “tail coverage” as an add-on. Tail coverage allows a company to file claims for alleged injuries that occurred while the policy was in effect after it expired.
3. Insurance for Commercial Vehicles
Vehicles used primarily in commercial establishments or business activities are covered under a commercial auto policy. Up to the policy limits, the insurance covers any costs incurred by third parties due to bodily injury or property damage for which the company is legally liable.
Commercial auto policies differ from personal auto policies in several technical ways, even though the major coverages are the same. They may have higher limits and provisions covering rented and other non-owned vehicles, such as employees’ cars used for work. Several insurance companies provide business auto policies tailored to small business owners or specific types of businesses.
4. Workers Compensation Insurance
Employers have a legal obligation to keep their workplaces safe for their employees. Accidents can, however, happen despite precautions. In almost every state, workers’ compensation insurance is required by law to protect employers from lawsuits resulting from workplace accidents and provide medical care and compensation for lost wages to employees injured in workplace accidents.
Workers’ compensation insurance protects employees who are hurt on the job, whether on the job or off, or involved in car accidents while on the job. It also covers illnesses that are caused by one’s job.
Workers’ compensation pays injured workers for time away from work, as well as medical and rehabilitation services, regardless of who was at fault in the accident. Surviving spouses and dependents are also eligible for death benefits. The amount and duration of lost income benefits, the provision of medical and rehabilitation services, and how the system is administered differ by state.
For example, in most states, rules govern whether the worker or the employer can choose the doctor who treats the injuries and how benefit disputes are resolved. Workers’ compensation insurance is a separate policy that one must purchase. Package policies for in-home businesses and business owners policies (BOPs) are available, but they do not cover worker’s compensation.
Other Types of Business Coverages
The first four coverages discussed below are various types of liability insurance policies that businesses can purchase. A type of life insurance is the fifth. Specialized liability policies are also available for specific types of businesses.
Errors and Omissions Insurance/Professional Liability
Some businesses provide services such as giving advice, making recommendations, designing things, providing physical care, or representing the needs of others, which can result in customers, clients, or patients suing the company for failing to perform a job.
They have been harmed because they have not been treated properly. These situations are covered by errors and omissions or professional liability insurance. The policy will pay any judgment up to the policy limit for which the insured is legally liable. It also covers legal defense costs, even if no wrongdoing has occurred.
Employment Practices Liability Insurance
Up to the policy limits, employment practices liability insurance covers damages for which an employer is legally liable, such as infringing on an employee’s civil or other legal rights. In addition to paying a judgment for which the insured is responsible, it also covers legal defense costs, which can be significant even if no wrongdoing has occurred.
Directors and Officers Liability Insurance
Directors and officers liability insurance protect the directors and officers of corporations and nonprofit organizations in the event of a lawsuit alleging they ran the company or organization without regard for the rights of others. The policy will pay any judgment up to the policy limit for which the insured is legally liable. It also covers legal defense costs, even if no wrongdoing has occurred.
Umbrella or Excess Policies
As the name implies, an umbrella liability policy provides coverage in addition to a company’s other liability insurance. Its purpose is to protect against unusually high losses by stepping in when one of the underlying policies’ policies limits have been exhausted.
An umbrella policy would protect a typical business in addition to its general liability and auto liability policies. If a company has employment practices liability insurance, directors and officers liability insurance, or other types of liability insurance, the umbrella policy may provide additional coverage beyond the policy limits. The cost is determined by the nature of the business, its size, the types of risks it faces, and its methods to mitigate risk.
Key Person Life Insurance
The loss of a key person, especially if that person is the founder of the company or the main point of contact for customers and suppliers, can be devastating to a small business. The loss of a key employee may also make the business less efficient, resulting in capital loss.
Losses incurred due to the death of a key employee are covered by insurance. These policies protect the company from significant losses caused by the death or disability of a key employee. The amount and cost of insurance required for a specific business are determined by the situation and the key employee’s age, health, and role.
When a key employee dies, key employee life insurance pays a death benefit. The company, which pays the premiums and is the beneficiary, usually owns the policy. The funds from key person insurance can be used to buy back shares in a company from the deceased’s estate, hire a headhunting firm to find a suitable replacement, and cover costs and expenses while the company adjusts to the loss.