Business Insurance Coverage - An Overview

Every business, large and small, has unique exposures to risks. Although there are many ways to handle your business vulnerabilities, the most popular method is through insurance contracts (known as "the transfer of risk").

If you don't know if you want to get insurance for particular business risks, ask yourself these questions -

"Do I have the cash set aside to pay for ________?""Could my business withstand a ______ accident without insurance?"

For most small to medium-sized businesses, the answer is usually to buy insurance or risk the failure of your business. Conversely, for larger companies, it is usually the question of limiting a loss to a predetermined dollar amount allocated for future claims. Either way, insurance is a powerful tool for your business to leverage and is something every business owner should consider.

The 3 Basic Insurance Coverages

1) Property Insurance

Property insurance covers the direct loss or damage of your physical business assets. Policies can be written to cover your building, building contents, computers, machinery, and even equipment. 

The majority of property insurance covers every direct damage to your property unless otherwise excluded (called the "causes of loss - special form"). These "special form" property policies have extensive coverage, but it is essential to read all the exclusions because that is what will ultimately determine coverage.

2) General Liability Insurance

General liability insurance covers the property damage or bodily injury caused to others arising out of the negligence of your business operation. Coverage usually includes liability arising from your business operations both on your premises and anywhere that you are conducting business. 

In addition to the standard liability coverages mentioned above, the majority of general liability insurance policies also include coverage for work or products that you have completed or sold. If you sell a product, this coverage is essential.

3) Workers Compensation Insurance

Workers compensation insurance covers the medical costs and lost wages associated with an employee getting injured while working for you.

If you have employees, workers compensation coverage is almost guaranteed to be required - even if you provide health insurance.

5 Suggested Insurance Coverages

1) Cyber Insurance

Cyber insurance covers the liability associated with the exposure of private information that your company holds digitally. This includes data you may have from your vendors, clients, patients, or your own company.

Cyber breaches can cause irreparable damage to your business and your reputation. Not only will you have to notify every person whose information was released in the breach, but you may also have to provide free credit monitoring services and pay steep fines (if health information is disclosed). On top of that, you can still get sued.

Cyber insurance gives you a specialized team to help you minimize damage, pay for the lawsuit/fines, and work to repair your reputation.

With hacking and social engineering becoming more and more frequent, this coverage is quickly becoming essential to all business owners.

2) Employment Practices Insurance

Employment issues such as discrimination, sexual harassment, and inadequate HR procedures are significant risks for small employers who do not have the resources of bigger firms. The costs and time it takes to defend yourself can, by itself, destroy or significantly harm your business.

Employment Practices Liability Insurance (EPLI) covers the settlement of these wrongful acts and also pays a legal team to fight the allegations for you. In addition to taking care of the problem, these EPLI insurance carriers often provide HR and legal support so that these events are less likely to occur to your business.

3) Business Income Insurance

40-60% of companies will never reopen their doors after a natural disaster. It doesn't have to be that way, though.

Business income insurance covers your net income while your business doors are closed due to a covered claim. 

Essentially, an insurance company will pay your bills (and can often pay your current employees to stay) while you rebuild your business. This coverage most often covers 12 months of net income!

This coverage is one of the most, if not the most, critical coverage for you to stay in business after a significant event such as a fire, hurricane, or a tornado.

4) Miscellaneous Professional Liability

Although many professions (lawyers, architects, etc.) require particular professional liability policies, most businesses do not realize they also have exposure.

As mentioned above, general liability insurance covers bodily injury and property damage that you cause other people or organizations. Professional liability covers financial harm caused to others when there is no bodily injury or property damage.

For example: If you provide a service to another business and the other business alleges that you did not fulfill the contractual requirements, professional liability coverage would apply.

5) Excess/Umbrella Liability

Although not a coverage by itself, an excess or umbrella liability policy will extend your limits of liability to whatever you and your risk management consultant deem adequate.

With the increasing litigation and settlement amounts in the US, the standard $1,000,000 of liability is quickly becoming not enough.

Umbrella and Excess liability policies most typically extend the limits of general liability, commercial auto, and workers compensation. Although rare, some umbrellas can even include directors & officers, cyber, and employment practices liability.

Summary

Business insurance is a powerful tool in any business owner's toolbox. It is essential to have a conversation with your risk advisor to determine what risks your business faces and decide together what coverages best fit your needs and budget.