Business Insurance

A Wide Variety of Coverages

There are a very wide range of business insurances, and each type of business has specific types of coverage it needs. This overview doesn’t cover every type of coverage, but it does introduce you to the most common insurance coverage types – the ones that most business owners need.

To decide exactly which coverages you need you should consult with an insurance professional and possibly an attorney.

General Liability

As the name implies, general liability coverage is an overall but not very specific insurance that covers only the most basic legal risks. If anyone sues your company, it is the general liability insurance that will be the start of assuming that risk. For example, if someone is injured on your property (unless that person is an on-duty employee) or someone is injured using your product, general liability covers basic lawsuits.

The recommended amount for general liability coverage is $1 million for the smallest business and $2 million or $3 million for other small businesses.

Worker’s Compensation

As soon as you have employees, you need worker’s compensation coverage. In the event that an employee is injured performing his or her job, worker’s compensation reimburses them for lost wages, medical bills and rehabilitation costs. It also covers the employer’s liability if the employee or the employee’s family sues the business. Almost every state requires businesses to carry this coverage.

Commercial Auto Coverage

If you use any type of vehicle in conducting your business, you need commercial auto coverage. Business vehicles may be vehicles bought by the business, including delivery vans, company cars for sales staff or other business-only vehicles, or personal cars used for business. Often, personal auto coverage does not cover personal vehicles used for business purposes. But the rules for this are variable. For example, if you drop a business letter off at the post office on your way home from work, this is probably covered by your personal insurance. The specifics of this should be worked out with an insurance professional.

Property and Casualty Coverage

This coverage manages the risks involved with property damage including building, contents, inventory, equipment, etc. The reimbursement for losses can be written as either cash value, meaning the item’s current value including depreciation losses, or replacement costs, meaning the value of a brand new replacement. There are two types of property and casualty coverage: all risk and general peril.

All Risk

All risk insurance covers a business for almost any type of loss and every business needs this coverage. But even with this coverage, there are exceptions to the coverage. You may need to purchase specific insurance to cover these exclusions.

Named Peril

Named peril coverage has a specific type of loss event that it will protect against. For example, if an earthquake damages your building and equipment, it may not be covered by all risk coverage and named peril coverage would cover those losses.

Business Interruption Coverage

This is another essential coverage but many businesses fail to cover themselves. If your building and your entire inventory are destroyed, property and casualty insurance will cover those losses. But without a building or inventory, you will lose revenue during that period. Business interruption coverage reimburses this lost revenue while the building is rebuilt and inventory is replenished. The premium is based on your company’s revenue and deductibles are based on the number of days your business is interrupted, rather than a flat amount.

Umbrella Coverage

An umbrella policy can actually help you save money on your insurance coverages. An umbrella policy is relatively inexpensive and covers you in the event a legal judgment against you is greater than your general liability policy (or commercial auto depending on the incident) coverage. This may allow you to actually lower your other coverages, reducing the premiums.

Life Insurance

Small business owners are often the greatest asset to a small business. So much so, in fact, that they often are the business. Lenders will often require life insurance on the owner or owners so that in the event of their death, the business won’t become worthless and default on the loan.

“Key Person” Life Insurance

In the event of a key owner or stockholder’s death, “key person” life insurance provides the money for the business to buy out the deceased person’s interest in the company. This provides the business to retain control of the company instead of having partial ownership pass to the deceased person’s heirs.

Disability Insurance

Similar to life insurance, disability insurance provides payments in the event an employee becomes ill and unable to work. Most policies will pay up to 60% of your average personal income while you are unable to work.

Long-term Disability

Long term disability covers illnesses and injuries, but it doesn’t start payment until as many as 30 days after the injury.

Short-term Disability

Short term disability covers the waiting period before long-term disability payments start.

Business Overhead Insurance

While a business owner is unable to generate revenue for the company, the business still has to pay its overhead costs. Business overhead insurance will pay for utilities, lease on equipment and buildings, and employee salaries until the owner is able to return to work and generate income.

Employment Practices Liability

Compared to other types of coverage, this is a new policy designed protect businesses from lawsuits arising from employee treatment. Sexual harassment and discrimination have become important issues in the workplace. If you handle or are closely involved in the everyday workings of your business, and are familiar with sexual harassment and discrimination guidelines, you may not need this coverage. But an employment practices liability policy may be a good idea to protect you from the actions of managers.