Business insurance is a broad category of insurance coverages designed for businesses. It is also called commercial insurance. Businesses buy insurance to protect themselves against financial losses resulting from lawsuits or physical damage to company-owned property. A business that has no insurance may be unable to continue operating after a loss occurs.
Protects You Against Large Losses
Business insurance protects your company from losses that could significantly impact your operations. Examples are a fire that destroys your company's building and a large bodily injury claim that results from a slip-and-fall incident at your child care business. Such events can be very costly. If they aren't covered by insurance, they could bankrupt a small company.
Business insurance does not cover every loss. It is not intended to cover small losses that your company can easily absorb.
For this reason, many commercial policies contain deductibles. An example is commercial auto physical damage coverage. Suppose you have purchased comprehensive coverage on a company truck. If a rock nicks the truck's windshield, the cost of repairing the glass will likely fall within the deductible that applies to your comprehensive coverage.
Some risks are excluded under business policies even though they may cause large losses. For instance, earthquakes and floods are excluded under standard property policies because they can cause many large losses within a small geographic area. Coverage for these perils is available under specialized insurance policies. A few risks cannot be insured at all. Most businesses cannot insure their commercial property against damage caused by war, radioactive contamination, or seizure by a government authority.
Types of Coverage You May Need
There are two main types of losses that businesses may sustain: damage or destruction of physical assets and monetary damages resulting from lawsuits. Businesses can protect themselves against damage to physical assets by purchasing commercial property insurance. They can safeguard their company against the cost of third-party lawsuits by buying commercial liability insurance.
Property insurance may be purchased by itself or in combination with liability insurance. Many businesses buy property insurance separately in the form of a commercial property policy. The latter covers buildings, machinery, office furnishings and other types of property commonly used by businesses. Small businesses often obtain property insurance by purchasing a business owners policy (BOP). A BOP is a package policy that includes both property and liability insurance.
Property, liability and BOP policies are flexible so coverages can be added or deleted via endorsements as needed.
Two other coverages many businesses need are commercial auto and workers compensation coverages. A business auto policy covers trucks, cars, and other vehicles used by businesses. It includes commercial auto liability and physical damage coverages. Note that personal auto policies should not be used to insure vehicles owned by businesses.
Most businesses must purchase workers compensation insurance to comply with state worker protection laws. A workers compensation policy provides benefits like medical coverage and disability that injured workers are entitled to receive under state laws. The policy also includes employers liability coverage, which protects your business from lawsuits filed by injured workers.
Steps to Buying Insurance
Buying insurance for a business is a process that involves five key steps.
Before buying insurance, you should have a basic understanding of the four coverages described above: general liability, commercial auto, commercial property, and workers compensation. You may also need other types of coverage, such as errors and omissions liability or a commercial umbrella. It may be helpful to ask other business owners in your industry what insurance coverages they have.
Analyze Your Business
The next step is to assess your business so you can describe your operations to others. Prepare a written description of your business, explaining what it does and how it operates. Create a flowchart that describes each step of your operations. Make a list of the property your business owns.
Choose an Agent or Broker
Insurance is a people business. You'll need an agent or broker with whom you can develop a long-term relationship. This person should be a licensed professional with a good knowledge of insurance coverages. He or she should also understand the insurance marketplace. Give your agent your written description of your business. Provide any additional information he or she requests. The more your agent knows about your business, the better he or she will be able to meet your insurance needs.
Your agent or broker should recommend coverages appropriate for your business. He or she should complete applications and submit them to one or more insurance companies. When the insurers provide quotes, your agent should help you review and compare them so you can choose the best options. Once you have made your selections, your agent may collect the premiums from you or instruct you to pay them directly to the insurer.
Review Your Insurance Coverages Regularly
Your business isn't cast in stone. It will grow and change over time. Your insurance policies need to reflect those changes. You may need to buy additional coverages, or increase or reduce your limits. Meet with your agent or broker once a year, before your policies renew, to assess your coverages.
Article edited by Marianne Bonner