UPDATED: Mar 19, 2020
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All businesses are going to need commercial insurance of one type or another. Whether it's to cover their liability, their property, or life insurance, having the proper insurance and coverage limits is vital to running an effective company and protecting the business owners assets and interests. There are several lines of commercial insurance policies in order to cover all types of business activity.
Different industries typically have different insurance requirements. Below is a list of industries that are are strongly recommended to purchase commercial insurance coverage:
- Accounting & Finance Professionals
- Advertising, Graphic Design and other Media Services
- Associations & Clubs
- Auto Services & Dealers
- Cleaning Services
- Computer, Web, IT Services & IT Staffing
- Construction & Contracting
- Consultants — Management & Marketing
- Design Professionals
- Home Based Business
- Insurance Professionals and Stock Brokers
- Lawn Care/Landscaping
- Lessor's Risk
- Nonprofit / Social Services
- Pet Services
- Photography/Video Services
- Printing and Copying
- Professional & Specialty Services
- Professional Installation
- Real Estate, Title & Mortgage
- Religious Organizations
- Restaurants and Bars
- Salons and Personal Care Services
- Services, Miscellaneous
General Liability Insurance
Every business of every size needs to have general liability insurance. This protects the business owner if they, an employee, or one of their product and/or services damages a person or their property. This coverage also provides protection if someone gets hurt on the business premises. General Liability includes both Bodily Injury and Property Damage coverage, under one single limit.
For small businesses, the most commonly chosen limit of liability is $1,000,000. This is sufficient coverage for most claims and is typically what is required for a contractor to have by the state they operate in. The business owner should also keep in mind what type of business they are operating when deciding on what amount of coverage they need. For example, a contractor should select higher limits of liability than someone that teaches music because the risk of causing harm to others is much higher as a contractor. A contractor will want at least $1,000,000 in coverage while a music teacher can likely choose a lower limit such as $300,000.
Much like if you own a home or rent and apartment you're going to want to have coverage for your contents, the same thing applies to a business. Enough property coverage should be selected in order to replace all of the contents of the business at replacement cost rather than depreciated value. This will provide coverage of all business personal property which includes computers, printers, inventory, and furniture as well as all other owned property in the business. The types of events that property insurance provides coverage for includes theft, vandalism, malicious mischief, theft, fire, smoke damage, and other insured perils. Another thing to keep in mind is that if you're running a home based business your homeowners' policy won't cover your business property unless you've added a rider to it as it is a personal lines policy only.
Business interruption can also be included on property insurance as an optional coverage. It covers the losses if a business is unable to operate due to a covered loss such as a fire. The policy will provide compensation for each day the business is down until it is up and running again, subject to the amount of business interruption coverage on the policy.
Commercial Auto Insurance
If vehicles are used in the business than the business owner will need to have a commercial auto insurance policy. The same as a personal lines auto insurance policy, commercial auto insurance policies provide coverages such as liability, uninsured motorist, comprehensive, and collision. Liability coverage provides the business owner protection if the driver of their vehicle causes an accident and covers both bodily injury and property damage for the other people involved in the accident. Uninsured motorist coverage provides protection if an uninsured driver or underinsured driver hits his vehicle. Comprehensive coverage provides coverage for events that aren't caused by a collision, minus a deductible, such as falling objects, a fire, theft, or having an accident involving an animal. Collision coverage covers damage to the business owners car if there is an accident caused by the vehicle's driver, minus a deductible.
There are optional coverages on commercial auto insurance policies. These include towing and roadside assistance, extended glass coverage if glass needs to be repaired or replaced, and rental coverage that covers the cost of renting a vehicle while the covered vehicle is being repaired after an accident. Another coverage that is available is medical coverage to cover the driver and any other occupants in the business owners vehicle.
A commercial crime insurance policy covers losses due to crime for perils that aren't covered under a property insurance policy. The covered property includes the property of the business, including cash. The types of perils it insures against includes employee theft, forgery, computer fraud, funds transfer fraud, extortion, and robbery or safe burglary. Anybody that has a business where they have employees handling cash, especially, should consider having this coverage on their business.
Business Owner's Policy
A business owners policy, commonly known as BOP, is a package of insurance coverage that is typically needed by a business owner. The coverages include liability coverage, vehicle coverage, crime insurance, property insurance, and business interruption coverage. The advantage of a BOP is that it can save money over buying all of the individual parts separately. It can also be customized to an extent with other coverages added to it and different limits of coverage selected. These types of policies are meant for both small and medium sized businesses.
Professional Liability Insurance
Professional liability insurance is also commonly known as errors and omissions. This coverage is needed by business owners who provide professional services such as lawyers, accountants, insurance agent, real estate agents, hair stylists, and similar occupations. An errors and omissions policy protects these professionals in the event they harm a client through either negligence or inadequate work and are sued by the client. These types of claims are not covered by a general liability policy so this coverage fills a gap in insurance for professional service providers.
Another type of professional liability insurance is malpractice insurance. This provides coverage in the event the professional makes a mistake that is below the standards of their profession. An example would be a doctor doing something that harms a patient that any other doctor of their specialty wouldn't have made. Other professions that need malpractice insurance includes dentists, architects, accountants, and other professional occupations.
Commercial Umbrella Policy
A commercial umbrella policy is a form of extra protection against very large claims against a business. This coverage is on top of both the business commercial liability policy and the commercial auto insurance policy. If the liability limit is exceeded on either of these policies on a claim then the umbrella policy extends those limits by the coverage limit of the commercial umbrella policy. This coverage starts at $1,000,000 and, depending on the insurance company, can go as high as $5,000,000 for a small to medium sized business.
Life insurance protects a business owners dependents in the case of the business owners death. This is an important coverage for anybody with dependents but especially business owners who very well may have loans supporting their business activities. The dependents might also not be in a position to take over the business. Another thing to take into consideration is if they have to sell the business it will likely be at a steep discount so it can be sold as quickly as possible. The policy has a face value that would be paid out in the event the business owner die.
Each month a premium is paid for a life insurance policy, the amount of which depends on the face value of the policy as well as a range of other factors such as the business owners age, whether they smoke, preexisting conditions, and several other criteria. There are two main forms of life insurance, Term Life which covers for a specific number of years, and Universal Life which is a permanent policy.
Any business with an employee needs a workers compensation policy. Where and how you buy it depends on the state the business is operating in. In some states, like Washington, the business owner buys it directly from the state. In other states, the business owner buys it through a private commercial insurance company. All state require this coverage if you have employees. This covers employees who get hurt while working on the job. It provides medical benefits to the employee as well as wage replacement while they are unable to work. In exchange for receiving these benefits, the employee cannot sue the business owner over the accident. There are strong penalties in place in every state in order to make sure all business owners have this coverage so non-compliance is very costly and can even result in a state shutting down the business.