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As any company owner knows, business insurance is a whole science of its own. There are so many different policies to consider, so many companies and agents to hire, so many premiums to pay. It’s enough to make your head spin!

But no worries — you’ve come to the right place. This detailed guide will give you an introduction to commercial business insurance. You’ll no longer struggle to understand some of the basic terms, and that will make your search for insurance much easier!

Basic Types of Commercial Insurance Your Business Needs

Typically, a business doesn’t need more than the four basic commercial insurance types. Not quite sure what those are? Here are insurance coverages you must get for your company:

Property Insurance

It’s hard to imagine all your life’s work going up in flames or getting otherwise damaged or stolen. Yet, these catastrophic accidents that can ruin your business are more common than you think. That’s why the first and basic type of business insurance you should look into is property insurance.

So what exactly is property insurance? Well, in case you suffer a property-damaging natural disaster or theft, this type of insurance will cover your losses. And we’re not talking just the business’s building or structure, but also the so-called “personal property.” That includes:

  • Inventory
  • Office furniture
  • Raw materials
  • Computers
  • Other types of machinery

That’s not even all, though. After you’ve suffered a serious loss, you’ll need money to get back on your feet. Property insurance will provide you those funds and even cover things such as cleaning up debris and dealing with water damage. The extent of its coverage will ultimately depend on the policy you purchase.

Liability Insurance

No matter how well you’re doing your job, someone at some point might decide to sue your business. They can claim you caused them some form of harm, either due to an error in service or a defective product.

Whatever the case, if they win their claim, you’ll have to pay damages. Unfortunately, sometimes these sums can amount to a few thousand dollars or more. And even if you’re not found liable, attorney fees and defense expenses are never cheap.

That’s where liability insurance comes in. It will cover all defense expenses and pay for the damage if you’re found liable — at least up to the policy limits. On top of that, if anyone was injured by your business’s malpractice, liability insurance will cover their medical bills.

Business Car Insurance

If your company involves transport or delivery services, you’ll undoubtedly have a business car. Naturally, such a car would have to be insured by a special policy — namely, one for business vehicles.

So, what does this policy cover? Well, if your business car gets into an accident resulting in injury or damage, the insurance will pay up. Of course, you still might have to cover at least part of the damages yourself, especially if they exceed the policy limit.

Also, if your vehicle suffers damage and needs repair or replacement, your insurance may cover those costs too. Ultimately, it comes down to the policy you own, so make sure to choose wisely.

And one last thing — even if you’re using your own car for business purposes, you might need commercial insurance. Many personal policies exclude such vehicles, although they aren’t company-owned. So make sure you check precisely what your insurance covers to avoid unpleasant surprises.

Workers’ Compensation Insurance

Finally, if your business employs more than three or five people (depending on the state), you are obligated to get workers’ compensation insurance. The only state that doesn’t require it is Texas. But, even so, it’s always a good idea to have it.

Basically, if a worker gets injured in the course of their employment, this insurance will cover all medical bills. Also, the employee will receive at least a portion of the wages they have lost during their recovery. And the best part is that it doesn’t matter who’s at fault for the injury — the insurance pays up regardless.

Similarly, if an employee passes away due to work-related injuries, this insurance will compensate their family. Thus, this coverage is an absolute must for businesses related to construction and other types of physical labor.

Does a Very Small Business Need Workers’ Compensation?

The law is quite clear — only businesses with over three employees need workers’ compensation insurance. Thus, if yours is smaller, you don’t have to get it.

In fact, if you work from home, you might even be tempted not to get any insurance. After all, you already have your personal one, right?

Unfortunately, that’s not a good idea. Even the smallest of businesses need more property and liability insurance than regular homeowners’ policies provide. So don’t risk it and get some small business insurance instead!

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Other Types of Business Insurance You Might Get

Okay, so now we’ve covered the basics. But of course, that’s not nearly all. In fact, there are many different insurance types out there, covering a variety of specific needs.

And we’ll tackle three of the most common policy types here. These include umbrella policies, specialized liability policies, and terrorism insurance. So, let’s take a closer look!

Umbrella Policies

As you’ve seen before, each of the basic insurance types covers damages for which you are liable. However, each policy comes with a limit, and if you exceed it, you have to pay for the rest on your own. In short, you’re often left to deal with extremely high losses alone.

But not if you own an umbrella liability policy. Even when your losses exceed the general liability or car insurance policy limit, you’ll still have something to fall back on. Thus, this policy type is excellent if you want an additional layer of protection.

And just like the name says, umbrella policies can be added onto any existing coverages you have, as well as cover situations no other policies do. So it’s definitely something worth looking into!

Specialized Liability Policies

General liability insurance is a great way to protect your business from suing and compensation expenses. But in some cases, it’s not enough. For more specific instances, you might want to look into specialized liability policies, which include:

  • Professional Liability Insurance, otherwise known as Errors and Omissions
  • Employment Practices Liability Insurance
  • Directors and Officers Liability Insurance
  • Business Identity Theft Insurance

Of course, laid out like this, these policies don’t mean much to you. But after we dive into more detail, you’ll know exactly whether your business needs one of these or not.

Errors and Omissions (E&O)

In certain cases, your clients may feel that your inadequate services brought them harm and decide to sue you. That doesn’t necessarily involve physical harm, though. In fact, businesses that more frequently deal with these claims include those that:

  • Give advice
  • Make recommendations
  • Represent other people’s needs
  • Design products
  • Provide all sorts of care

If your company offers any of these services, it might be wise to purchase an E&O insurance policy. This type of insurance will pay for all your defense costs and cover any liabilities you may have towards the person who sued you.

Employment Practices Liability Insurance (EPLI)

Clients aren’t the only ones that can sue your business for non-physical harm. Your employees can too — on the basis of wrongful termination, discrimination, emotional distress, sexual harassment, and more. To avoid suffering heavy financial losses due to a lawsuit of this kind, you should look into Employment Practices Liability Insurance.

Much like other insurance policies, EPLI will cover all your liabilities up to a certain limit. Even if the court determines you’re not liable, defense and attorney costs can be substantial. Luckily, EPLI will take care of that too.

Directors and Officers Liability Insurance (D&O)

As a director of a company, you have the final say when making decisions that impact your business’s future. But such power comes with a huge responsibility. If anything goes wrong, you’ll be the one to blame. And in that case, your employees, clients, or investors may sue you for harm caused by mismanagement.

Luckily, there are insurance policies that protect you from that too. Directors and Officers Liability Insurance is one such, so you should certainly consider getting it as well.

Business Identity Theft Insurance

If your business deals with a lot of sensitive customer data, Business Identity Theft Insurance is a must. Even if you think your databases are safe, you can never be absolutely sure — especially not in the era of digital technology. So it’s better to prepare for the worst-case scenario.

Most Business Identity Theft Insurance policies will pay for data recovery services and cover any expenses you might incur by being sued. Also, in some cases, this insurance will take the time to notify your customers of potential identity theft and cover their expenses as well.

Terrorism Insurance

Before 11th September 2001, standard business insurance included terrorism coverage as well, free of charge. But as the risk of terrorism became much greater, many insurance companies changed their policies. Nowadays, you have to pay an additional premium if you want this coverage.

Terrorism insurance doesn’t belong in the obligatory category. But according to TRIA, every insurer must offer it to their customers, no matter how big or small their businesses may be. And if you own a shopping mall or an office building, it’s highly recommended that you get it.

Why You Should Consider Buying a Package Policy

All the coverages that we mentioned here can be bought separately, but that’s not really common. Typically, insurance companies combine several of them into packages that they offer at an affordable price. Thus, buying a package policy will cost you less than purchasing different coverages separately.

And of course, different companies need different types of insurance packages. Insurers recognize that, so they often have special packages for roofing companies, undertakers, restaurants, and many other businesses. But the most common package policy type you’ll encounter is the Businessowners Policy (BOP).

What Is a BOP?

Business Owner's Policy is particularly suitable for small to medium-sized businesses. It covers all major liability and property insurance risks and combines several additional coverages into one package.

So, what does a standard BOP package include? Typically, it covers:

  • Property damage
  • Peril
  • Business interruption insurance
  • Liability
  • Business income insurance following a disaster
  • Expenses you may incur while operating from a temporary location

Also, you can buy a variety of specialized coverages to add to the basic one. For instance, if you own an e-commerce store, you should insure your business against potential computer viruses or hacker attacks.

Now, it’s important to note that BOP doesn’t cover everything you need. Auto insurance, professional liability, and workers’ compensation aren’t included, so you’ll have to get those separately.

How Much Business Insurance Do You Need?

Your business needs insurance — there’s no question about that. But that doesn’t mean you should purchase every coverage under the sun. As strange as it may sound, there is such a thing as being overinsured. It happens when you waste your money on insurance policies you don’t even need.

To avoid being overinsured or underinsured, you should take a look at all your company assets. List all property, inventory, and equipment you own and then contact an insurance agent or company. Based on the property’s actual value or replacement value, insurers will help you decide on the policies you need.

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How to Keep Business Insurance Cost Down

Shop Around

When buying a product, you’ll usually check different brands and compare their prices before making a decision. Well, why would it be any different with business insurance policies?

Find a few different insurers, compare their offers, and try to get a feel for their services. Give the ones you’re considering a call and ask for business insurance quotes. That way, you’ll be able to find a happy medium between affordability and quality.

It’s Better to Pay Higher Deductibles

Before your insurance policy comes into effect, you’ll need to pay a deductible to the insurer. The higher this deductible is, the less you’ll pay for the actual policy. Careful, though — don’t set the deductible so high that you can’t pay in case of a loss!

Get a Package Policy

As explained above, package policies are a more affordable option, especially compared to buying coverages separately. So make sure to look into them first!

Work With an Agent

If you’re struggling to find the right insurance on your own, hire an agent. Insurance agents are excellent at finding affordable policies that still cover everything you need. For best results, you should work with them closely — the more they know about your business, the better.

Avoid Losses

To insurers, a long history of losses means that they can expect more in the future. For that reason, they will offer you higher premiums than they would to someone who had no losses in the past. That’s why you need to keep your record as clean as possible.

But how can you possibly avoid losses? Though natural disasters are out of your control, there are things you can do to increase your company’s safety. For instance, you can:

  • Follow insurer’s safety recommendations
  • Install fire alarms and sprinklers
  • Have a security system in place
  • Perform disaster drills and other kinds of preparation

Even just putting some of these precautions in place from the start can convince insurers that you are reliable. Then, they might offer you a lower premium!

How to Find a Good Agent

Agents usually act as mediators between you and the insurance company. They address your needs by finding a good policy, negotiating, and then implementing contracts. A good agent should be reliable, prepared to promptly answer all your questions, and provide ongoing quality service.

The best way to find an agent who understands your needs is to ask your acquaintances that work in the same field. They might be able to recommend a few they were happy with, which gives you a great starting point.

And if they can’t help, contact your trade association. They surely have a list of insurers that specialize in your business.

Once you have a few names, start calling or visiting their offices. Ask them questions and see how they respond. You want someone confident and professional, but also someone who makes you feel comfortable. Once you find an agent that fits that criterion, hire them.

You only need to keep one thing in mind, though. If the agent you choose is “captive,” they will only offer you policies from a single insurance company that they represent. So if you want more options, try to hire an “independent” agent.

What Your Agent Can Do for You

Of course, you could find and choose an insurance policy on your own. But hiring an agent comes with many benefits aside from just that. For instance, a good agent can:

  • Advise you on how to avoid work-related accidents
  • Help you reduce the risk of fire and theft
  • Tell you about procedures that minimize losses in case of a major disaster
  • Inform you about new policies and coverages that might be more suitable

You can’t expect your insurance agent to do all the work for you, though. To make the most out of them, you need to keep them up to date with any major changes in your business. For example, if you’re making a big purchase or hiring more employees, your agent should know.

In Conclusion

Now that you know more about business insurance, you’ll find it much easier to pick the best policy. Remember to check out various insurance companies and never settle for anything before comparing it to other coverages. After all, that’s the only way to find what’s right for your business.

FAQs - Commercial Business insurance

Who Regulates Commercial Business Insurance?

Commercial insurance, like other types, is regulated by individual states. You can find information about it on state websites, as well as listings of the largest insurance companies. All that is quite useful to a business owner who is just starting out.
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