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Types of Business Insurance

Typical Commercial Insurance Policies Explained in Brief

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Every business needs insurance in place to protect it against the risks and liabilities faced in its normal day-to-day activities. Some smaller companies can get by with a basic property and liability policy (commonly called a business owners policy), while other organizations will require specialized protection, in addition to their general policies. Because every situation is unique, and every industry requires different levels of protection, it behooves an entrepreneur to talk over their coverage requirements with a commercial insurance agent that is familiar with the specific needs of the particular operation.

A concise explanation of various business insurance coverages can be found below, broken into general, and specialized, categories. After it is decided what types of policies should be in place, the policy limits and deductible amounts have to be determined. The best way to do this is to discuss your particular needs with a competent commercial insurance agent that deals with your type of business coverage, and the easiest way to locate the right agents in your area is to request FREE commercial coverage quotes via NetQuote, the leading insurance aggregator service. Shop for, and compare, commercial coverage options without being obligated to purchase a policy when you use NetQuote's free service.

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General Coverages - Every business owner needs to have, at a bare minimum, a basic property and liability policy in place. Property coverage protects against loss for the items used/owned by the operation (including buildings, equipment, inventory, etc.), while liability coverage protects against damages (property and bodily injury) to a third party as a result of an action taken by a company, or its employees, or caused through the use of its products. For many small companies, general coverages are sufficient to protect against the risks they face, while other operations need additional specialized protection on top of general policies.

  • Property Coverage - This type of insurance protects the physical property owned by a business from losses including fire, theft, natural disasters, vandalism, and more. Property can include buildings owned by a company, as well as office equipment, machinery, paperwork, product inventory, etc. This property must be owned by the company who holds the policy, not a third party, and would generally exclude commercial vehicles, as these would be covered by a specific policy.

    When it comes to property policies, there are two general categories of protection. All risk policies offer fairly broad coverage that protects against most risks a company's property will face. Peril specific policies only offer protection for what is specified in the policy, while providing no protection for risks not listed. Often times, a business will have an all risk policy that excludes particular events/risks, which are then covered under a peril specific policy. This is done so that commercial coverage providers can get the right premium for certain specific risks based on an insured company's particular situation and risk profile, because an all risk policy does not offer the level of fine tuning providers like to have.

  •, - Liability insurance is designed to protect against damages to a third party, which includes customers and the general public. A company, it products, or its employees (while on the job), may be responsible for causing property damage, or bodily injury, to someone (or something), outside of the business itself. In cases like this, a general liability policy may offer the protection an organization needs. This type of coverage may also protect against cases of slander, libel, and pay for third-party medical expenses.

    A general liability policy is designed to offer general coverage, and will most likely exclude coverage that is beyond the ‘general' category. In other words, if just basic protection is required, then this policy may be enough protection. However, in certain circumstances, or professions, a specialized liability policy will need to be purchased, in addition to a general policy. This is where a knowledgable agent earns their pay in that they will ensure your company has the right types of policies in place.

  • Home Based Business Insurance - Even a company operating out of a personal residence needs to have commercial coverage. Just because a business is run out of the entrepreneur's home doesn't mean it is immune from risks. And don't assume that a homeowners policy will provide business coverage because, at most, it will provide extremely limited protection with plenty of exclusions. In other words, the work from home entrepreneur needs home based business insurance coverage.

    A home based business policy will typically offer the basic liability and property protection a home based business needs. What it won't cover is the structure itself, as it is not owned by the business and will be covered by the aforementioned homeowners policy. What it will cover is basic liability risks, as well as the business equipment, property, inventory, etc. This policy will offer the basic foundation of protection a business run out of the owner's home will need.

  • Business Owners Insurance - An affordable way to get the basic liability and property protection a typical small business needs is through a business owners policy, or BOP. By bundling basic liability and property protection, the business owners insurance policy will often be more affordable than purchasing the same protection separately. For many smaller companies, the BOP offers all the protection they need, in one convenient policy. If additional specialized coverage is necessary, then the BOP serves as a basic foundation for the additional commercial coverage.

Specialized/Specific Coverages - Just about every business in existence needs, at the very least, general coverage, as discussed above. Upon this basic coverage is placed additional, more specialized protection that takes over where the general policy's coverage ends. The reason why specialized coverage has to be purchased separately is that not every company or professional needs every type of specialized coverage, so why make a company purchase excessive coverage that is unnecessary and would only result in high premiums? This most likely will cause no coverage to be purchased at all, which is a less than ideal situation.

While there are plenty of companies that have sufficient protection with just general policies, there are many circumstances that require additional coverage. As outlined below, the spectrum of specialized coverage is wide, meeting the needs of specific situations. It is easy to see why not every company needs every type of coverage mentioned below, and why it makes sense to offer this protection as an option so that a company will only purchase the policies that are required.

  • Professional Liability Insurance -, see Errors and Omissions Insurance below.

  • Errors and Omissions Insurance - When a business offers a service to their customers, or advice giving is an integral part of an organization, errors and omissions insurance (E&O insurance) is generally required. This policy protects the covered company, or individual, when errors (or omissions) are made, poor advice is given (which results in a financial loss by the client), in cases of negligence, etc. Computer programmers, accountants, and architects, are just some of the professionals that need errors and omissions insurance (professional liability insurance). Medical professionals also need this type of policy, though it is called malpractice insurance in this case.

  • Product Liability Insurance - Whenever a product is being brought to market, those involved anywhere in the pipeline need product liability insurance. The manufacturer, distributor, and even the retail seller, all need this type of policy to guard against the potential of a defective product causing property damage or bodily injury when being used by the consumer. When a product liability lawsuit is initiated, any company involved in any way with bringing the product to market is a potential target, making product liability coverage extremely important.

    The type of product will determine the risk associated with its use and, therefore, the premium that will be paid for this coverage. A pencil carries less risk than playground equipment, and the coverage rates will reflect this. However, don't assume just because the product in question is fairly harmless that product liability insurance isn't required.

  • Workers Compensation Insurance - When a company has employees other than the owners themselves, a workers compensation insurance policy is usually required to be in place. This no-fault coverage pays for medical care and rehabilitation expenses when an employee is injured while performing their job duties. In return for accepting coverage under this policy, an employee agrees to not sue the company they work for. While every state requires most employers to carry workers compensation coverage, the way that it is implemented varies from location to location. Some locations have state run funds, while private companies provide this coverage elsewhere.

  • Employers Liability Insurance - An employee can sue their employer when they are injured, or they become ill, due to workplace conditions. Employers liability insurance provides protection in cases where an employee sues due to employer negligence in the workplace. This coverage differs from workers compensation insurance, which pays when on the job injuries occur, regardless of fault. Assuming it was simply an unavoidable accident, the employee, or their family, cannot sue for further damages. However, if there was employer negligence involved in the accident, a lawsuit can (and often is) be brought by either the employee, their family, or even a third party. Employers liability coverage is usually purchased in conjunction with a workers compensation policy.

  • Business Interruption Insurance - For any number of reasons, a company might be unable to operate for a period of time, due to no fault of their own. This can be due to a natural disaster, a fire, or any other number of unforeseen events. Property insurance should provide coverage to pay for building damages, but it won't help pay employee wages and other business costs that still exist, even if the company cannot operate normally. Business interruption insurance helps financially when something happens, causing a company to temporarily cease normal operations.

  • Commercial Auto Insurance - Whenever a car or truck is used for business purposes, it needs to be covered by a commercial auto insurance policy. This includes personal vehicles used commercially, as a typical personal auto plan will either exclude business use, or place severe restrictions on this usage, rendering the coverage of little use. While a commercial policy offers the same types of coverage found in a personal vehicle policy, it is designed with the needs of a commercial operator in mind. Depending on the type of vehicle being insured, as well as the covered use, premiums will range from downright reasonable to a bit more than one is used to paying for the family vehicle.

  • Directors and Officers Liability Insurance - Those that run a company are often times in a position to be sued over their actions, should someone feel they are adversely affected by the decisions made. These upper management personnel, commonly called directors and officers, are protected under a directors and officers insurance policy, letting them make decisions without fearing the consequences (assuming they are made with the best of intentions).

    Lawsuits can be brought by investors (in case of a publicly held company), competitors that feel a company is violating anti-trust, or anti-competitive laws, or by any other third party that feels they have a legitimate claim against the management of a company. This can include cases of perceived breaches of contract, or failure to perform their specific duties.

  • Contractor Liability Insurance - Companies and general contractors involved in building construction should be covered by contractors insurance. Such a policy provides liability and property protection that is tailored to those that build. Contractors insurance coverage can also include bonds (such as surety bonds) that those in the construction industry are either required by law to carry, or need in order to secure a contract.

  • Surety Bonds - Surety bonds are a tool used to guarantee that a company or individual does what they say they will do. In other words, it guarantees the performance of the person holding the bond. It is common in the construction industry for a contractor to have a surety bond that will kick in if, for some reason, they are not able to complete the construction project that they have been contracted to do., various professionals and companies may also be required to have a surety bond in place in order to bid on a contract as a way to show that if they are unable to carry through with their contractual obligations, the customer will be financially compensated and be able to get someone else to finish the job.

  • Fidelity Bond Insurance - While an employer would always like to think that their employees are not capable of stealing from the company itself, or its customers, this is, unfortunately, a real possibility. Fidelity bonds are tools used to guard against employee dishonesty that results in a financial loss to the company, or its customers. If there are employees directly in a position to steal from a company, or its customers, it behooves the entrepreneur to have a fidelity bond in place to protect against the potential for employee dishonesty.

  • Key Person Coverage - When a company has a person at the helm, such as the business owner or a key management individual, whose loss would result in a serious inconvenience, or the inability for the company to properly function, the business needs a way to recover. Key person, or key man, insurance provides compensation for a company that loses a vital individual, either permanently or for a period of time, and requires financial compensation in order to properly find a replacement, or otherwise carry on.

  • Small Business Health Insurance - The ability to provide employees health coverage by way of a group health plan is a vital perk and a great way to attract, and keep, top employees. Even if the company consists of just the entrepreneur, and possibly their immediate family, medical coverage is still something that needs to be considered. Therefore, small business medical insurance coverage can consist of group coverage for multiple employees, or an individual health plan to cover the entrepreneur, and possibly their family.

Miscellaneous Coverages - While the above commercial coverages represent a large cross section of what policies are available to the small business owner, there are other non-commercial related coverages that an entrepreneur should consider. After all, the entrepreneur typically dedicates their life to building, and maintaining, their company. If they were taken out of the equation, their family's financial future may suffer. The below coverages are ones that an entrepreneur should consider carrying so they can secure their family's future in the event something happens.

  • Disability Insurance - If a sickness or injury leaves a business owner unable to work, either on a permanent or temporary basis, disability insurance helps replace their lost income. The popular types of disability insurance are long-term and short-term coverage, which pays out for a specific amount of time after the named insured is out of commission for a set period. The specifics will vary from policy to policy, but the essence of this type of coverage is to help replace income that is no longer there, either on a permanent or temporary basis.

  • Life Insurance - What happens when an entrepreneur suddenly passes away and they were the primary source of income for their family? Unless they had built up a significant nest egg, there could be bleak times ahead for the survivors. Life insurance is designed to pay out a set amount of money (the policy amount) at time of death of the named insured. There are several different types of life insurance, including term, whole, and universal life, each designed for different circumstances and situations. It makes smart, financial sense for an entrepreneur to have a life policy in place should something happen to them, assuming their family would be in serious financial trouble should the income stop.

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