Business insurance basics

Much like personal insurance, business insurance is designed to offer protection against certain losses. The basics of business insurance are simple: businesses pay premiums to an insurance company and in the event of a loss of something covered by the policy, the insurance company will repay the business for that loss.

Businesses are at risk in several ways. For example, if a natural disaster prevents a business from operating, income can be lost. Or if the building a business owns and the office materials inside are damaged by fire, a business will probably need money to rebuild and restock. Or if a vehicle owned by the business is involved in an accident, insurance can help pay both for the damages and any costs to injured third parties.

Businesses are also at risk of being sued by injured and/or disgruntled parties. Businesses can be sued for various things, such as a customer slipping and falling in a store. An employee who is hurt while working for a company can also opt to sue the business in some cases.

Liability insurance, which covers businesses for lawsuits and injuries caused to third parties, usually includes payment of attorneys’ fees and coverage of medical expenses of individuals injured by the business. Both of these are the kinds of costs that can escalate quickly, and insurance coverage is critical.

Small- to medium-sized businesses may be able to purchase something called a Businessowners Policy. This type of policy combines coverage for several types of business insurance into one package.

Types of business insurance

When choosing insurance for a business, it is important to obtain the types of business insurance coverage needed for expected and reasonable losses. You will makea more knowledgeable decision if you compare compare business insurance options before committing to anything.

Basic business insurance includes property insurance – to cover losses of real property, machinery, or equipment; and liability insurance – to cover expenses and financial compensation as a result of a lawsuit against the company.

Business interruption insurance is something most businesses should consider, and is an addition to property insurance that will cover lost income and other expenses if a business cannot operate, or must temporarily move out of its location, due to an event like a fire.

For businesses with employees, there are other types of basic business insurance, including:

• Employment practices liability insurance – to cover expenses and financial compensation as a result of a lawsuit filed by an employee.
• Workers compensation insurance, for businesses with a minimum number of employees – to cover expenses and protect the business in the event of an employee’s work-related illness or injury.
• Health insurance for employees.

In addition to those three basic types of insurance, there are specialized insurance policies that many businesses don’t need, but are available to those who do – crime insurance to protect businesses with inventory or money or securities; life insurance for key employees, without whom the business could not operate; kidnap and ransom insurance; automobile insurance; and insurance against loss or theft of electronic data.

Saving money on business insurance

Insurance is often a necessary expense, but saving money on business insurance is still possible. The first step is to compare business insurance options and review coverage offered by different insurers and brokers. Then ensure that any insurance company under consideration is financially sound.

Purchasing a package policy can help businesses save costs over individual policies, but this may not be the right option for all types of businesses. Considering the deductible is another way to save money on business insurance. A higher deductible – the amount a business pays out of pocket before the insurer pays for a claim – can lower the monthly premium.

It’s important, however, to make sure the deductible is reasonable given the financial health of the business and types of losses anticipated. Loss prevention activities are another way to save money on an insurance policy. Insurers reward companies that take steps to minimize the need to make a claim.

Working with an insurance professional – a broker or agent – is really the best way to save money on business insurance. These professionals understand insurance, disaster planning, steps to take to protect a business, and which insurance companies have the best offers for each type of business. In addition, they are often experts in particular industries, which helps them to better understand the risks a business may face.

The costs of insuring a business

Business insurance is a critical expense for businesses, but affordable business insurance is available.

One factor in the cost of business insurance is the economy in general and what’s happening within the insurance industry. Like any product, insurers compete with each other to sell policies, and prices may change based on what other insurers are offering.

The overall economy also impacts the price an insurer can get for a product – if the economy is doing well, prices are likely to be higher, because businesses can afford it. Another factor out of the control of businesses seeking insurance is the type of business a company conducts, and what industry it’s in. Each industry and business has its own unique risks and insurers base their policies and prices on these risks.

Businesses can control some costs, though. A higher deductible can result in a lower monthly premium, but it’s important to find the balance between a reasonable deductible and a reasonable monthly premium.

Purchasing business insurance in package policies, such as a Businessowners Policy for small to mid-sized businesses, is another way to reduce costs. Loss prevention activities – such as installing smoke detectors or having certain hiring practices in place – may reduced the risk of certain types of losses and insurance companies reward businesses for this with lower costs.

Finding the right insurance coverage at the right cost is a complex matter. It takes a bit of research to understand the general risks and costs. Working with an insurance professional – a broker, who typically works with larger businesses, or an agent, who works with smaller businesses or those with smaller risks – is the best step to take to ensure purchasing the correct type and amount of insurance, at the best cost.

Business insurance for special needs

In addition to the basic property, liability, and business interruption insurance coverage options, some businesses have special insurance needs. These types of business insurance are not usually available as part of package policies and may be expensive. So it’s important to consider how realistic a particular risk is, to help decide if the insurance coverage is necessary.

Life insurance for key employees is one special need for some companies. This is something that small businesses may purchase, if the loss of a key employee will cause the business to have trouble operating.

Kidnap and ransom insurance is specialized coverage, and may be something to consider for businesses operating in areas with known kidnapping of executives. This insurance can cover the expenses of dealing with kidnapper, ransom demands, and even lost wages.

Businesses with vehicles require automobile insurance – liability, collision, and comprehensive. Although the basics are the same as for a personal automobile insurance coverage, the details are quite different.

Crime insurance covers businesses that suffer a loss of equipment, inventory, or even cash or securities. This is an important coverage for many types of businesses, as these are items that basic business property insurance does not typically cover.

Additional special types of business insurance include:

• Business identity insurance to protect businesses against the theft of electronic data
• Directors and officers insurance to protect those individuals against personal liability for the business
• Professional liability insurance to protect businesses that give advice or offer recommendations.

About business interruption insurance

Business interruption insurance is a critical coverage for businesses of all sizes. If there is a disaster or other event that prevents a business from using its premises, or from operating and producing income, this insurance covers lost income and helps the business continue to operate.

This is an especially important small business insurance coverage, as small businesses may have less insurance coverage in general or a harder time managing and reopening after a fire or disaster.

Business interruption insurance is only sold as part of a package insurance policy. Some small and medium sized businesses can get business interruption insurance as part of a Businessowners Policy that also includes property and liability insurance. It is also available as an addition to business property insurance policies.

Business interruption insurance coverage compensates businesses for lost income, profits that would have been earned if the disaster hadn’t occurred, and even expenses like utilities that may still need to be paid.

It is important to note that this insurance only pays for losses due to damage covered under the business property insurance policy. The insurance policy will not pay if the business is forced from the premises by, or is unable to operate because of, a flood, act of terrorism, or earthquake, if the business does not have supplemental insurance coverage for those events.

About workers compensation insurance

Workers compensation insurance protects both the company and its employees. Companies are responsible for maintaining a safe workplace, but accidents still happen. Almost every state requires that businesses with a minimum of three to five employees (it’s different for each state) have workers compensation insurance.

If an employee is hurt in the workplace or while working, even offsite, or becomes ill with a work-related sickness, workers compensation insurance provides the employee with costs for medical care and compensation for lost income; or death benefits to surviving family members. Workers compensation insurance pays the employee for these expenses, no matter who was at fault for the injury or illness.

The insurance is also set up to protect the company. If an employee sues the company as a result of a work-related injury or illness, the insurance policy pays for the medical expenses, wages, and any legal expenses that may occur. Workers compensation is the only insurance that automatically includes terrorism coverage. It covers injuries and deaths that occur in the workplace, or while working, that are caused by acts of terrorism.

A workers compensation insurance policy is separate from any other commercial business insurance and is not included in any package insurance policies.

About business liability insurance

There are two kinds of business liability insurance, which is insurance designed to protect companies against any harm caused to others. Standard liability insurance provides coverage for harm caused by something that a business does, or doesn’t do, in the operations of the businesses. This can include things like injury to others, property damage caused by a company or its employees’ action, or errors in the service provided.

Professional liability insurance, also called errors and omissions insurance, is a special type of business liability insurance, and is not typically included in a business insurance quote from an agent or broker. However, it’s an important coverage for many professional who operate a business.

Professionals such as architects or consultants are expected to be experts and to perform up the standard of their profession. These professionals can be held liable if their actions or inactions cause harm to a person or business. Professional liability insurance pays for any financial losses if a client sues the professional.

For most small- to mid-sized businesses, a Businessowners Policy tailored to the proper industry is the most cost effective way to purchase business liability insurance, in a bundle with property insurance. Getting a business insurance quote on a package insurance policy like this allows businesses to compare the offerings of insurance companies.

Small business insurance needs

Like larger businesses, small businesses typically require both business property insurance and small business liability insurance. Small business property insurance covers physical property such as real estate, fixtures, office supplies, equipment, computers, and other machinery.

Liability insurance for small businesses protects businesses against a variety of risks, including injuries that occur on the business premises or are caused by the business’ product, and usually pays for medical and court expenses associated with the claim.

Additional liability insurance is available for businesses who sell items through the Internet or who have electronic records. This insurance covers the businesses for losses of electronic data, whether that is from theft or another cause.

For most small businesses, a Businessowners Policy tailored to the proper industry is the most cost effective way to purchase business insurance. Getting quotes on a package insurance policy like this allows businesses to compare the offerings of insurance companies.

Insurance coverage for small businesses differs for businesses in different industries, so it’s important to get small business insurance quotes from an agent or broker who understands the business and the industry. For example, a construction company will require specific insurance for movable construction equipment; an online business will need protection from malicious attacks and loss of customer data; and a food service business will need protection for food contamination.

Property insurance for businesses

Business property insurance is an important type of commercial business insurance, as it covers losses of any buildings owned or leased by a company, as well as the contents of those buildings (such as furniture, supplies, machinery, computers and other equipment, or records and valuable documents).

In the event that a building or its contents are lost or damaged, the insurance company will pay the business for those losses. Most property insurance policies cover events like a fire or storm, but not damage caused by flood, earthquakes, or terrorism. Special coverage is available to cover those risks.

Flood damage is especially important to consider if a property is located in a flood zone. Businesses can get more information about flood insurance, and special government programs, through The National Flood Insurance Program. Coverage for earthquake damage is excluded from most business property insurance quotes and policies. Businesses located in earthquake prone areas need a special insurance policy or a commercial property earthquake endorsement added to their existing commercial business insurance policy.

Crime insurance is another type of property insurance businesses should consider. Commercial property policies typically do not cover the loss of money or securities, or theft of any types of property. Crime insurance policies cover these losses.

Business property insurance is a standard type of insurance for most businesses. For small or medium sized businesses, it often comes as part of a Businessowners Policy, which is a package of property and liability coverage.