Business Insurance

There are millions upon millions of small to medium sized businesses in the U.S., ranging from construction firms to grocery stores to home-based businesses. They all have one thing in common: without the right insurance coverage, each could be wiped out by a disaster or a lawsuit. In addition, almost all businesses are accountable for the safety of their workers and bear responsibility for injuries suffered on the job.

Costlow Insurance has provided this basic resource to help business owners decide what kind of insurance they may need for their particular business.

Business Owners Policy (BOP)

A Business Owners Policy (BOP) has been compared to a homeowners policy for business. BOPs have become a very popular form of insurance for small to medium-sized businesses. BOPs combine some of the basic coverages needed by a typical small business into a standard package at a premium that is generally less than would be required to purchase these coverages separately.

  Business owners also like the simplified nature of the package as opposed to buying a collection of small policies. The efficiency also appeals to insurance companies and allows them to offer a lower premium for the package.

Most of the coverages that are needed by small and medium sized businesses, with the exception of auto and workers compensation, are generally included. This not only simplifies the process of buying the basic insurance coverages, but often gives a lower premium for businesses that qualify for a BOP. Business Owners Policies (BOPs) basically consist of property coverage, liability coverage and some additional types of coverage that most businesses require. Optional coverages can also be added to meet specific needs of the business.

What areas does a BOP typically cover?

Typically a BOP policy includes:

1. Property insurance – Covering buildings, equipment, and inventory.

2. Business Interruption Insurance – Covering losses that cause you to shut operations or reduce production for a time. Business interruption insurance can provide money to offset lost profits or pay continuing expenses (typically for up to a year for insured losses).

3. Casualty or Liability Protection – Covering harm done by the employees, or products to other people or their property.

4. Crime insurance – Covering loss of money, or securities resulting from burglaries, robberies, or destruction, and losses from employee theft or embezzlement.

5. Liability Insurance – Covering lawsuits arising from accidents (as when someone trips and falls on your business’s property), or when you sell a product that damages the customer’s property, or you are accused of offenses such as slander, copyright or invasion of privacy.

6. Vehicle coverage – For rented or borrowed vehicles.

 What coverages are not included in a typical Business Owners Policy?

A number of other coverages, such as flood insurance, earthquake insurance, or owned vehicle coverage and specialized liabilities, are generally not included in BOPs. Some of these may be available separately for extra premiums.

One of the distinguishing features of BOPs is that most automatically include business income and extra expense coverage (subject to some limitations).

Commercial Property Insurance

Commercial property insurance helps businesses including farms and ranches pay to repair or replace buildings, structures, and contents that are damaged or destroyed because of fires, storms, or other events outlined in the policy. It also pays to replace stolen or lost property. Business owners can buy commercial property insurance if they own, rent, or lease a building.

Does commercial property insurance cover commercial leases?

If you rent or lease a building, the building owner’s policy probably won’t cover the contents of your building. You will need to buy your own policy to insure your on-premises property, including machinery, furniture, and merchandise. Tenant coverage is usually significantly less than building owner coverage because the policy will only need to cover contents, not the building itself.

Does commercial property insurance cover multiple business locations?

 Businesses operating at multiple locations can be covered under a single policy unless they have different functions and different risk profiles. This could be the case if your business has an administrative office and a separate factory.

General Liability Insurance

This form of business liability insurance is the main coverage to protect your business from injury claims, property damages, and advertising claims. General liability insurance is also known as Commercial General Liability (CGL) and may be the only type of business liability insurance you need depending on your business situation.

Do LLCs need liability insurance?

A common misconception of a limited liability company (LLC) or an incorporated company is that a business owner is protected from personal liability, and liability insurance is unnecessary. You can be personally liable if:

• You have signed a personal guarantee for a loan
• You have injured someone
• You have acted in an irresponsible or illegal manner
• You do not operate your business as a separate entity

What is Business Liability Insurance?

Business liability insurance protects your small business in the event of a lawsuit for personal injury or property damages. It will usually cover the damages from a lawsuit along with the legal costs. Depending on your business needs, liability insurance can be purchased in many forms.

General Liability Insurance: This form of business liability insurance is the main coverage to protect your business from: injury claims, property damages, and advertising claims. General liability insurance also known as Commercial General Liability (CGL) may be the only type of business liability insurance you need depending on your business situation.

Commercial Auto Insurance

As a business owner, you need the same kinds of insurance coverages for the car you use in your business as you do for your personal vehicles — liability, collision and comprehensive, medical payments (known as PIP, personal injury protection) and coverage for uninsured/underinsured motorists.

Do you use your car for both work and at home?

Many business people use the same vehicle for both business and pleasure. If the company owns the vehicle, make sure its name appears on the policy as the “principal insured” rather than your name. This will avoid possible confusion if you need to file a claim or if a claim is filed against you.

How do I know if I need commercial auto insurance?

Whether you need to buy a business auto insurance policy will depend on the kind of driving you do. A good insurance agent will ask you many details about how you use vehicles in your business, who will be driving them and whether employees, if you have them, are likely to be driving their own cars for your business.

While the major coverages are the same, a business auto policy differs from a personal auto policy in many technical respects. Ask your insurance agent to explain all the differences and options.

If you have a personal umbrella liability policy, there’s generally an exclusion for business-related liability. Make sure you have sufficient auto liability coverage.

Business Contents Insurance

Although you may already have insurance to cover your business premises, this usually only covers the buildings themselves and not the contents inside. For this reason, you may also need to take out contents insurance if there is a risk that anything could be damaged, lost or stolen. Contents insurance is not compulsory, but it is often recommended if your company owns expensive items that may need replacing.

 What is covered under a business contents insurance policy?

 A contents insurance policy should cover anything the business needs to function properly. This includes all equipment and stock on the premises, even if the business does not own it. 

Portable equipment, however, is usually insured separately.

What are the types of business contents insurance?

There are two standard types of contents coverage available:

• Indemnity Insurance
• Replace As New

 What is an indemnity coverage policy?

With an indemnity coverage policy, the insurance company will take depreciation into account when settling a claim. This means the amount you receive will depend on how long you have owned the product and/or the wear and tear rather than the amount you originally paid for it.

An indemnity insurance policy will usually insure your contents if stolen; however, there must be proof of a forced entry in order for this to apply.

 What is a “replace as new” insurance policy?

If you take out a ‘replace as new’ insurance policy items will be valued at their price in the current market.

How does property ownership change my coverage options?

Where the business premises are owner-occupied, contents and building insurance may be bundled together under one policy. Where the business premises are not owner-occupied, the tenant will have to arrange contents insurance under a separate policy.

How should stock be insured?

Stock should be insured for cost price without profit, and provisions can be made for seasonal stock fluctuations. Equipment can be insured for replacement as new or on the indemnity basis where an allowance for wear and tear is deducted in settling any claim.

Business Interruption Insurance

Even minor damage to your property could seriously disrupt your business, leading to loss of income and extra expenses.

Business Interruption insurance will compensate for the shortfall in gross profit together with paying any increased working costs and extra accountants’ fees incurred.

What Coverage does a Business Interruption Insurance Policy Provide?

The money lost in the event of an emergency or other event can be devastating for a company. Suppose an organization has to temporarily shut down due to a disaster. In that case, Business Interruption insurance will cover income that would have otherwise been generated using the company’s financial records, had they not had to close down. This will also cover operating expenses, such as utilities, while the doors are closed.

How long does business interruption insurance coverage last?

Business interruption is not meant to provide your company with compensation over a long period. Instead, most policies only cover a number of weeks or a few months at most. The idea is that you are being covered for an interruption – not simply for lack of business due to the prevailing economic circumstances.

What does a business interruption policy cover?

Specifically, a business interruption policy will cover you for:

• Losses due to sudden personal incapacity
• Losses due to a sudden and unforeseen natural disaster (e.g. flood damage, fire, storms)
• Losses due to local government action (e.g. road works)
• Losses due to theft and vandalism
• IT failure

Unlike other forms of insurance (e.g. fire and theft), with business interruption insurance, you do not insure actual goods. Consequently, you will need to have a very good idea of how much your business earns to assess accurately the amount of your potential business losses.

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