What’s the Worst that Could Happen? You Ought To Know
Successful business owners know the importance of anticipating and preparing for the risks inherent in running a company. Commercial insurance is an important tool that enables small business owners to manage the impact of accidents and other potentially adverse downfalls.
Some business owners delay insurance planning because it’s confusing and complicated and they only need coverage when something bad happens. (“So far, so good” is bad for business.)
Commercial insurance is a must. If the fine print boggles the mind, get professional, impartial help from a trusted advisor such as:
- your bank representative who knows your business, knows insurance and knows your exposure to risk exposure that must be insured.
- the company attorney who knows your business, corporate liability and insurance law.
- the company accountant who knows the company financials and how to integrate insurance into those financials for maximum protection.
If you don’t “get” insurance, get counsel from a trusted, impartial source. Frankly, your bank provides counsel at no cost a good reason to call your banker to talk insurance. It’s free.
While the specific risks your company faces vary according to size, industry, hiring practices, government regs, loss history and a long list of other factors, most companies face insurable exposures in broad categories that are mitigated by various insurance products .
Although every business is different, every business should have basic coverage to cover the bases.
You got it at home, why not at the office?
Property insurance protects companies from losses due to physical damage to buildings (owned or leased) or to equipment.
Property protection helps pay the cost of unforeseen disaster like fire, flood or locusts that destroy or damage the physical plant where you conduct business your office or leased buildings. A busted water pipe that floods the company computer system, or a storm that destroys company signage? They’re covered under a broad-based property insurance policy from a reputable insurer.
Types of property small businesses need to insure include:
- buildings or storage structures
- equipment, furniture and supplies, including computers and other IT equipment
- business records
- other peoples’ property in your care
- intangible property (trademarks, patents or goodwill, e.g.)
Business owners exploring property insurance should determine whether a prospective policy offers replacement value (the cost of replacing damaged or stolen property), or actual cash value (the depreciated cost of an insured asset). Also, ask if a particular policy provides property coverage for the cost of upgrading damaged buildings to comply with current code requirements. (It’s in the fine print.)
Commercial Liability Coverage
Small business liability insurance, also known as Commercial General Liability (CGL), covers several categories for which your company could be held responsible including:
- bodily injury
- property damage
- personal injury (such as slander or libel)
- false or misleading advertising
- patent or trademark infringement
- slips and falls (negligence)
- employee theft
Companies need liability coverage to protect themselves and their assets against something they did or failed to do, such as ignoring a hazardous condition, a wet floor, which caused injury to an employee or customer.
The coverage pays legal damages including compensatory damages (financial losses suffered by the injured party); general damages (non-monetary losses, such as pain and suffering); and punitive damages (additional penalties or charges).
One major benefit of liability insurance is the elimination of the costs of a lawsuit. Even a groundless lawsuit is expensive to defend, but the insurer pays to defend your business, providing an attorney to litigate the claim on your behalf.
General liability insurance doesn’t provide coverage for professional liability, which is covered by industry-specific policies, auto liability, injuries to employees (covered under workers’ compensation) or health and disability claims. These contingencies are covered under specific forms of insurance purchased separately as needed.
Business Owners Policy
Known as a BOP, a Business Owners Policy combines property and liability coverage in a package that’s simpler and more affordable than the coverages would cost individually bundling to save on insurance costs.
A BOP is similar to homeowner’s insurance, delivering broad coverage in an easy-to-understand policy. BOPs are popular with small business owners because they provide wide-ranging protection suitable for general business protection.
Depending on the policy, a BOP may provide coverage for equipment breakdown, or replacement of machinery that’s damaged by a power surge, operator error or mechanical breakdown, for example.
Some insurance carriers include Business Interruption Insurance under a BOP, while others offer it as a separate policy.
Business Interruption Insurance protects the company’s cash flow by paying for lost net earnings after a fire, windstorm or other insured loss, as well as expenses that continue, like salaries and taxes.
Some policies also cover additional expenses incurred to get a company up and running again, such as the rental of temporary office space.
Along with the general exclusions outlined in the liability section, BOP policies exclude coverage for pollution-related claims as well as product recalls. Certain categories of small business, such as restaurants, garages, wholesalers and others, aren’t eligible for BOP coverage because they present specialized risks and therefore, require specialized insurance coverage.
Commercial auto policies cover property and liability risks associated with the cars, trucks, vans and even a towed trailer owned by the insured company. Insuring commercial vehicles also helps small business owners protect their personal assets in the event a company vehicle is involved in an accident.
Much like personal auto coverage, commercial auto policies cover the liability associated with bodily injury and property damage, and include coverage for accidents with uninsured or underinsured drivers.
Commercial auto policies typically include three types of coverage for physical damage:
- collision coverage protects against damage caused by a company car crashing into another vehicle or a fixed object, like your storefront.
- Comprehensive coverage pays for nearly all other forms of physical damage, such as fire, theft, explosions or other unexpected misfortunes.
- Specified perils coverage is similar to, but less expensive than, comprehensive coverage, and is designed to pay for specific events. This means fire or theft are covered, but not a broken windshield, for example.
Workers’ compensation is state-mandated insurance coverage that protects employees against workplace injuries. It covers employees’ medical bills, medications and rehabilitation costs, and precludes employees from suing employers for their injuries. Workers’ compensation is the exclusive remedy for injured workers.
Workers compensation requirements and premium costs vary by state and type of business. States have strict penalties for failing to purchase workers’ compensation insurance, so talk to an impartial professional for impartial advice on the purchase of worker’s comp.
Key Person Insurance
While not mandated by state law, many small businesses purchase key person coverage to provide continuity if a partner or critical employee dies or becomes disabled.
Key person life or disability coverage, offered as separate policies, help a company make up for lost sales, or cover the costs associated with finding and training a replacement for the deceased or disabled key person .
Key person coverage is purchased by the company, which is also the named beneficiary in the event of a loss.
That’s a quick rundown of insurance basics for small business owners, but there are other insurance products specific to your line of business. That’s why it’s important to talk to a knowledgeable professional, like your commercial bank representative, who performs a risk analysis and designs an insurance coverage package to meet your needs…
…and protect your business from whatever life throws at it.