3 Things You Need To Know
- If you are considering leasing office space or equipment, make sure you determine who is responsible for insuring the leased items—you or the lessor. For leased buildings or building space, there are other factors to consider, such as who is responsible for plate glass or equipment coverage and whether the landlord requires you to carry minimum amounts of liability insurance, and the extent of any hold harmless agreement. These and other situations covered in the lease affect the amount and kinds of insurance you need. You or your legal counsel should advise your insurance agent as to your insurance requirements.
- If you are starting a business out of your home, your homeowners policy will only offer protection on a very limited basis. Loss of business property is usually reimbursed only for very small limits. Even if your business is a side business such as a craft studio, these limits may be too low to cover all the equipment and materials you have accumulated. It’s also important to know that no business liability coverage is included in a standard homeowners policy. Consult your insurance agent to determine the best way to insure your home business.
- All businesses have a web presence and many conduct business over the internet. Cyber liability insurance can ease your worries about your computers being hacked or losing your customers’ personal data.
Business Insurance Basics
Few things in life are riskier than launching and running your own small business. Part of the risk of any small business is the loss of property or incurring liability to others — either of which can cause loss of income or even force you to close your doors. Large companies employ full-time risk managers to keep their risk-taking to a minimum. But chances are that as a small-business operator, the company's risk manager, along with its personnel director and office manager, are all rolled into one. Keeping risks and losses to a minimum is a cornerstone of success, especially for small businesses.
Commercial or commercial lines insurance protects businesses and organizations. Businesses purchase property insurance, liability insurance, workers compensation, automobile insurance and a variety of other policies designed to protect the assets of the organization in the event of an unexpected loss.
Generally, there are two types of insurance: property and liability. Property insurance covers damage to or loss of the businesses property. And if somebody sued for damages caused by you, your product or your employees, the cost of the suit — both defending it and settling it if necessary — would be covered by your liability insurance.
Many small businesses are now insured under package policies that cover property and liability exposures as well as loss of income. A common package policy used by many small businesses is called the Business Owners Policy (BOP). Generally, these package policies provide the small business owner more complete coverage at a lower price than separate policies for each type of insurance needed.
Every business has some property. And, in essence, your business is your property. Just like your home and your car, your business needs to be protected from loss, damage and liability. A business may not possess all the following types of property, but you can use this list to make sure that you have considered all the property categories and any insurance coverage that may be warranted:
- Buildings and other structures (owned or leased)
- Furniture, equipment and supplies
- Money and securities
- Records of accounts receivable
- Improvements and betterments you made to the premises
- Data processing equipment and media (including computers)
- Valuable papers, books and documents
- Mobile property such as automobiles, trucks and construction equipment
- Satellite dishes
- Signs, fences and other outdoor property not attached to a building
- Intangible property (goodwill, trademarks, etc.)
- Leased equipment
Business Income Coverage
Business owners not only need to worry about losing their property during a loss but also replacing the income they would have earned to pay their bills and employees while their property is being rebuilt after a covered loss. Some businesses continue operations at another location in an effort to maintain a business presence. Consequently, the businessowner will incur extra expenses. Common examples of extra expenses include the costs of renting new office space, leasing computers and office machines, and the installation of new telephone equipment.
Civil authority coverage pays the businessowner if a police or fire department prohibits access to your business due to damage caused by a covered peril to property other than at your location. An explosion occurred across the street from the businessowners’ premises, causing a civil authority (such as a fire department) to close down the street. If the businessowner suffers a loss of business income and/or extra expense, civil authority coverage would be provided.
The business income from dependent properties coverage pays for the actual loss of business income sustained by a business due to physical loss or damage at the premises of a dependent property. Dependent properties mean property owned by others that the businessowner depends on for its operations. If your business depends on another businessowner to produce parts or merchandise, and that businessowner cannot produce the parts or merchandise, a business income loss can occur. The loss at the dependent property must be caused by a covered cause of loss.
No business can afford to be unprepared for a lawsuit. Liability insurance protects your business assets when the business is sued for something the business did (or failed to do) that contributed to injury or property damage to someone else. Even if damage or injury is caused by a manufacturing defect, the business can (and probably will) be sued. Liability coverage extends not only to paying damages but also to the attorneys’ fees and other costs involved in defending against the lawsuit—whether valid or not. The medical expenses of a person or persons (other than employees) injured at the business or as a direct result of the operations of the business are also typically covered. But liability insurance doesn't cover everything. You may need to purchase additional coverages; Directors & Officers coverage, Professional Liability, Workers Compensation, Cyber Liability, Employment Practice Liability and Fiduciary Liability.
Directors & Officers (D&O) Insurance
Directors and officers can be sued by the entity itself or by other current or former directors and officers, employees, shareholders, investors, lenders, vendors, customers, competitors, various government officials such as state attorney generals, the IRS, and state and federal labor departments, consumer groups, and many other third parties. A D&O policy typically covers "wrongful acts" by directors and officers of an entity within their capacity to make decisions regarding the entity's activities. A "wrongful act" is often defined as , "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an insured person, individually or otherwise, in an insured capacity, or any matter claimed against him or her solely by reason of his or her serving in such insured capacity."
Employment Practice Liability Insurance (EPLI)
Employment Practices Liability Insurance covers businesses from lawsuits brought by their employees for wrongful termination, sexual harassment and other forms of discrimination. Even if the employer is not at fault, most policies will provide lawyers to defend them against these claims.
Fiduciary Liability Insurance
Fiduciary liability coverage covers businesses from lawsuits from employees with regard to their handling of the employees’ pension, savings, profit-sharing, employee benefits, and health plans, including ERISA violations.
Employees who are injured or exposed to disease in the course of their employment are entitled to state-mandated benefits, including payment for lost wages, and medical and vocational benefits, as well as death benefits for surviving dependents if employee dies. In most states there are legal requirements that must be met, and for which a business may be responsible. State laws vary, but most states require that businesses carry some form of workers compensation insurance. This protects the employee and also offers the business owner a degree of immunity from lawsuit by an injured employee.
Workers compensation insures the employee while they are working, and health and disability insurance covers them while they are not. Policies often contain a coordination of benefits provision that indicates the order of payment, or which precludes an individual from receiving benefits from multiple policies.
Commercial auto coverages are similar to the Personal Auto Policy and can be purchased to insure vehicles owned or leased by the business. A commercial policy covers any motor vehicle used in the business including cars, vans, trucks and trailers pulled by trucks and offers coverage if they are damaged or stolen. It also covers liability if the business vehicle is in an accident and the driver is at fault. In addition, the business can be protected against claims arising from the use of vehicles owned by their employees.