Commercial insurance can be anything but cut and dry. There are dozens of different types of coverage, some required but many optional types, too. Deciding what to purchase and then how much coverage you need can be confusing. The right protection can provide an appropriate layer of protection while going under or over can needlessly cost your business money. Here is a quick look at the various options on the table.
Types of Commercial Insurance
There are no one-size-fits-all commercial policies that you can purchase. Before you go maxing out coverage options on every type of insurance available, let's talk about the most common commercial policies and what they're designed to cover.
General Liability Insurance
General liability policies are designed to protect your business from liabilities incurred due to interacting with customers. If someone visits your place of business and trips over an item in the walkway, subsequently visiting an emergency room for a related injury–you're covered. Similarly, your business is named in a lawsuit for false advertising or copyright infringement, you're also covered there.
Commercial Property Insurance
This type of commercial insurance policy protects your business property, including technology, equipment, furniture, and inventory. If an employee loses a business laptop, commercial insurance would provide protection for the loss. This also provides coverage for if your inventory is stolen or damaged by a customer.
Workers Compensation Coverage
If an employee gets hurt on the job, even if you're not employing workers in a high-risk occupation, you're on the hook for all associated expenses. Workers' compensation coverage will pay for medical bills and sometimes lost wages when an accident or illness occurs at work. For example, you're covered if an employee slips on ice and hurts their back while taking the garbage out to a dumpster. Or, if an employee becomes ill from inhaling toxic fumes produced by a cleaning agent used in the building.
Business Auto Insurance
Similar to personal auto coverage, but designed for your commercial fleet, this coverage provides liability, medical, and property damage coverage for vehicles owned by your business. You're covered if an employee is driving a company car and gets in a fender-bender. If a vehicle owned by your business causes an accident that damages someone else's property, this type of insurance will kick in to cover expenses.
Business Umbrella Insurance
An umbrella policy is as close to a general business insurance policy as you can get. These policies generally combine common business policies for a discounted price. The most common type of business umbrella insurance combines liability and commercial property coverage.
This isn't an exhaustive list. You may want to consider a professional liability policy in certain high-risk professions. As more of the business world relies on technology, cyber liability insurance is also becoming a popular additional option.
What Types of Business Insurance are Required?
First, when we say 'required,' we mean that there is a governing body enforcing a business's participation. This could be a state or federal government requirement. Or it could be an industry-specific requirement.
A general liability policy is always a good idea and may be required by local regulations if you operate a physical place of business. If not, your landlord or mortgage company may require a liability policy or business umbrella policy.
Workers' compensation enforcement is another example of required business insurance. In the U.S., individual states are tasked with workers' compensation program administration, so it is generally up to the state where you do business to dictate coverage requirements. However, there is a federal mandate across the U.S. that requires employers to carry workers' compensation insurance.
Medical malpractice is a particular type of commercial insurance policy designed for the unique needs of practicing doctors. While there is no federal law enforcing coverage, it's a standard protection in the field and is required in at least seven states.
Even if there are no federal or state mandates, individual client contracts may require your business to carry certain types of coverage. You'll want to review new contracts carefully and discuss any needs that come up with your insurance agent.
How are Commercial Insurance Policy Premiums Determined?
Not all risks are equal. Your insurance company will look at the size of your company, the activities you're involved in, the industry you serve, and your personal history to determine your risk level and, therefore, your premiums.
Here are a few examples of factors that may directly or indirectly affect your rates:
Opening a retail store in a high-crime area can increase commercial property insurance rates.
Allowing employees with poor driving records to drive company vehicles can raise your commercial auto premiums.
Frequent on-the-job injuries can drive your worker's compensation insurance up.
Your elections on deductible amounts can bring your premiums up or down.
Your claims history and business credit score may also factor into premium prices.
How Much Coverage Do You Really Need?
As you're shopping for policies, it can be tempting to skew your coverage estimates on the lower side to decrease premiums. However, this approach might cost you a lot more in the long run. Instead of considering the cost of replacing your building or inventory, think about the potential devastation of a lawsuit. Keep in mind that businesses are much more likely than individuals to be named in a lawsuit because the perceived value of pursuing a commercial entity in court is deemed greater.
How much coverage you need can depend on many different factors, including your industry and the size of your business. However, as a baseline, a $1 million general liability policy is pretty standard for small businesses. Larger businesses and high-risk industries may require more coverage.
Final Thoughts on Commercial Insurance
Commercial insurance policies are intended to provide a layer of protection from covered loss and allow you to stay in business. There are thousands of things that could go wrong. A customer shopping in your store could be hit with merchandise as it falls off a higher shelf. Or your place of business could be vandalized, flooded, or destroyed by fire, taking your furniture, equipment, and inventory with it. Mitigate the risks of a devastating lawsuit with the right commercial insurance coverage. Let our team of friendly and knowledgeable agents help you choose the right level of coverage for your needs. Contact us today.
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