“Business insurance” is a broad description that can be broken down into a list of nine types of insurance policies and here I will briefly explain the coverage and expand on these as individual topics. For now, these are general descriptions so that we are talking about the same thing when I use these terms in later articles.
- Property Insurance
Property insurance insures against loss or damage to the location of the business and its contents. It can also insure the property of others in your control when the loss occurs. Property insurance can be for a specific risk. For example, a fire insurance policy insures only against a fire loss to the location. A tornado is not a fire and, therefore, that loss would not be covered. The insured location can be owned, leased or rented.
- Casualty Insurance
Some insurers will lump property and casualty insurance together and refer to the coverage as “property and casualty” insurance. In fact, “packaged” policies of property and casualty are often the best purchase a business owner can make. However, to have an understanding of the difference between the coverage, I will discuss this as a separate type of insurance. Casualty insurance insures against loss or damage to the business.
- Liability Insurance
Liability insurance insures against liability legally imposed upon your business because of the negligence of the business or its employees. Put another way, it protects your business when the business is sued for negligence.
- Commercial Auto
Your personal automobile policy does NOT cover vehicles used by your business. If your business uses vehicles or anything that is required to be titled by your state, then you need a commercial auto policy. Commercial auto coverage insures against property damage to vehicles and damage caused to others by those vehicles.
- Workers’ Compensation and State Specific Insurance for Employee Injuries (e.g., Stop-Gap)
You will need to insure your employees against on-the-job injuries. Every state is different. But, most states have put into place some form of workers’ compensation system. Workers’ compensation is a system where the employee is not allowed by statute to sue their employer for on-the-job injuries; but, in return, the employer must participate in a system that provides nearly automatic payment to the employee in case of injury for medical bills and damages. There are many options for workers’ compensation coverage. Some states allow an employer to opt-out of the system if the employer is self insured, some run the system through private insurers while others use state agencies. Finally, some states, by virtue of case law or statute, require additional insurance above workers’ compensation such as “stop-gap” coverage or “scaffolding liability” as just two examples.
- Business Interruption Insurance
Business interruption insurance insures against loss or damage to the cash flow and profit of a business caused by the business being unable to operate because of interruption. The easiest example is to think about a critical piece of machinery being struck by lightning. The repairs to the machine may be covered by other coverage such as property or casualty insurance. But, if you can’t make widgets for three months, then there is no replacement of that income without this coverage.
- Health Insurance
To be competitive, most businesses need to offer their workers health insurance. This insurance offers a health coverage benefit to your employees (and you).
- Life and Disability
Life and disability insurance protects the business against the death or disability of key employees. For example, one partner carries a life insurance policy naming the partnership as a beneficiary. If that partner dies, and the business has planned properly, the proceeds of the policy can be used by the business to buy out the share of the decedent’s partnership interest from the estate.
- Other Insurance or “Scripted” Policies
It could very well be that your business is so unique to have need for coverage that is a mixture of some of the coverage listed above or something written specifically for your particular risk. One can think of some actresses, actors, or sports stars that have had legs insured at some point in there careers. This would be an example of a “scripted” policy.
I have identified, and very briefly described, these different types of business insurance so that you have a general sense of what each covers. Within each type of insurance policy there can be a list of risks that are excluded. There can be risks specifically included. Each policy is different and there may be endorsements one can add to increase coverage (and premiums) or exclusions which can decrease coverage (and, sometimes, premiums). We’ll work through each and then look at strategies you can use to determine what coverage is best for your business.