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Business Insurance Q & As
There are several types of business insurance available. What business insurance type you choose really depends on the risks your business faces, and how much insurance you need to cover the necessary company assets. Learn how to choose the best type of business insurance after you analyze the risks your company faces.
TIP: The first step in choosing a business insurance policy is conducting a risk analysis. Make sure you understand what risks your company faces before you select the right insurance plan.
Types of Business Insurance
The following is a list of what types of business insurance coverage you can buy. Of course, every policy can get minor adjustments with additional coverage options so make sure your plan fits the needs of your business.
- Commercial General Liability (CGL) policies are usually offered in a package with Property coverage at very competitive rates. It covers four types of claims:
- Bodily injury resulting in actual physical damage or loss
- Property damage or loss
- Personal injury (including slander or libel)
- Advertising injury
Commercial liability insurance covers the cost covered claims, all damages, legal defense fees and settlement charges that are required to be paid by the insurer up to the limits of the policy.
- Property Insurance protects your business property against physical loss or damage by theft, fire or other means. Review this coverage in detail to determine what it includes. Certain types of business insurance also provide coverage for data, papers, records, money and securities kept at your place of business. Sometimes this coverage is listed as Valuable Papers or Media and Extra Expense coverage. If not included, ask about adding an endorsement to the policy that provides this coverage.
- Business Owner's Policy (BOP) is a Package Policy that combines General Liability and Property Insurance. This type of business insurance is designed for small to medium sized businesses operating in a low-risk category or business class. The BOP includes Commercial General Liability insurance and Property insurance for physical assets such as office furniture and computers, making the policy a complete package that provides coverage at lower rates than you would get from two separate policies. Ask your agent about his type of business insurance policy and if it would be right for your business.
- Workers' Compensation Insurance provides medical and disability coverage for on-the-job injuries or work-related illness. It is required by regulation in most states when you have W2 employees. In many states, principals such as owners, officers and partners can exclude themselves from workers' compensation coverage.
- Professional Liability / Errors and Omissions Insurance covers your business and your interactions with your clients or customers. This type of business insurance is designed to cover professional liability and protects you against potentially catastrophic litigation involving professional negligence such as charges of failing to perform professional duties. This coverage is necessary in professions like insurance agents, CPA's, and lawyers. It also protects technology companies if they are faced with the two most common forms of liability risks:
- Claims for "malpractice" in which companies are sued for failing to maintain accepted standards of care as a technology professional or company, and
- Breach of contract claims for failing to perform contracted services in a timely manner and within the contractual terms.
These could also include loss of client data, software or system failure, claims of nonperformance or negligent oversell.
- Employment Practices Liability Insurance (EPLI) typically covers allegations of discrimination, wrongful termination and sexual harassment by employees. Employment Practices Liability Insurance also may be bundled with Directors and Officers liability insurance, which protects against claims that allege misconduct by the officers of a company against individuals or groups affected by the directors' actions. EPLI protects companies against claims that past, current and prospective employees of the company bring against the company, its directors and officers, and its other employees. Common employment practices violations include discrimination (based on sex, age, race, religion or other factors), sexual harassment (including "quid pro quo" harassment claims), wrongful termination and a variety of other employment-related claims that violate employees' civil rights or their ability to perform their jobs in an acceptable and fair working environment. Review this type of business insurance thoroughly with your agent and determine if it is the right coverage for your business. Of course, if you run a one man shop, this may not be necessary. Ask your agent if this is the right coverage for your small business insurance needs.
- Umbrella Liability(also known as Excess Liability) provides additional coverage when the limits of insurance on an underlying policy are exceeded. For instance, if a claim is settled for $2,500,000, but your General Liability policy has a $2,000,000 coverage limit, the umbrella policy would pick up the additional amount. Umbrella Liability policies add coverage to General Liability, Hired and Non-Owned Auto Liability, and Employer's Liability for a single premium. Umbrella coverage does not apply to the Professional Liability policy.
- Builder's Risk Insurancecovers buildings while they are being constructed. Builders or construction companies would need this type of business insurance. A builder's risk policy would cover losses if a windstorm takes down your partially constructed town home.
- Directors and Officers Liability Insurance (DNO Insurance) provides financial protection for the directors and officers of your company in the event they are sued in the course of their performance of their duties as they relate to the company. Think of Directors and Officers Coverage as a management Errors and Omissions policy. Errors & Omissions is concerned with performance failures and negligence with respect to your products and services, not the performance and duties of management. Generally it is a good idea to carry both DNO Insurance and Errors and Omissions Liability Insurance. Directors and Officers Liability Insurance can sometimes include Employment Practices Liability, which covers harassment and discrimination suits as explained above. If this type of business insurance is not included, ask about endorsements or riders to add the coverage.
As you shop for the right type of business insurance you need, consider all of these options and any other plans that the insurance company provides. Choose the right business insurance policy that fits your needs by comparing quotes before making a purchase.