If you’ve established a startup, one of the main things everyone advises you is to get business insurance coverage. If your company faces a loss, a quality business insurance policy will be there to back you up financially.
The tricky part about getting business insurance is that you may encounter endless types of policies, including general liability insurance and worker’s compensation. So, how can a business owner determine which type of insurance they must obtain?
One of the main things businesses consider while choosing an insurance policy is the potential risks that business insurance policies come with. Therefore, before investing in a policy, you must research your gains and losses with the decision.
If you’re wondering how to get business insurance, you’re at the right place. Keep reading to find out all you need to know about business insurance and the types available for your company.
Why Do You Need Business Insurance?
One of the main reasons companies need business insurance is to cover the necessary costs of property damage or liability claims.
Companies without business insurance would have to pay for these legal claims out-of-pocket, which can be nearly impossible for small business owners. In addition, small businesses need business insurance more than others since they are more prone to financial exposure during a loss.
Besides protecting your finances, the law also requires companies to have workers compensation coverage for any business who has employees and auto insurance for any company vehicles. Most states require a certain level of insurance for all kinds of business, such as at least a general liability policy.
Business insurance safeguards your finances, but it also protects your employees. That’s because workers’s compensation (for businesses who have employees) provides coverage for medical care, funeral benefits, or missed wages in case of work-related injuries.
In addition, insurance also protects your customers. For example, if your customers suffer an injury or damage on the premises of your building, business insurance can help you cover the costs and avoid lawsuits.
More importantly, business insurance helps a company build credibility. As a result, contractors and investors are more willing to work with companies that responsibly manage risks. Plus, some contracts require insurance as a mandatory factor.
2 Main Types of Insurance Every Business Needs
Regardless of the type of business you own, you must have liability insurance for your business and employees. There are two types of business insurance you need, no matter your work environment: general liability insurance and for any business that has employees, a worker’s compensation policy is needed.
Here is all you need to know about them:
General Liability Insurance
General liability insurance is necessary for all types of businesses, regardless of the size or industry. This type of insurance protects your business from all general claims that involve property damage or bodily injuries.
In simpler words, it’s technically a “slip and fall coverage” insurance. It pays for any injuries on the premises of your business or any damage to someone else’s property during your work. In addition, this insurance covers all attorney fees and medical expenses associated with incidents.
In addition, if you’re renting out a building for your business, general liability insurance will also cover it in case of any damage to the property. However, this type of insurance does not cover auto accidents, employee injuries, punitive damages, or intentional acts.
Other than general liability insurance, certain liability policies cover more specific cases. A few of them include product liability insurance, premise liability insurance, and professional liability insurance.
Product Liability Insurance
Product liability insurance covers the compensation for someone or their property getting damaged by your product. When you pay for general liability insurance, this is typically included.
The law doesn’t require this insurance, but most manufacturers and suppliers demand it. Plus, you may get sued if your product causes injury or death. The Consumer Protection Act holds manufacturers and suppliers responsible for any damage caused by their products.
Premises Liability Insurance
Premise liability insurance covers the cost of third-party damages or injuries occurring during your business hours or on the premise of your building. This coverage is usually included in general liability insurance for businesses.
This policy also covers injuries while visiting another property or advertising injuries. Advertising injury offers the necessary financial protection if someone sues your business for libel, slander, or copyright infringement.
This is especially necessary for small business owners as it can be impossible to pay out-of-pocket for lawsuits and claims.
Professional Liability Insurance
Lastly, professional liability insurance, also known as Errors and Commissions insurance,is mean to cover professional mistakes that are typically excluded in a general liability policy.. General liability insurance doesn’t cover most of these instances.
For example, another business could blame you for writing a plagiarized article. Marketing agencies, architects, lawyers, and similar businesses benefit from professional liability insurance. It’s sold in a separate policy from general liability insurance.
Worker’s Compensation Policy
Once your business has employees, you must invest in the worker’s compensation policy. This insurance covers anyone you have on the payroll and their workplace injuries. Under this policy, employees are protected financially if they suffer any injury on the job.
That includes medical care, disability benefits, funeral costs, and more. This compensation is awarded at no fault and protects an employee under state law. If there are payments exceeding the typical workers’ compensation benefits, the employer will be responsible for the payments.
In this case, it’s best to have another policy in place to back you up.
Employers Liability Insurance
The employer’s liability insurance covers employee claims when they suffer an injury within the work premises, especially an illness not covered by worker’s compensation. Employers’ liability insurance is typically included in the workers’ compensation policy.
This insurance does not include sexual harassment, discrimination, or wrongful termination charges. Employment practices liability insurance (EPLI) is better suited to handle such claims for a business.
Applying for Business Insurance — 3 Tips to Prepare
While applying for business insurance, there’s a lot you must do to prepare. The initial conversation you have with the insurance agency will require you to gather a myriad of information before applying for the insurance.
Once they learn everything they need to know about your business, it’s your turn to research the insurance agency to determine if they’re the right fit for your business.
Here are three tips to keep in mind while applying for business insurance if you’re new to the game:
Know What Questions Will Be Asked
When you’re applying for business insurance, the insurance agency will ask you many questions. So, it’s best if you answer these questions immediately and expertly. Such greatly influences their opinion of your business and whether it’s beneficial for them to provide you with insurance.
Here are some of the questions they may ask and how you can prepare for each one:
- “Do you own your building?” Then, they might have follow-up questions about the building’s condition and history.
- “Do you have employees?” You’ll need to specify the details about employees and their payrolls, as it’s necessary for them to have this information if they’re going to provide a worker’s compensation policy.
- “Do you own vehicles?” Then, they might have follow-up questions about the year, make, model, and more.
- “What states do you operate in?” Then, they might have follow-up questions about your work operations in each state, along with employee payrolls and details about additional vehicles and buildings.
- “What type of business entity is it?” Here, you’ll need to specify the type of business you own, whether it’s an LLC, corporation, or other business entity.
- “Do you have any written contracts?” This is an essential piece of information since insurance agencies must know about your contractual relationships to figure out whether they need insurance.
- “Is remote working a possibility?” They mainly ask this question to discover whether it will affect the work operations if the employer and employees cannot access the building for a period due to an incident.
Have Relevant Financial Information Ready
While applying for business insurance, there is a lot of financial and business-related information you must have ready. Firstly, they’ll ask you general questions about the business, including its location and a brief description of your services.
Next, they may ask you how long your business has been in operation and the years of experience you have as a business owner. Finally, after scoping out your business website, they may also ask for some financial information.
That includes information about loans, sales, and spending. Here is some of the financial information you will have to provide:
- Gross annual revenue
- Gross annual payroll
- Any work-related loans you are still paying off
Review Your Insurance Company
Other than just knowing which questions you’ll be asked, you must also have some questions to ask the insurance agency. This will help you review the insurance company and discover whether it’s right for your business.
- “Which insurance should I choose?” This will help you understand the coverage of each insurance plan offered by the agency and whether it will cover all your business requirements.
- “What are the limits of the policy?” This will help you determine how much the insurance agency is willing to spend until the expenses become your responsibility.
- “What does this policy not cover?” Many agencies will talk endlessly about what their policy covers and how you will benefit from it while failing to specify what it doesn’t cover.
- “How do I submit a claim?” Submitting a claim can be daunting, so you must take all the available guidelines.
- “Are there any discounts?” As a small business, budgeting should be one of your top priorities. Make sure to ask your insurance agent about discounts to get the best price on your insurance plan without breaking the bank.
- “Can I get more coverage?” After asking this question, you’ll find that most insurance plans are not set in stone, and insurance agencies are willing to tweak many changes for businesses to ensure they’re getting the ideal insurance plan.
Other Types of Business Insurance to Consider
We’ve established that general liability insurance and workers’ compensation policies are a necessity for all types of businesses. But, there are other types of business insurance to consider that might be more specific to your business environment.
Here’s what you should consider getting:
Property Insurance Policy
The term property insurance for businesses, or commercial property insurance, refers to a series of policies covering property protection for property owners. It protects your company’s physical assets from explosions, fires, theft, burst pipes, storms, vandalism, and other incidents. Unfortunately, most property insurance or commercial property insurance plans don’t cover natural disasters, but you can discuss it with your insurance agency to customize your plan to include things like flood insurance, renters insurance, and earthquake insurance.
If your business has a storefront, you definitely need a property insurance policy. It will protect your building’s exterior and interior against vandalism and theft.
Business Interruption Insurance
While planning for business insurance, it’s vital to take business interruption insurance into consideration, as it’s more crucial now than ever. This plan is also known as business income insurance, as it covers the loss of any business income in the case of a disaster.
For example, suppose your business building suffered a fire or a natural disaster. In that case, this insurance plan will provide the income your business is missing out on due to the halting of operations. This policy can be sold separately but is most often included as part of the property policy or business owners policy.
Unfortunately, pandemics aren’t yet covered by business interruption insurance, but you’ll be covered in case of a natural disaster.
Business Personal Property Insurance
Business personal property (BPP) insurance covers all financial necessities when your business property needs a repair or replacement of damaged or lost assets. It also financially compensates in case of lost, stolen, or damaged property such as computers, inventories, or furniture.
This policy is included as part of your commercial property insurance. It is also known as business contents insurance. Whether it’s office supplies, furnishings, electronics, machinery, furniture, computers, heavy equipment, or any other movable items your business owns, business personal property insurance will cover it. However, on some types of property, it’s best to cover anything that leaves the main premises, like heavy equipment, under an inland marine policy. Your insurance agent can help you decide what coverage is best for your special circumstance.
Cyber insurance is one of the insurance policies that all businesses would benefit from. Though more and more are purchasing and asking about this type of insurance, it’s not always one that businesses choose to invest in. This insurance will cover the liability of your business in case of a data breach and is a very important coverage that all businesses should consider in today’s world.
Businesses that deal with personality identifiable information (PII) are commonly required to have cyber insurance. That includes addresses, SSNs, credit card numbers, driver’s license numbers, medical records, bank account numbers, etc.
Since general liability insurance does not cover digital damages to the business, you’ll need to invest in cyber insurance separately. It especially helps if a customer decides to sue for a data breach.
Commercial Auto Insurance
If your business owns commercial vehicles, you must invest in commercial auto insurance. This insurance plan will cover all cars, trucks, and vans used in conducting your business. In addition, if any of your vehicles suffer damage, the policy will cover all the expenses for repair or replacement.
Larger commercial vehicles such as box trucks, work vans, and food trucks are also included in this policy. Fleet insurance, commercial car insurance, commercial vehicle insurance, and truck insurance are just a few other names for this policy. You may need this insurance plan since personal auto insurance policies do not cover some larger vehicles.
Additionally, if you don’t own any vehicles in the business name, you may still need a form of commercial auto insurance called “hired and non-owned” auto. This provides some liability protection for employee owned vehicles, rented vehicles in the company name, etc.
Commercial Umbrella Insurance
Besides the policies specific to every aspect of your business, you must also consider commercial umbrella insurance. This policy means exactly what the name entails; it provides an additional layer of insurance for safety measures.
This extra layer of liability protection goes beyond the coverage limits of the other liability insurance policies you’ve invested in. Here’s a great example of why you may need commercial umbrella insurance.
A customer sues your business for $1.5 million after suffering an injury at your place of business. Your general liability insurance policy has a limit of $1 million in liability coverage. Your commercial umbrella insurance will help you pay off the remaining $500k.
It’s worth noting that you can’t purchase commercial umbrella insurance as your only form of liability. You need some form of underlying coverage first (general liability, commercial auto liability, etc.) It’s only meant to be used as a final security blanket.
Business Owner’s Policy
Lastly, you could also qualify for a business owner’s policy (BOP) as a small business owner. This policy is a combination of general liability insurance and commercial property insurance plans.
As a result, it protects you against lawsuits and charges while also safekeeping your property and paying for damages. However, small businesses are more vulnerable to financial exposure in case of a lawsuit, so a business owner’s policy is necessary.
This policy typically covers fires, vandalism, theft, weather-related events, bodily injuries, property damage, advertising injuries, and product liability incidents. As a small business, it’s wiser to opt for an insurance policy that covers every aspect of your business instead of multiple policies that could be expensive and leave your company vulnerable.
Here are answers to the most frequently asked questions about business insurance:
What Is the Limitation of Insurance?
A limit in your insurance policy refers to the maximum amount of money an insurance agency is willing to spend on a covered claim. For example, if your business has been sued for $2 million, but your insurance policy has a limit of $1 million, you’ll have to pay the rest out of pocket.
The best solution for this is to invest in commercial umbrella insurance to cover the remaining expenses in moments like these, so you don’t have to pay out of pocket.
What Are the Challenges in the Insurance Industry?
One of the main issues most businesses have with insurance agencies is a lack of trust. After such a big investment, some insurance companies fail to pay up and help out in times of need. This is why it’s necessary to ask the right questions while applying for business insurance.
Economic instability also affects the performance of insurance agencies as they rely on interest rates of credit facilities to keep their business going.
What Is Non-disclosure in Insurance?
In insurance, non-disclosure refers to a failure to inform the insurer about the necessary facts related to an insurance proposal, regardless of the type of property. Refusing to disclose a material fact can be considered a contract breach by way of omission.
In this case, the insurance policy becomes void if the insurer chooses to do so.
To run your business efficiently and safely, you must ensure that it’s insured properly. Once you’ve figured out which type of insurance plan your business plan would benefit from, it’s time to find an insurance agency.
Luckily, Torian Insurance is one of the best independent insurance agents that has trustworthy relationships with the best insurance providers. This way, Torian can provide a customized solution for the customer who has figured out what they do and don’t need in an insurance plan.
Whether it’s auto, home, life, health, business, and homeowner insurance, Torian will find you the right price for the best package. Also, it doesn’t matter if you’re a beginner or a seasoned business owner; you can have an insightful conversation with our expert insurance advisors anytime. So, sign up now to get started!