Business Insurance – what’s involved?

28/05/2024
Image courtesy of Sander Sammy on Unsplash

Do you find choosing the right business insurance confusing? We look at what’s involved and try to guide you through the complexity of choosing what’s right for you.

Operating a business, no matter its scale, is a risk-filled endeavour. Every aspect of running a business is fraught with risks that may negatively impact a company’s profitability or spell doom to the entire business. That’s what makes business insurance a valuable investment for businesses. 

They safeguard you, your business, and your employees in case an unforeseen accident occurs. Here are some of the most common types of business insurance that every business owner or entrepreneur should be aware of:

#1. Commercial General Liability Insurance – Typically, this type of coverage is comprehensive and protects businesses from claims from outside the company alleging bodily injury, personal injury (for instance, slander or libel), and property damages. General liability insurance policies cover businesses that interact with customers, clients, and suppliers if sued. The policy covers legal fees, court fees, and judgments and settlements.

You don’t want to settle general liability claims out-of-pocket, as they can significantly negatively impact your company. As such, businesses need to take out this policy to ensure they do not suffer significant losses if sued.

#2. Worker Compensation Insurance – Worker’s comp is typically compulsory for businesses with employees. It is designed to provide benefits for employees injured while working. The insurance policy covers medical bills, ongoing care, and physical therapy and provides workers. The policy also covers disability benefits and death benefits.

#3. Commercial Auto Insurance – Commercial auto insurance policies are designed to work similarly to private car insurance. However, these policies cover commercial vehicles. They protect a company’s vehicles against vandalism, theft, car damage, and accident-related claims resulting in property damage, bodily injuries, or death. The policy covers attorney’s fees, court costs, judgments, and settlements.

#4. Commercial Property Insurance – Commercial property insurance covers a company’s assets from damage (resulting from fire, smoke, hail, wind, etc.), vandalism (resulting from civil disobedience), and theft. It also covers a company’s property, whether owned or leased. The policy will pay for repairing or replacing the equipment of the damaged or stolen assets while reimbursing lost income occasioned by the theft or damage.

However, you should note that some insurance companies do not cover the cost of damage to business assets and properties caused by earthquakes and floods. They require you to take out a separate policy that covers these risks, such as commercial flood insurance.

#5. Product Liability Insurance – A product liability insurance policy covers businesses that manufacture tangible products from claims resulting from their products. Specifically, this policy will cover claims for defective products that cause bodily harm, injury, or death. The policy will cover the settlement and legal fees arising from the claim.

#6. Errors and Omissions Insurance/ Professional liability Insurance – Errors & and omissions (E&O) policies cover businesses that provide professional services to third parties. Examples of such companies include accountants, lawyers, and consultants, where mistakes made may result in financial losses or injuries. Such policies typically cover court costs, legal fees, judgments, and settlements. 

#7. Employment Practices Liability Insurance – EPLI policies cover businesses from claims resulting from employees. These may include claims such as wrongful termination claims, sexual harassment claims, discrimination claims, failure to promote, and sexual harassment claims. Businesses need to buy EPLI policies as the claims they cover are increasing in severity and numbers.

#8. Cyber Insurance – Cyber insurance is also an essential policy for businesses, especially if they request, collect, and store personal data of their customers, clients, and suppliers, such as credit card information. The policy protects businesses from claims arising from data breaches and cyber-attacks. It covers first-party costs, including investigating the breach, notifying the affected victims, and other related expenses. It also covered the costs of third-party claims for financial losses incurred due to the data breach and/or cyber-attack. Finally, it also covers the cost of restoring cyber security following a system compromise.

#9. Commercial Crime Insurance – Commercial crime insurance covers losses businesses incur from crime-related losses that other policies do not cover or cover fully. This policy fills in the gaps for losses occasioned by employees or outside parties whose crimes, such as forgery, robbery, destruction, theft, fraud, burglary, and other crimes can lead to significant losses.

#10. Director and Officers Insurance – Director and Officer (D&O) Insurance is a common business insurance for companies with board directors. It’s also commonly taken out by companies that have raised money from venture capitalists. It covers the directors and top leadership from personal losses occasioned by misrepresentation, breaches of fiduciary duty, and errors and omissions. The policy covers legal fees, court fees, and judgments and settlements.

#11. Key Person Insurance – Key person insurance policies are designed to protect businesses from the financial repercussions of the death or disability of a key employee critical to the success of the company. This may be a top-level executive or other critical employee. The policy covers the financial losses incurred by the death or injury of the employee and pays for the costs of finding a suitable replacement.

It is common for insurance companies to develop products that combine several different types of insurance policies to create one policy. An excellent example of this practice is the business owner policy, which bundles three basic business insurance policies, including commercial property, commercial liability, and business interruption, into one policy. 

What Coverage Do Businesses Need Based On Their Industry?

While businesses share similar risks, it’s important to note that every industry is exposed to unique risks that necessitate acquiring a bespoke variety of insurance policies. Consequently, different businesses will have different insurance coverage needs such as professional indemnity cover for doctors and similar job roles. 

For instance, the risk exposure to an accounting firm includes data breaches, cybercrime, and other traditional risks such as missed tax deadlines and accounting errors. On the other hand, a technology start-up needs to insure its business against cyber attacks, product issues, contract disputes, discrimination and harassment issues, and data breaches. Cannabis industry players should insure their businesses against product-related issue claims and theft, which are common in their industry. 

Hospitality, construction, law, and every other industry require a unique combination of business insurance policies to guard their businesses against risks. To determine the coverage your business needs, you should consider the following:

– The risk profile of your business/industry, 

– The nature of your services and/or products, 

– The property you own or lease, 

– Having equipment you might need to insure, 

– Having vehicles, you need to insure, 

– How many employees do you have, and 

– Your revenues, 

Considering the above elements will ensure you tailor your insurance coverage to your specific needs.

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