Running a business is all about risk and faith. It’s taking a gamble on the belief that your services or products fill a need and have value to others, but what happens when that gamble goes wrong? If you’ve got insurance, hopefully it provides coverage to get you out of bad situations. If you don’t, you could be liable in ways you haven’t even imagined.
Commercial insurance is required by law in the United States, but it's easy to get the bare minimum and feel like you’re being smart by saving money on something you think you won’t need.
The good news is, the many variations of commercial insurance are usually tax write-offs, as they’re considered an essential part of doing business. The even better news is, with good insurance coverage, you can rest easy at night, knowing you’ll likely be protected if things go wrong.
What Is Commercial Insurance?
The commercial insurance definition is simply insurance you buy that is designed to protect you from unforeseen circumstances that can affect your business.
But “commercial insurance” is a catch-all phrase, it’s an umbrella under which several different insurance policies can be found, all offering varying degrees of protection for distinct business types. The insurance can protect your properties, income, employees and even you from liability.
If you’re a company installing scaffolding on high-rises for exterior maintenance, you’ll need completely different coverage than, say, a doctor or even someone who paints interiors for a living.
The Reality of Insurance
Insurance companies are somewhat like Vegas oddsmakers. They analyze risk and have algorithms in play that help them decide what your insurance should cost or even whether you’re worth their gamble. If approved, what you pay for the policy is called a “premium.”
These odds are defined and decided by the insurance underwriter. Depending on what your business is and the track record it has, your company may be rejected for coverage by the underwriter. Like the gambling house in Vegas, the insurance underwriter wants to win – they want to provide insurance that will hopefully never actually be needed. Once you need to use the insurance, your odds have changed, and your premiums will rise as a result.
But if you ever need to make a claim with the insurance and it mitigates a financially-damaging situation, then higher premiums are often worth it.
Why You Need Commercial Insurance
We’ve all experienced real life. Things seldom go just how we dream. Accidents happen, things go sideways and that’s exactly when insurance should be there to help you.
Business insurance can cover a multitude of risks. It all depends on what you need. Maybe, as a doctor, you need to protect yourself from malpractice. Perhaps you’re running a small construction company, and you’ve invested your life savings in the tools and equipment you need to make those builds happen. Maybe you run a shop, and you have a large inventory at any given time. All of these are situations that could go quite awry on you, and insurance is there to compensate you should that happen – provided you’ve bought the right policies.
Your business is your livelihood. If you’ve been successful and you have employees, then their lives are inextricably tied to your company, and failing to protect your business means you leave their careers and their families at risk, too.
Types of Commercial Insurance
Consider two distinct areas of commercial insurance – the first will be the commerce and management side of the equation. From inventory and services through to employees and equipment, most aspects of commercial insurance fall under different policy types.
Of course, you might be able to get a “complete” business insurance that covers everything, but let’s face it – those one-size-fits-all T-shirts might fit, but they fit some better than others. A boilerplate insurance policy that claims to cover everything you need may not include the best options for you. A trustworthy insurance broker can help you navigate policies that will truly protect you as much as you require in each area.
Liability is a big area in commercial insurance. After all, to be liable for something means to be responsible, and when it comes to things going badly, that’s the last thing you want to be. Liability insurance policies protect you on many fronts, but there are several different kinds of liability insurance to consider.
- Worker’s Compensation: This is considered the employer’s liability insurance and is generally required by law. It’s meant for when a worker gets injured on a job. What if it goes further than that? What if someone is killed? What if they become chronically sick because of something they were exposed to at work? They, or their family, may seek damages. Some EL/WC policies will cover actions launched by employees long after they’ve left your employment, but it’s critical you maintain all paperwork and records related to past employees.
- Public and General Liability: These are similar, but general liability covers a broader swathe of conditions than public liability and is usually more expensive. Essentially, they both cover things such as visitors getting sick or injured at your place of business. This means shops, restaurants and offices that receive the public should have these policies and may even be required to do so by law. Maybe a courier trips and breaks a wrist and misses work due to the injury. This is the kind of claim a public liability policy can cover. Ask your broker what the differences would be between a public and general liability policy and which one would be best for you. General liability can cover things like advertising damages; for example, if someone seeks damages based on misleading information in your advertising.
- Professional Liability: Also considered as personal indemnity insurance or errors & omission insurance, this policy should be undertaken by anyone who has a career in which they provide advice or personal services to clients. If a client or business should suffer losses due to your negligence or omissions, then you could be liable for their losses. With professional indemnity insurance, you’re often protected against these claims, but it’s important to have a thorough understanding of your policy’s limitations.
- Product Liability: If your products cause injury or damage after purchase, then you could be held liable unless you have a policy in place that protects you.
- Cyber Liability: Also called data breach insurance, this is a relatively new kind of policy, but if you do business online, it’s wise to have it; especially if you have client databases and collect information from visitors to your site. If that information is breached or hacked and a lawsuit is filed against you, this policy can protect you from legal fees and any damages awarded.
- Commercial Automobile Insurance: Whether you have one business vehicle, or you have a fleet, it’s important to be honest with your broker and insure your vehicle for commercial use; otherwise you won't have coverage when you need it. It will cover injuries, damages and theft during business hours, for you or your employees.
Other insurance add-on options can include things like equipment breakdown coverage, so it’s worth asking your broker for all the options that may be available to you. After all, if you run a wood-chipping business but the chipper breaks down, wouldn’t you like to know you have a safety net behind you?
Types of Building Insurance
Commercial property insurance is critical. Even if you start a home-based business, you may need to take out commercial insurance to protect your interests.
Good property insurance is designed to cover not only costs for damage to the structure but also losses to equipment and inventory. It’s important you be clear and up-front about the value of your equipment and holdings when purchasing insurance, otherwise your policy may be insufficient when it matters. Documenting your inventory and equipment thoroughly through invoices and other record-keeping is a great step but be sure you’re keeping these documents off-site or in the cloud, in case something like a fire or natural disaster damages your property.
These policies should also cover theft and damage. Discuss particulars with your broker to ensure your policy also provides coverage in the instance of natural disasters common to your area.
But there are other important considerations for what commercial property insurance can cover for you. Loss of income is a big deal, because if you can’t run your business after a flood has destroyed your property’s contents, then you’re not just facing the cost of recovery and replacement, you’re facing lost income and possibly even “unexpected losses,” which a good commercial property insurance policy should cover. If things go bad, be sure you have replacement value coverage on your necessary equipment, so you get actual replacement covered, and not cash value, which could mean depreciation is factored in before a payout comes due.
There are other types of property insurance coverage to consider that may not be included in your standard commercial property insurance, so it’s important to investigate and purchase add-ons if you believe they’re needed. These may include fire, earthquake, flood, water, hurricane and ice storm insurance.
Factors that Affect Property Insurance
Business owners may compare their property insurance prices with others nearby or elsewhere, and this is always an apples-to-oranges comparison, because so much goes into determining the price of your insurance policy.
The fact is, securing commercial property insurance only occurs after underwriters consider several criteria. If you’ve yet to choose a business location, keep these in mind, because insurance will be an ongoing cost for as long as you’re in business. If you’re wise in choosing a location and property, it can keep costs lower for years to come.
What are some of these criteria? The age and condition of the structure is one. Perhaps it’s an older building but you can produce construction permits and other paperwork proving you’ve made upgrades in plumbing, electrical and roofing. If so, this could save you a bundle. Floods and water damage are leading reasons for all kinds of property insurance claims.
Location is a big deal, because if the property is in a high-crime area, covering the cost of your equipment and inventory will come at a far higher price. Insurers will consider how many claims are made in your area and the premium will be adjusted accordingly.
Replacement costs on the structure and its contents will obviously be a big factor. To offset this, you may get savings if you have on-site security, guard dogs or security systems. Talk to your broker about how you can save money on insurance. If you are looking for a location, ask a broker what areas traditionally have better insurance prices for your industry.
Don’t Wish You Had It
Insurance is one of those things you might hate paying for because you think you’re not getting anything out of it. But every day, someone somewhere is saying they never thought they’d be the one to lose everything in a fire or have their property broken into. As the old saying goes, when it comes to insurance, it’s better to have it and not need it than to need it and not have it.