Business Insurance Basics
By Aaron ForbesJanuary 11, 2019
Business Insurance Basics
Whether you are starting a business for the first time or have been running one for years, understanding your business insurance policy is important. Running any kind of business carries with it a substantial amount of risk, most of which can be mitigated with various types of insurance. When you're looking to ascertain which insurance policies and types are right for your business, it's important to consider all of your options and what they mean for your company.
What Business Insurance Entails
Any type of insurance for businesses is designed with the main goal of reducing the amount of financial risk that your company has. As a policyholder, you will sign a contract with your insurance company of choice. This contract is referred to as a policy and can come in many different forms. Whether you purchase one type of insurance or several, you will be expected to pay a monthly premium for each policy that allows you to use the benefits provided by the policy. By paying a monthly premium, the insurance company will protect your financial assets in the event that an accident or natural disaster occurs.
Different types of insurance are available for all kinds of issues that extend from car crashes to lawsuits that are filed against your company. If ever an accident or disaster occurs when you don't have insurance for your business, you would likely be required to pay all of the costs pertaining to the replacement of property, repairs, and lawsuits against your company, which could cause severe problems for your company's cash flow. Small businesses that don't have the right insurance policies have gone out of business because of issues such as these.
Primary Types of Business Insurance to Consider
In order to have a better understanding of insurance for businesses, you should know more about the wide array of different types of insurance policies that you can consider purchasing. These policies can be divided into core insurance types and additional coverage types. While the vast majority of insurance types for businesses are optional, the three major types of insurance that your business shouldn't go without include general liability insurance, business income insurance, and property insurance.
General liability insurance: This is the single most common form of insurance for businesses. A liability policy is aimed at protecting your business or an individual employee at your company in the event that a third-party is injured at your business site or in the standard course of business. If a lawsuit is filed against your company because of this injury, you will be monetarily protected by the liability insurance policy that you choose. A third-party is any individual who is not currently an employee at your business, which can include anyone from customers and vendors to landlords.
The types of claims that this insurance covers include any property damage or physical injuries that were incurred because of your products or business. Some of the non-physical injuries that can be covered with this insurance include copyright infringement, libel, and slander. It's important to note that professional liability and auto liability are typically excluded from these policies, which means that you will need to purchase additional policies to cover these aspects. Your liability insurance policy will also have a set limit to it, which means that it will only pay for damages that reach the policy limit.
Business income insurance: This is a type of insurance policy that can be added to a property insurance policy if you require it. If some type of disaster caused your business to close down for a lengthy period of time, this insurance policy will provide your business with compensation for the income that you would have earned had the disaster not caused you to stop operating. This form of insurance coverage provides your business with the means of paying certain expenses like employee salaries and property rent while your company is recovering and working towards restoring operations.
This insurance allows you to keep your employees satisfied while you're attempting to get your business started up again. To better understand how this policy works, let's say that you make a certain amount of sales and profits per month while also having to pay utility, rent, and salary expenses. This insurance policy will provide coverage for your utilities and rent and salaries to help you maintain your current business operations. Additionally, business income will help maintain vendor and/or supplier relationships so their business is not affected negatively due to a loss at your business.
Property insurance: This is a rather straightforward type of insurance that is aimed at providing you with compensation in the event that your company's property becomes damaged or lost because of a disaster or accident. Along with the building that your business is located at, this type of policy will also cover computers, inventory, equipment, tools, and furniture. The type of disaster or accident that these policies typically provide coverage for include acts of vandalism, fires, hail, and heavy winds from hurricanes or tornadoes. Whether your roof was damaged from a severe storm or a fire started in your kitchen, your property losses will usually be covered with this type of policy.
The amount of coverage that your policy provides depends on a list that you will need to make about the property that your business owns. If the value is improperly estimated for your property, it's possible that the policy you purchase won't provide enough coverage for losses, which is why it's essential that you make a note of every piece of property at your primary business location. In most cases, property insurance is determined in two ways, which includes actual cash value coverage and replacement coverage. Replacement coverage policy will pay out the full amount that it takes to replace your property at the time of your claim. Actual cash value takes depreciation into account, which means at the time of loss they value the item and reduce the claim by any depreciation and deductible.
Some of the additional insurance types that you can purchase include workers' compensation insurance, business auto insurance, and professional liability insurance. Workers' compensation insurance is designed to cover medical expenses and lost wages that are incurred when an employee is injured at work. Business auto insurance covers any vehicles that are leased or owned by your business. This type of insurance covers the theft or damage to your vehicles as well as liability for any vehicle crashes that are caused by an employee. Professional liability insurance covers the professional services that are provided by such companies as legal firms, investment advisors, medical professionals and architects.
Understanding Policy Periods and Insurance Limits
When you're about to sign a contract for an insurance policy that applies to your business, you should be aware of both policy periods and insurance limits. Policy periods usually last for one year, after which you will need to renew the policy or select a new one. It's also possible for policy periods to be as short as six months. The price of your insurance policy can change only when the policy renews.
Insurance limits refer to the maximum amount of coverage that an insurance company can provide during the standard policy period. If you want to increase or decrease the coverage limits on your policy, your monthly premium may change accordingly.
There are many provisions and details inside an insurance policy. Knowing the basics will help you understand the primary drivers of what is protected as well as how your plan is priced.
The Buren Insurance Group is an independent insurance agency providing comprehensive coverage to clients since 1935. As an independent agency, we represent many insurance carriers and select the best carrier to meet your specific needs.