Business Policies Cover Four Things

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Image courtesy of [Tarik Kizilkaya] / Getty Images.

What types of insurance policies does your business need? This question can be difficult to answer. Business owners have access to a wide variety of insurance coverages. Determining which ones are appropriate for your business isn't always easy. One way to simplify the decision-making process is to think of your business in terms of four categories. Most commercial insurance policies cover claims resulting from one of the following:

  • physical damage to your property
  • lawsuits filed against your company by third parties
  • injuries or diseases sustained by you or employees
  • income losses

Damage to Your Property

Property owned by your business may be stolen, damaged or destroyed. For example, a building your company owns may burn down. A truck your firm owns may be damaged in a collision and declared a total loss. Buildings, vehicles and other types of business property can be expensive to repair or replace. You can protect your business against large out-of-pocket repair costs by purchasing property coverage. 

There are numerous types of property insurance. Most business-owned property, such as buildings and furniture, can be insured under a commercial property policy. Nevertheless, some types of property require specialized coverage. An example is computers and data, which can be insured under an electronic data processing policy.

Property may also need protection against perils that are excluded under a standard property policy. For instance, production machinery and refrigerators are subject to breakdown (an excluded peril). These items can be insured under equipment breakdown coverage.

Most commercial property policies exclude theft committed by employees.

To insure your business against theft losses, you'll need to purchase employee theft coverage.

While auto physical damage coverage is classified as a casualty coverage, it is really a type of property insurance. It protects your firm against financial losses resulting from physical damage to autos your company owns, hires or leases.

Lawsuits Against Your Firm

Everyone makes mistakes. An error made by you or an employee in the course of performing your business activities can result in a lawsuit against your firm. Claimants may allege that your negligence triggered an occurrence, which caused them to sustain bodily injury, property damage or personal and advertising injury. You can protect yourself against such claims by purchasing general liability insurance.

Businesses can be sued as a result of auto accidents. If your firm uses autos, you'll need to purchase auto liability insurance. Businesses that provide advice or do design work are subject errors and omissions suits. A claimant may allege that you failed to provide the level of advice or service he or she expected. Such lawsuits may be covered under errors and omissions liability insurance.

A large claim can devastate a small company.

Yet, many insurers will not provide a limit greater than $1 million per occurrence for general liability insurance. Likewise, they do not typically provide more than $1 million per accident for auto liability coverage. To safeguard your company against huge liability losses, you can purchase a commercial umbrella policy.  

Injuries to You and Your Employees

Your business depends on people. You and your officers, managers and employees are key assets that need protection. You are probably required by law to insure your employees against on-the-job injuries by purchasing workers compensation insurance. Health insurance will protect you and your workers against non-occupational injuries and illnesses. Key person insurance, a type of life insurance, will safeguard your firm against the financial consequences of the death of a company principal or a key employee.

Income Losses

A business cannot survive without income. If property your firm uses is damaged by a fire or other peril, your business may be forced to shut down. Once your operations are suspended, your business will be unable to generate income. Fortunately, you can protect yourself against income losses by purchasing business income insurance.

If your business is forced to shut down because your property has been damaged, you may be able to continue your operations by renting space at another location on a short-term basis. A move to a temporary location may help reduce your firm's income loss. Yet, a relocation will generate added costs. You can insure your firm against such costs by purchasing extra expense coverage.

Edited by Marianne Bonner