The Basics of Business Insurance

With business insurance, you can protect the investment that you, your co-owners, and your investors made. Most states mandate certain commercial insurance policies, such as workers' compensation, but some optional policies are highly recommended. This article outlines six basic types you will likely need to consider, if not purchase.

Business Owners Policy

Insurers often combine more than one type of insurance coverage in a single package, which is then sold as one contract. This is the case in a business owners policy (BOP), which often includes property, liability, crime, and other types of coverage in one policy. However, they do not include workers' compensation, health, disability, or auto insurance.

Because of the bundling, a BOP often sells at a reduced premium. Geared toward small and mid-sized businesses, BOPs can be more cost-effective than purchasing separate specialized policies. Eligibility requirements vary with the insurer, but they generally have limitations based on the class of business, location, size, and revenue.

Workers' Compensation Insurance

Depending on the state and how many employees you have working for you, you may be required to purchase workers' compensation insurance. It pays for medical care and replaces a portion of lost wages for the employee who is injured or becomes sick due to their job. These claims do not take into account who is at fault, so it has no effect the benefit amount (see An Intro to Workers' Compensation Insurance to learn more).

In case an employee passes away due to work-related injuries, their family or estate will receive the benefits as stipulated in the contract.

Liability Insurance

Any business faces the risk of being sued due to human error, product issues, customer discontent, or other factors. A defective product, for example, might injure a customer, leading to a lawsuit. In this case, liability insurance helps pay for damages awarded to a claimant whenever a business is found to be liable for the injury. It typically covers damages, legal fees, and medical bills up to a certain limit (for more details, see 4 Essential Types of Liability Insurance Every Business Should Have).

Business Auto Insurance

If you have company vehicles, then you should consider business auto insurance. This type of policy provides three main types of coverage for vehicles owned by a business:

• Physical damage – Pays for damage to the vehicles due to a car accident or other perils such as fire, theft, and weather
• Liability – Covers injury to another or damage to their property, and may also include underinsured and uninsured motorist coverage
• Miscellaneous – May include a variety of options, such as roadside assistance, vehicle replacement cost, and rental reimbursement

Commercial Property Insurance

Property coverage is one of the most important commercial insurance policies a business owner can buy. Even if you only run a small operation, property damage can set you back significantly, not only due to damage to the building but also the loss of the contents (learn more in Business Insurance: Building, Contents, and Stock).

This type of policy can cover the building, outdoor signs, and property inside the structure as well, including inventory, office furnishings, raw materials, computers, machinery, and any other equipment or items vital to business operations.

Depending on the amount of coverage you take out, you may be covered when a piece of equipment breaks down, or if you need debris removal after a fire or other destructive event. It may also cover cover you for water damage.

Key Person Insurance

Usually, large corporations or larger businesses purchase this type of policy. Key person insurance is basically a disability or life insurance product that compensates a business if an important employee dies or becomes disabled. This coverage helps soften the financial blow that would result from the loss of an employee who is critical to business operations.

Conclusion

Having the right insurance policies could literally save your business and ensure its continued profitability. Knowing about the basic types available is half the battle; purchasing the necessary coverage is the other. So get the insurance you need to help make sure that your business remains yours and remains solvent.