13 Types Of Business Insurance You Should Consider

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.

1. 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.

2. 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. You have the option of obtaining coverage yourself, or you can buy it through your state insurance program. 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. Employees receiving benefits under workers’ compensation insurance cannot sue so you avoid legal expenses and complications

3. Commercial Liability Insurance

Any business faces the risk of being sued due to human error, product issues, customer discontent, or other factors. Legal experts say most businesses are sued at least once, even when they follow best practices (see Insurance and Lawsuits: What Happens When You Are Sued? to learn more about the process). Commercial general liability insurance protects your business from the repercussions of liability due to your business’s negligence.

Negligence, in this case, means the failure to exercise the required amount of care to prevent injury to others, such as a customer, an employee, or even an innocent bystander, due to your business’s actions, services, or products.

For example, if a truck driver strikes another vehicle and injures a passenger in part because the company scheduled him to work 60 hours that week, that may be construed as company negligence. It could be argued that the company overworked the driver, which created an unsafe situation.

If someone sues your business, general liability insurance will kick in to cover legal fees, medical expenses, settlements, judgments, or appeals. It also protects your business against libel and slander.

And there’s another reason you need liability insurance. Some clients won’t work with your company unless you have it. This is a way for them to manage their own risks: they don’t want to rely on a company that may not be able to deliver because of a lawsuit.

A Note About Products Liability

Some industries have to carve out certain coverages typically covered under the General Liability policy due to the specific risks of the work they’re doing.

For example, a manufacturer will often need to obtain a separate Products Liability policy if they are making edible items or products that carry a higher degree of risk. This will protect the business if someone or something gets hurt due to their product. It can also include coverage for product recalls if the manufacturer realizes an error in their product and needs to alert people to return it and compensate them if needed.

4. 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

Insurance for Non-Owned or Hired Autos

If your business doesn’t own any vehicles, you may think you don’t need auto insurance. But, that’s exactly what Hired and Non Owned Auto Liability is designed for—businesses without commercial vehicles. It’s actually two separate coverages, but they are typically combined together in insurance discussions.

Non-Owned Auto Liability

In the event you or your employees are using personal vehicles in the course of business, it leaves the organization unprotected. Personal auto policies do not extend coverage to a business. For example, if your employee runs out to make a bank deposit and causes an accident, they are personally responsible. But the business could be held responsible as well. With Non-Owned Auto coverage, the company’s assets are protected.

Hired Auto Liability

If you or your employees ever rent or lease vehicles for business reasons, this coverage is imperative. The most common scenario occurs with rental vehicles. If your employee gets a rental car on their way to an out of town convention for work and they cause an accident, the driver is held responsible. In this case, the business is also vicariously liable and could face out of pocket costs if they don’t have Hired Auto Liability.

Drive Other Car Coverage

On the flip side, if you are given a company vehicle and don’t own a personal vehicle or have personal auto insurance, you want to make sure you add Drive Other Car Coverage to your Commercial Auto policy. If there was ever a time when you need to borrow or test drive a car for personal reasons, your commercial auto policy may not cover non-company owned vehicles and you could be exposed.

5. Commercial Property Insurance

Commercial property insurance protects business property from loss or damage. Environmental forces, such as hail, lightning, fire, smoke, and wind, can strike quickly and harshly. Other threats like vandalism, theft, and civil disobedience may wipe out operations if you lack coverage.

Two basic types of commercial property insurance exist: named peril and all-risk. Named peril insurance policies only cover the specific risks listed in the policy. Earthquake and flood insurance are two examples. They are less expensive, and the insured must prove that the peril caused the damage. On the other hand, most commercial property insurance policies are all-risk policies.

They cover any risk, except those listed as exclusions in the policy. Common exclusions are war, earthquake, flood or sewer backup, seepage, boiler explosion, governmental restrictions or interventions, as well as ordinary wear and tear. As these policies include most damage, insurance companies must prove that damage is due to exclusion to avoid a paying out a claim.

6. 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.

7. Business Interruption Insurance

Disasters befall many businesses. Water tanks burst, structures weaken, and personnel make costly mistakes. Unpredictable natural events like flash floods, tornadoes, hurricanes, and fire can unexpectedly shut down a business too. They can wipe out stock, ruin equipment, and even topple buildings (learn bout insuring Building, Contents, and Stock).

Although commercial property insurance pays to fix or replace equipment, buildings and your inventory, it does not cover the money lost because you cannot continue operations. If your building is under three feet of water, or every piece of specialized machinery needs replacement, it could take months to start up again.

You could lose valuable staff members because they can’t afford to stick around once their paycheck stops coming. As time drags on, customers will need to look for another company to supply them with what they need. Without the proper insurance, your business finances could stretch to the breaking point.

Business interruption insurance provides you with funds to compensate for your loss of income immediately after a forced shutdown and while your business cannot operate. This income includes your net loss, your operating expenses and your payroll. It pays your mortgage payments, utilities, and taxes even though your business has temporarily ground to a halt. Business interruption insurance is especially important for if you carry a substantial amount of stock or you need specialized premises to operate.

8. Data Breach

You might be surprised to see this on the “must-have” list, but times have changed. A serious threat to any business, hacking isn’t restricted to information either. While hackers tend to focus on companies that store private or sensitive information, they also hack money. Indeed, in recent years hackers breached the security of Adobe, eBay, Target, and even JP Morgan Chase. Ryanair, a U.K. budget airline, lost $5 million because of hackers.

U.S. data giant Intel estimates the annual cost of cyber crime at between $375 and $575 billion globally, including what criminals take and the cost to companies. Cyber crime is on the rise as returns are great and risks are low. A data breach policy is a low-cost way to protect against electronic and paper file breach.

9. Cyber Liability

Estimated global losses from cybercrime are projected to hit just under a record $1 trillion for 2020 as the coronavirus pandemic provided new opportunities for hackers to target consumers and businesses.

While Cyber Liability policies used to be just a recommendation, with these statistics a cyber policy is now critical for any business with a website or that uses a computer. It’s not a threat that is going away any time soon. The pandemic has given rise to a huge increase in cybercrime. And not only was there more fraud attempted, but the dollar value of each attempted fraudulent transaction was also 5.5% higher than it had been the six months preceding the pandemic.

Without Cyber Liability, your business could face hundreds of thousands of dollars in losses. However, these policies are not all the same. They can range from very basic: only covering reimbursement of expenses in the event of a data breach, to broad, comprehensive coverage for extortion, hacking, wire fraud, third party liability, and more. When discussing Cyber Liability, be sure you and your agent have a good understanding of exactly what coverage the policy is providing.

10. Employment Practices Liability

If your business has employees, then Employment Practices Liability is becoming a must. In 2019, there were 72,675 charges of workplace discrimination filed with the EEOC.

Attorneys are predicting even more in 2020 as Covid-19 related lawsuits are being filed. Many of the employment practices liability-related claims have been for disability discrimination under the Americans with Disabilities Act (ADA), age discrimination, national origin discrimination, disparate impact claims, retaliation, and wrongful termination.

An Employment Practices Liability policy pays legal expenses and other fees for your business if there are ever allegations of things like:

• Unfair hiring or terminations.
• Discrimination.
• Harassment.
• Incorrectly paid wages.

It not only protects the business if employees are the ones accused of the unfair treatment (considered First Party Liability) but also protects the business if the harassment came from non-employees such as vendors or delivery drivers for example (called Third Party Liability.)

While businesses strive to do what is right, the key to this coverage is that it covers “allegations” of unfair treatment. The Employment Practices policy can pay for the attorney fees to defend any allegation of these acts.

11. Professional Liability (or Errors and Omissions Coverage)

The need for Professional Liability coverage is becoming common. It was originally designed for professional service providers such as attorneys, accountants, physicians, engineers, insurance agents, and realtors, jobs where clients make decisions based on your professional advice.

It provides coverage when the end product is a professional opinion. However, more industries require this coverage and it is commonly being offered for contractors, advertisers, and consultants of all types.

For example, let’s assume a contractor installs a driveway and it begins to crack after a week. After an investigation, it is found that the concrete was mixed incorrectly. It would be the contractor’s responsibility to replace the driveway. It would be considered faulty workmanship and not covered under the General Liability policy. But the expenses to replace it could be provided under the contractor’s Professional Liability policy.

Without this coverage, the business would be left to pay for the loss on its own.

12. Employee Benefits Liability

If your business has employees and offers benefits such as health insurance, pension, vacation, tuition assistance, unemployment, etc. this coverage is a must! It provides protection for any administrative errors or incorrect explanations of benefits by the business.

Benefits administration is a tedious process and mistakes do happen. For example, if a new employee was inadvertently left off the health insurance and 6 months later had a serious injury only to realize their health insurance was not in effect, Employee Benefits Liability would respond. Otherwise, your employee would most likely sue the business directly to get the medical bills covered, at the least making it an uncomfortable work environment for all involved.

13. Foreign Liability

Depending on the type of work you’re doing and the frequency of international travel you need to do, you may need to consider foreign liability coverage. It provides coverage for bodily injury and property damage occurring overseas, including claims and suits brought in foreign jurisdictions.

A typical General Liability limits coverage to charges filed in a defined territory, which is usually the United States, Canada, and Puerto Rico. Most will not cover legal expenses and lawsuits brought in other foreign courts.

These six insurance coverages are a good start at comprehensive insurance protection for your business. Keep in mind that depending on your exact operations, there could be special insurance you may need to take a look at.

Things like Trash Keepers coverage for apartments offering valet trash service and Non-owned Spacecraft coverage for universities sending projects into space on private spaceships are even available—who would’ve thought?

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.