What is business insurance?
“Business insurance” is a general term for a number of different insurance policies a given business may need.
In general, a business insurance policy is a contract between an insurance company and a business owner. In exchange for a monthly payment, which is called a “premium,” the insurance company agrees to protect the company against financial loss or legal proceedings that are incurred due to normal business operations.
Since every business is different, coverage required by two different companies may differ significantly.
Why do businesses need insurance?
Besides protecting themselves from financial loss or lawsuits, businesses may be required to carry certain types of insurance to meet the requirements of:
- Business contracts
- State law
Common types of business insurance
While any insurance policy taken out by a business owner is considered “business insurance,” certain policy types are most common:
Protects the business if a nonemployee, who is called a “third-party,” is harmed as a result of business operations. This covers:
- Third-party injuries, for example, if a customer trips and falls on business property
- Third-party property damage
- Lawsuits because of injuries or property damage
Covers the business if legal action is taken against it specifically because a product it manufactures, sells, or distributes:
- Hurts someone
- Makes someone sick
- Damages someone’s property
Sometimes included in a General Liability policy but can also be purchased separately.
Covers professionals from lawsuits filed against them for harm caused by mistakes or failure to provide adequate services to customers.
Also called “errors and omissions” insurance or “E&O.”
For such professionals as:
- Investment Advisors
- Real Estate Agents
- Insurance Agents
Covers damage to the business’s offices, factories, or other physical spaces. It includes coverage for inventory, equipment, signage, supplies, and raw materials.
Typically covered causes of loss include:
While water damage due to storms or leaks may be covered, damage from natural disasters, such as floods, hurricanes, and earthquakes, is often not covered. For businesses in states where these are common, a separate policy is typically required to cover these risks.
Covers the business against lawsuits filed by employees who are injured on the job or the families of employees who are killed while working. To collect benefits under a workers’ compensation policy, the injured party agrees not to sue the company.
If an employee is injured at work, these policies cover:
- Partial lost wages
- Medical costs
- Recovery costs, such as physical therapy
If an employee is killed at work, these policies cover:
- Funeral costs
- Financial aid to the deceased’s family to compensate for lost wages
Most states require all employers to carry a workers’ compensation policy.
Covers a company against financial loss if the business is unable to maintain normal operations due to a covered loss. For example, if an office burns down, the business will lose money because expenses will continue even though employees cannot work.
These policies typically cover:
- Lost income you would have earned during normal operations, based on past records
- Operational expenses that continue while business is suspended
- Additional expenses you would not have incurred if no interruption had occurred
Business owners’ policies (BOP)
A BOP combines several types of insurance coverage. Since many businesses have specific needs and require several lines of coverage, insurance companies can offer customized and packaged policies (BOPs) to accommodate each business.
Business owners can save money by bundling several types of coverage in a BOP. This package typically combines property damage, general liability, and business interruption coverage into one large policy with the same insurer.
- The word “insurance” comes from the Old French word ensurer, from en-, meaning “make” and -sur , meaning “safe, secure, undoubted.”
- For some people, how they look is their business. Jennifer Lopez has her derriere insured for a whopping $27 million, while Tom Jones insures his chest hair for $7 million.
- In 1994, McDonald’s was sued for serving coffee that was too hot, costing the company (or their product liability insurance company) more than $3 million in damages and legal fees.