Insurance Coverage Every Business Should Have
Time after time when I review a new business clients' current insurance coverage I discover not only misunderstandings about their existing coverage, but often times serious gaps in coverage. Sometimes a business might expose itself to new risks (like selling online) and doesn't realize it should talk to their agent about the change in business. Other times agents don't ask the right, or enough questions. Hopefully, you're a business owner reading this and confident in your coverage and the capability of your insurance agent. But if you're not, or just searching for answers, we have put together this list of business insurance coverage every business owner should seriously consider. If you find you don't need some of these coverages now there's a good chance in the future you will as your business grows. And as always, please keep in mind the coverage suggestions are a good starting point, but depending on your business you may need additional insurance coverage not mentioned here.
Business Liability Insurance
First, let's start with liability insurance. Liability insurance protects you and your business from lawsuits. Pretty much every business should at least have general liability insurance and depending on your profession you may want additional liability coverage called professional liability insurance. See below to learn about the different types of liability insurance you can purchase.
As said before, every business should at least have general liability insurance. General liability will protect your business from a bodily injury, property damage, personal injury or advertising injury claim. It will kick in and protect your company, up to the limits you carry, from financial loss resulting from your, assuming unforeseen, negligence.
Okay, so what does that exactly mean? Let's say you're a toy manufacturer and the paint used for your toys contains a chemical that's causing kids who ingest the paint to get sick. Before you know it lawsuits start rolling in. The cost to defend your company and any possible pay outs, if found negligent, would, in most cases, be covered by a general liability policy.
Professional liability, Malpractice Liability, Directors and Officers Liability and Error's & Emissions Liability all fall under the same liability category, in which they all relatively provide the same coverage- give or take a few slight differences. Some professions, like the medical field, get their own label for professional liability (medical malpractice). However, in the end they all do the same thing; provide liability coverage from negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice as a professional.
As a professional you're hired for your expertise of a certain field and clients depend on your particular knowledge and based on that knowledge. Unfortunately, sometimes advise or guidance you provide as a professional in your field could result in a financial loss to your client. Loss could be an actual financial loss, or damage to a reputation resulting in an indirect financial loss. If it is found that your guidance was the result of your client's negligence then you could be held responsible. Professional Liability would, in this example, protect you from possible negligence on your part.
In addition, as a professional you are expected to perform the agreed services for which you were hired. Failing to do so could also cause you to be held responsible for any harm caused to another person or business. A general example of this is the recent Gulf oil spill. Contractors hired by BP to do certain tasks might not have followed normal procedures, or agreed procedures in contracts with BP. The result was devastating to those who died in the accident, the environment, local communities and in the end a financial disaster for BP. Because the procedures may not have been followed as agreed some of these contractors could very well be held liable for loses BP incurred. Professional Liability would give these contracted companies some protection from financial lose. Then again, this is a good example for general liability as well. Bodily injury to anyone would be covered under the general liability coverage- assuming the contractor had it.
Excess Liability - When Your Liability Limits Aren't Enough
What ever liability coverage you get (general, professional, etc) there's a limit to the coverage. In most cases, a business will buy general liability coverage for 1 to 2 million (which is usually the limit on a standard policy) and then seek additional liability coverage in what's called an 'excess liability' or 'commercial umbrella' policy. An excess liability policy can extend the coverage as high as any insurance company is willing to go. The usual coverage on an excess liability or umbrella policy is between 5 and 10 million, but in certain cases can be bought at much higher levels. For this example, if a business had 1 million liability coverage on their general liability policy and then purchased an additional 5 million excess liability they would have a total of 6 million in liability coverage.
Building / Commercial Fire Insurance
A fire can devastate a business. The structure may be damaged beyond repair, or to the point that your business cannot stay open until repairs are made; disrupting revenue and putting the survival of your business in jeopardy. In the United States in 2006 there were 1.6 million fires reported resulting in $11.3 billion in direct property loss. It is a risk that must be insured against. If you own the building which your business is in you need coverage to replace the entire building in case of a loss. If you rent, you may also need enough coverage to rebuild, but most likely your landlord has building coverage and so you should at least have enough coverage to repair the area where your business resides in the building.
Depending on your business size this coverage is offered in a package called a BOP (Business Owners Policy) along with other important coverage's: Business Property, General Liability and Business Interruption.
Business Property Insurance
Computer systems, office furniture, software, machinery, even some employee personal property is covered under business property insurance. Even coverage to restore your data and software can be covered. Have art work on the walls? Cover it here!
Depending on your business size this coverage is offered in a package called a BOP (Business Owners Policy) along with other important coverage's: Building, General Liability and Business Interruption.
Employment Practices Liability Insurance
One of the most over looked insurance protections, but essential for any business with employees. Employment practices liability provides protection for an employer against claims made by current, former and even potential employees. It covers employment discrimination (age, sex, race, disability, etc.), wrongful termination of employment, sexual harassment and other employment-related allegations. It covers your firm, including its Directors and Officers. Everyday a company somewhere is being sued by an employee because of discrimination. Employment discrimination filings have grown over 2,000 percent in the past decade and what was once a big business issue now concerns any business that hires and fires employees. You may not have done anything wrong, or maybe it was an innocent mistake but as a business you'll still have to prove no wrong doing and that will cost money. For the most part the coverage is not expensive and worth every penny.
... the 81 percent of claims that are settled in arbitration or in administrative hearings cost employers ,000 to ,000 on average. Even those claims that are settled immediately cost a Company an average of ,500.
Business Interruption Insurance
If suddenly your business was devastated by a fire, flood, hurricane or other natural or man-made disaster are you capable of keeping your business afloat until you can repair the damage? How would you continue to operate and pay your bills? Business interruption insurance protects your business from loss of income and will cover the day-to-day operating expenses until your business is back on track. Business Interruption Insurance is one of the most important coverage's you could buy. When looking to purchase Business Interruption Insurance, which is usually attached to a Property Insurance policy, there are some things to keep in mind:
- How much income do you need to continue operating your business in the event of a shutdown of your premises?
- How quickly will the policy become active after you report an incident?
- Will you need additional coverage for extra expenses such as leasing temporary office space, computer equipment or office machines?
Commercial Auto Insurance
Small business owners may be tempted to rely on their personal auto policy rather than buying commercial auto insurance for vehicles used primarily for business purposes. However, the standard personal auto policy excludes coverage for cars used for business. If you get into an accident when driving a car used for business, your insurance company could refuse to cover damage to the car, injuries, and—if you were sued—the large sums needed to pay court costs and the resulting payout.
For the past 15 years Cyber Insurance has become a must for businesses, large and small, selling their products or services on line. Even companies that simply offer information need to protect themselves from posting incorrect data. Take example a financial analyst who might post information on a company that may not be accurate, but causes a company stock to plummet. Without Cyber Liability coverage you could be in a financial nightmare. Below is a general understanding what cyber insurance does to protect companies.
Media or web content liability
Coverage protects you from charges of libel, slander, copyright and trademark infringement for content, photos, and slogans you use on your web site, and those posted on bulletin boards and chat rooms by visitors. It also covers liabilities associated with banner ads on your site for other businesses.
People threaten your computer systems or web site, then demand money or goods to call off the threat. Extortionists increasingly target small businesses because of their perceived inability to fight back. Cyber extortion policies often cover the “settlement” and the cost of hiring a security firm to track down the perpetrators.
Privacy and security liability
If you maintain private employee or customer data like credit card numbers, you are liable if the information slips out because of faults in your systems or theft by hackers or malicious employees. Employees are quite often the source of the problem because they have easy access to data. Recently, disgruntled bank workers in New Jersey sold customer account records to crooks at $10 a pop.
Privacy and security liability coverage also protects you from costly corporate claims from businesses like banks and credit card issuers, who can sue even if the losses don’t occur inside your shop. “Many small businesses outsource back office operations and technology services,” says Tracy Vispoli, vice president, global financial fidelity manager for Chubb. “But you never outsource your liability associated with keeping customer data private.”
Covers costs for restoring lost or corrupted data, and getting your systems back up and running. Some carriers include public relations coverage to help defray the costs of consultants and advertising to rebuild your reputation after an incident.
Denial-of-service attack and lost income coverage kicks in if you lose revenue after an attack or when a service provider, such as a web host, is shut down by a cyber attack, has a glitch or goes out of business. It also helps defray costs of restoring valuable data and repairing systems. You may recall some news worthy denial-of-service-attacks around the Wikileaks controversy.
In Massachusetts it's mandatory for any business that has one or more employees to carry workers' compensation insurance. In brief, it provides compensation for medical care for employees who are injured in the course of employment. Levels of coverage are up to you, but is priced according to your payroll.
It's a Good Start But...
If you carry these coverage's you're doing pretty good in making sure your business is protected. However, each business is different and though this is a good start it's always important to review all coverage's with your insurance agent to see what, if any, exposures might still lurk in the shadows.