The Small Business Guide to Insurance
Insurers will oftentimes combine a number of insurance coverages into a package as a single contract. The most common policy for small businesses is the Business Owner’s Policy (BOP).
The BOP combines coverages for the major property and liability insurance risks. It also places many additional coverages into one package policy, which are suitable for most small businesses. The term “BOP” specifically refers to the insurance policy language developed by experts at ISO. Now, ISO provides sample insurance policy language, research, and a variety of other products to all insurance companies.
The BOP includes business income insurance, which can sometimes be called business interruption insurance. This is in place for when a business owner may experience a disaster, and need compensation. “Disasters” can be a number of things, but it’s best to look at it as something that disrupts operations and may force a business to vacate its premises; i.e. a fire, tornado, flood, ect. Additionally, this insurance covers the extra expense that may be incurred if a business is forced to operate out of a temporary location due to this evacuation.
Additional coverages may be added to the basic BOP to cover more specific risks. An example of this could be a business has a particular product they must use in their own product, then suddenly that product is having a difficult time being shipped to their location; the BOP won’t cover that slow down of production, unless coverage is specifically added for an additional premium.
Only small – medium sized businesses that meet certain criteria are eligible for a BOP. The size of the premises, required limits of liability, type of business, and the extent of offsite activity are all factors in an insurer’s decision to grant the BOP. Those factors, in addition to, the business location, financial stability, building construction, security features, and fire hazards are also basis for premiums for BOP policies.
Major Coverages
Most all small businesses will need, and want, to purchase at least the following four types of insurance.
1. Property Insurance
About as clear as its name, property insurance will compensate a business if the property used is lost or damaged as the result of various issues. Property insurance is not limited to just the building; it also entails what insurers refer to as personal property, meaning office furnishings, inventory, raw materials, machinery, computers, and other items vital to a business.
2. Liability Insurance
Unfortunately for business owners, it’s possible that any enterprise can be sued. Customers have the ability to claim that a business has somehow caused them harm as the result of an error in a service, defective product, or even disregard for another person’s property. It could also be an allegation that the business created a hazardous environment. When the business is found liable, up to the policy limits, as well as attorneys’ fees and other legal defense expenses, liability insurance is there to help pay these expenses. Additionally, it pays for medical bills of any people injured by, or on the premises of, the business.
3. Business Auto Insurance
Once again, quite clear based on the name of this insurance. A business auto policy provides coverage for autos owned by a business. The insurance pays any costs to third parties resulting from bodily injury or property damage for which the business is legally liable, up to the policy limits of course.
4. Workers Compensation Insurance
In all states, excluding Texas (Any surprise there?), an employer must have workers compensation insurance when there are a, or more than, certain number of employees, varying from three to five, depending on the state — and you know, Texas. Workers comp insurance pays for medical care and replaces a portion of lost wages for an employee who is injured in the course of employment, regardless of who was at fault for the injury. In the event an employee dies as a result of injuries sustained while working, the insurance provides compensation to their family. Extremely small businesses, such as ones operated by one or two people out of a home, may not even need workers compensation insurance. However, this often means that it needs more property and liability insurance than typically provided in a homeowners policy.
Other Types of Business Coverages
Now for some other forms of insurance that you can choose whether or not is needed for your business, but we suggest checking with your insurer before casting any aside!
1. Errors and Omissions Insurance/Professional Liability
A wide variety of businesses involve services such as giving advice, making recommendations, designing things, providing physical care or representing the needs of others, which can lead to being sued by customers, clients, or patients claiming that the business’s failure to perform a job properly has injured or damaged them in some way. Errors and omissions, or professional liability, insurance covers you and your business in these situations. The policy will pay any judgment, up to the policy limit, for which the insured is legally liable. It additionally provides legal defense costs, even when there has been no wrongdoing.
2. Employment Practices Liability Insurance
Employment practices liability insurance covers, up to the policy limits, damages for which an employer is legally liable, such as violating an employee’s civil or other legal rights. It also provides legal defense costs, which can end up being substantial, even when there has been no wrongdoing.
3. Directors and Officers Liability Insurance
If there is a lawsuit claiming that directors and officers of corporations or not-for-profit organizations managed the business or organization without proper regard for the rights of others, then directors and officers liability insurance protects them. The policy will pay any judgment for which the insured is legally liable, up to the policy limit, and provides for legal defense costs, even where there has been no wrongdoing.
4. Key Employee Insurance
These coverages cushion some of the adverse financial impact that results from losing a key employee’s participation and compensate a business when certain key employees die or become disabled.
5. Umbrella Policies
An umbrella liability policy provides coverage over and above a business’s other liability coverages. It’s designed to protect against unusually high losses, and provides protection when the policy limits of one of the underlying policies have been used up. For a typical business, the umbrella policy would provide protection beyond the general liability and auto liability policies. If a company has employment practices liability insurance, directors and officers liability, or other types of liability insurance, the umbrella could provide protection beyond those policy limits as well.
So, now you’re all caught up and ready to start that small business – insured of course! Drop a comment elbow and let us help you, help others.
Article written by contract writer and digital media coordinator: Candace Cox. You can reach her at socials@howardwebbins.com or candacecox96@gmail.com.
