What is Business Insurance?
What is Business Insurance?

If you want to start a business, it is important to understand insurance and policy, which brings us to the question: “What is Business Insurance?”. Even though it is not difficult to understand, it can still be confusing to people who are new and customers.

In the article below, we will explain the insurance, what type of insurance that you need, and other detailed information.

Business Insurance: Definition

Photo:  Bplans Blog
Photo: Bplans Blog

Business insurance protects businesses against losses suffered in the course of their normal activities, particularly when the business faces a compensation claim. Covers include professional indemnity insurance, public liability insurance, and employers’ liability insurance.

For instance, an ice cream shop has very different insurance needs than an auto repair shop or a golf course. That’s why many small businesses opt for a business owners policy (BOP), which combines commercial property insurance, general liability insurance, crime insurance, and other coverages into one convenient package.

Business owners also have the option to choose coverage based on their industry.

How does business insurance work?

Business insurance is a contract between the insurance company and the business. The insurance company agrees to provide financial protection in the event of a specified loss in exchange for premium payments.

At the time of a loss, the business will file a claim. If a fire destroys a portion of the business premises, the company will file a claim against the property insurance policy.

An adjuster will assess the damage and process the claim. The company will then receive the appropriate amount of compensation for the loss, less any deductible.

There are many different scenarios with regard to business risk and how insurance claims are filed. If the incident is a loss suffered by a customer of the company, the injured party is likely to file a claim against the business's liability policy.

How the claim is processed depends upon the size of the claim, whether the matter can be settled with an insurance payment, and if the claim results in a lawsuit.

What does Business Insurance cover?

Photo:  Locate Insur Deals
Photo: Locate Insur Deals

Insurance helps protect from the cost of bodily injury or property damage claims against your business. For example, a customer may make a claim against your business if he is injured in your store. General liability can help cover you against the costs of the claim and potential defense costs. It also helps protect your business from the costs of errors in your advertising, according to The Hartford.

Business property insurance helps protect your business's buildings and personal property. This might include furniture, tools, equipment, and inventory.

Business income insurance helps replace lost income if you close temporarily due to a covered loss like theft or property damage from a fire. It can also help you continue paying expenses while your property is replaced or repaired.

Professional liability insurance helps cover costs related to claims that your business made errors in providing its services. For example, if you make a clerical error and it causes a client to lose thousands of dollars, professional liability insurance can help cover the costs if the client makes a claim. A business doesn’t need to do anything wrong to be sued. Depending on the scenario, coverage would apply to defend a business if sued.

Workers' compensation insurance helps cover costs to employees while they are unable to work after suffering a work-related injury or illness. Workers’ comp from The Hartford also provides programs to help employees prepare to return to work after their absence. And, if a worker's family decides to sue your business, Workers’ comp can also help cover the legal fees.

A commercial auto policy helps protect your business from the costs of a work-related auto accident. If you or an employee is in an accident while driving for business reasons, commercial auto can help cover the costs that result from the accident.

Data breach insurance helps protect your business from the costs of cyber threats or attacks. If your business is attacked, coverage from The Hartford can help cover the costs: to find the source of the breach and mitigate the damage; of communicating to those affected within and outside the company; and for public relations to manage your company’s reputation through the crisis. Our data breach insurance policy even includes access to services that teach you best practices that help prevent breaches from happening.

Commercial umbrella insurance acts as a safety net that provides additional coverage when other liability policies reach their limits. For example, say a customer slips and injures himself in your store. He then makes a claim against your business for $200,000. If your general liability policy has a limit of $150,000, commercial umbrella insurance would help cover the remaining $50,000. Businesses find this coverage is essential for helping protect against financially devastating lawsuits and claims.

Commercial flood insurance helps protect your business from the costs of covered flood damage. This includes damage to the physical location of your business as well as its assets. For example, say melting snow floods the basement of your business. The floodwater damages the floor and some tools. If this happens, a commercial flood can help cover the cost to repair the damaged floor and tools.

Employment practices liability (EPL) helps protect your business if an employee sues you. Even if you are not at fault, defending a lawsuit can be costly. Employees may make a claim against your business for reasons such as discrimination, harassment, or wrongful termination. If they do, EPL can help cover the related costs.

Risk engineering services from The Hartford help mid-and large-size businesses with loss control solutions designed to create a safer work environment. Risk engineering professionals evaluate your business’s risk exposures and then create improvement plans, and programs to train you and your staff to safely handle accidents and follow safety protocols. This can result in a safer, more productive, and profitable business.

Multinational insurance can help streamline coverages if your business has operations outside the U.S. This coverage from The Hartford creates a single point of contact for all your business insurance needs. Our Multinational Insurance policy offers coverage in over 150 countries.

Surety & fidelity bonds – A surety bond is a contract between three parties that helps ensure a project gets completed or a commitment is met and guarantees payment if they are not. Fidelity bonds are a form of insurance that protects businesses from financial loss due to employee theft or fraud.

Types of Business Insurance

Photo: Startup Sarvant
Photo: Startup Sarvant

Here are the most popular types of business insurance and the reasons why business owners may need them.

  • Public liability insurance

Public liability insurance is a key consideration if your business comes into contact with members of the public, whether that’s at your premises or elsewhere. It can protect you against compensation claims for injury or damage made by clients, customers, suppliers, or other third parties. Most shops, restaurants, hairdressers, builders, and tradesmen take out this insurance. Check your client contracts to see if a particular level of public liability insurance is required.

  • Professional indemnity insurance

Professional indemnity insurance is important if your business gives advice or offers a professional service to other businesses, or if you deal with client data or intellectual property. If you make a mistake in your work and your client loses money and sues you, your professional indemnity insurance can cover the compensation claims and legal costs. Some professional bodies and regulators require their members to have this insurance, including bodies for surveyors, accountants, and architects.

  • Employers’ liability insurance

If your business employs staff, you’re probably legally required to have an employers’ liability insurance policy. This covers compensation claims made by a member of staff because they’ve suffered injury, illness, or damage as a result of their work. Certain companies are exempt from the legislation, including some businesses that only employ close family members. To see if you’re exempt, check the Health and Safety Executive (HSE) guidelines or seek advice.

  • Business buildings insurance

Whether you work from home or have separate business premises such as a shop, office, or pub, business buildings insurance should be a priority. If you rent the premises, make sure to check with your landlord to see what’s already covered.

  • Business contents insurance

You can also protect the contents of your business premises, your business equipment, and tools. If these are damaged, destroyed, lost, or stolen, this cover will pay the cost of replacements or repairs.

  • Stock insurance

If you hold any stock, whether on your premises or in storage, stock insurance will cover the cost of replacing it if it’s damaged, destroyed, or stolen.

  • Product liability insurance

Product liability insurance protects you should a customer of yours suffer damage as a result of a faulty product you provide. You may be held liable for damage even if you didn’t manufacture the product.

  • Personal accident insurance

Personal accident insurance covers serious injury or death caused by an accident. It can payout for lost income, medical costs, and hospitalization, up to the limit of the policy. The maximum amount is £10,000 for an injury and £20,000 for death.

  • Business interruption insurance

If your business is disrupted by material damage caused by an event such as a flood or fire, business interruption insurance provides you with the financial cover you need to get back on your feet. For example, if a fire destroyed the contents of your business premises, business interruption insurance would cover your consequential loss of revenue, as long as your contents are also insured.

How much does business insurance cost?

Photo:  Entrepreneur
Photo: Entrepreneur

The cost of business insurance varies. A number of factors affect the cost because it depends on the type of business and the types of coverage appropriate for that commercial operation.

A typical cost for business insurance coverage is $200 per month. Cost also depends on the size of the business. A small, home-based business can often be adequately insured for less, while insurance for a large company with many employees and a wide range of business risks will cost substantially more.

The costs of business insurance can be reduced with effective risk management practices, and by comparing costs from several different insurance carriers.

An independent insurance agent who specializes in commercial insurance can help with this process and can manage a company’s complete business insurance portfolio through one office.

How do I get business insurance?

There are a variety of ways to purchase business insurance. You can shop online, or call an insurance company representative. However, business insurance policies vary a great deal between companies, as does the cost of premiums.

Therefore, your best course of action is to talk with an independent insurance agent who can check rates from several different insurance companies to find you the best quote available.

An independent agent who specializes in commercial insurance can design a policy specifically for your business.

Independent agents have access to numerous insurance companies, which means they can customize your commercial insurance policy and meet all of your business insurance needs out of one office.

Find a local independent agent in your area, and get the business insurance you need to protect your company’s bottom line.

What insurance do I need to start a business?

When setting up your business insurance you should think about what you need to be covered right now, as well as what you might need going forward.

If you don’t have any employees yet then you won’t need to worry about employers' liability insurance for now, but if you know you’ll be hiring some in the very near future then you might want to consider adding it to your policy now.

If you’re not sure about how your business might evolve, don’t worry, you can always add more cover at a later date.

What insurance do I need for a small business?

Small businesses can require many of the same types of insurance as larger businesses but it all depends on the setup of your business.

For example, if you’re a one-man band then you won’t need employers' liability insurance, but you may still want other aspects of your business to be covered.

Once you've had a think about what you need your insurance to do for you, then you can choose from the covers above and many others to create a policy that suits your needs.

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