Business Insurance Know-How

You have invested so much time and money building your business. Isn't it worth a few minutes to learn how to protect that investment? This section provides a quick overview of the various types of commercial insurance you may need for your small business.

A major fire at your worksite or even a minor fall by a visitor can have a devastating impact on your business. So how can you protect your small business from big financial losses? You can start with two critical kinds of commercial insurance that are often packaged together in a Business Owner's Policy (BOP): property insurance and liability insurance.

Property insurance covers your physical assets: your building, equipment, furnishings, fixtures, inventory, computers, valuable papers, records, and more. But property insurance also can provide income if your business is forced to suspend operations after a covered loss.

For example, if your building is destroyed or damaged in a fire, you may not only be covered for that property loss, but also you may be able to collect income while you are regrouping.

Business liability insurance is specifically designed to protect your business assets if your company is sued for something it did or even did not do that resulted in bodily injury or property damage to someone else.

For example, a liability insurance policy may cover expenses if someone claims to be injured by a product you sell or it can pay for defense costs if a competitor sues you for trademark infringement.

Many insurance providers bundle the primary property and liability insurance coverages you need into an economically priced business owner's policy. You can then tailor your insurance package by extending the coverage limits in specific areas or adding options to cover risks that are inherent to your industry.

Flood Insurance

A flood policy protects you from flood, meaning a general and temporary condition of partial or complete overflowing of inland or tidal waters, the unusual and rapid accumulation or runoff of surface waters from any source, and mudflows caused by flooding which are related to a river of liquid and flowing mud on the surface of normally dry land areas.According to the Federal Emergency Management Agency, floods result in over $1 billion of property damage each year. Yet only one-third of Americans living in heavy flood zones have the insurance to handle it (homeowners doesn't cover flood).

Flood Insurance Frequently Asked Questions

Is my business at risk?
Ninety percent of all disasters in the United States are flood-related. You are four times more likely to experience a flood than a fire. The Federal Emergency Management Agency estimates that between seven and eight million U.S. households and hundreds of thousands of businesses are exposed to the risk of flooding.
Is flood insurance provided by your property insurance policy?
Probably not. Most property insurance policies do not offer protection against flood damage. You will need a special policy for flood loss.
Is flood insurance required by law?
Maybe. Congress passed the Flood Disaster Protection Act of 1973, and the National Flood Insurance Reform Act of 1994 mandating that all federally-insured or regulated lenders require flood insurance for mortgages and other loans on buildings and manufactured (mobile) homes located in Special Flood Hazard Areas.
What structures can be protected by flood insurance?
Almost any building with at least two walls and a roof may be insured if it is principally above ground and located in a community participating in the National Flood Insurance Program (NFIP). Coverage is also available for businesses and buildings under construction.
Will flood insurance cover the contents of my building?
The contents of a fully-enclosed, insurable building may be covered by a separate policy, making flood insurance available to renters.
How much does flood insurance cost?
The average premium for an NFIP flood insurance policy is $300 per year for approximately $85,000 worth of coverage. For those not in a Special Flood Hazard Area, but still exposed to flood risk, there is a low cost policy available for as little as $106 per year. Nearly one-third of all flood claims come from these lower risk areas.
Where is flood insurance available?
Flood insurance is available for buildings in communities that have agreed to adopt and enforce sound flood plain management practices. Currently, these are over 18,000 communities participating in the NFIP throughout the United States and overseas territories.
When can I purchase flood insurance?
You can buy flood insurance at any time. There is normally a 30-day waiting period between the time flood insurance is purchased and the time the coverage is effective.
What if I've had a flood loss before?
If you have already received a grant for a flood loss, you must have flood protection. If not, you will be denied most kinds of government assistance if a flood should happen again.

Commercial Auto Insurance

You would not dream of driving your personal automobile without insurance. It's just as important to protect your company vehicles. Even if you have personal auto insurance, you still need commercial auto insurance. That is because vehicles involved in an accident while engaged in company business may not be covered by your personal insurance. To make matters worse, you could be charged with misrepresentation if you have placed a vehicle you use for commercial purposes under your personal auto policy.

There are a variety of coverages for your commercial autos, and your agent or broker can help you choose the right one. The discussion should include business-use autos, pickups, vans, trucks and non-owned and rented vehicles. You may also want to include a conversation about "nonowned" vehicles (when employees use their own vehicles to run errands) and rented vehicles (when an employee travels and needs to rent a car).

Workers' Compensation Insurance

As soon as you hire your first employee, you need the protection of workers' compensation insurance. Not only do many state laws require it, but also the financial security of your business depends on it.

In general, workers' compensation represents a compromise between employers and employees regarding employment-related injuries or illnesses. In short, employees relinquish their right to sue employers if they suffer some job-related injury or illness. But in return, employers agree to provide state-mandated benefits if employees suffer some job-related injury or illness. And to ensure employers have the money to pay these mandated benefits, most states require that employers demonstrate that they have the financial ability to pay any claims that may arise. Typically this financial ability is demonstrated through the purchase of Workers' Compensation insurance. Laws regarding workers' compensation insurance vary by state, so check with your independent insurance agent or broker to find out exactly what you need and how it's purchased.

Most workers' compensation insurance policies actually provide two types of coverages:

Workers' Compensation Coverage. This type of insurance provides benefits for injured workers as required by state law regardless of who is at fault for the injury or illness. Inother words, whatever benefits your state requires, your Workers' Compensation policy would provide.
Employers' Liability Coverage. This additional coverage protects employers in case they are ever sued for damages arising from employment-related accidents or diseases. However, to collect benefits provided by employer's liability coverage, both the employee as well as anyone else not covered by workers' compensation laws (i.e., spouses and dependents) would have to prove that the employer was actually legally responsible for the employee's injury or disease.

Errors & Omissions Insurance (E&O)

Regardless of what kind of business you own, customers can claim that something you did on their behalf was done incorrectly, and that this error cost them money or caused them harm in some way.

In the litigious world we live in today, many business owners protect themselves with errors and omissions insurance (E&O). This type of insurance may be appropriate for anyone who gives advice, makes educated recommendations, designs solutions or represents the needs of others, such as teachers, consultants, software developers, ad copywriters, Web page designers, placement services, telecommunication carriers or inspectors.

Although formalizing a contract with your clients can help limit your liability, the big expense in an errors and omissions claim is the legal defense needed to prove liability or innocence. Errors and Omissions policies are designed to cover many of these defense costs and ultimately the final judgment if the business owner does not win the case.

Umbrella Insurance

No one really expects a disaster to strike his or her business. But every small business is vulnerable to a major catastrophe or a huge lawsuit. Think about some of the devastating losses you have heard about recently or the large settlements that are awarded in courts these days. Some of these losses could exceed your primary insurance coverage unless you protect your business with umbrella insurance.

As its name implies, umbrella insurance extends your coverage beyond the limits of your basic business insurance. Umbrella insurance is important because it covers unsuspected events. It is not expensive and, in certain instances, it could literally save your business.

Umbrella insurance policies provide additional liability insurance coverage after the limits of your underlying policy are reached.

For example, if several people were injured on your property and required $1.5 million in medical treatment but the liability limit of your underlying policy is $1 million, your umbrella insurance policy would cover the additional $500,000 (if you're found liable).

Cost of Medical Treatment $1,500,000
Your Basic Liability Limit $1,000,000
Umbrella Policy Would Cover the Gap $500,000

Specialized Commercial Insurance

Some commercial insurance companies offer specialized packages for certain types of small businesses as well as optional coverages for certain types of risks. Your insurance agent is the one person most qualified to help you evaluate all the commercial coverages you may need for your specific business.

Source: The Hartford Insurance Company (www.thehartford.com)