As a business owner, you are exposed to liabilities that can arise out of your operations or assets. Liabilities relating to property damage, injuries, lawsuits, weather events, and government fines can be a regular part of running a business.
Insurance is a tool that transfers specific liabilities and risks from you to an insurance company in exchange for monthly or annual premium payments. This allows you to spread the cost of risk over time so that you can run your business more efficiently.
Instead of earmarking millions of dollars for a future potential lawsuit, you can invest that capital into growing your business.
But how much business insurance do you need? There are many options, but these five types of business insurance policies will cover most of your risks.
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1. Commercial General Liability Insurance
The most commonly purchased business insurance coverage is the Commercial General Liability (CGL) Insurance Policy.
This policy primarily covers two scenarios: bodily injury and property damage arising out of your business operations.
For example, let’s say you are a contractor in the process of painting a house with a spray gun and a gust of wind causes you to overspray on the neighbor's luxury car, resulting in paint damage. The neighbor’s body shop repairs result in a $3000 bill—your business is responsible for covering the cost of this property damage because, while accidental, it resulted from your operations.
The commercial general liability insurance policy will pay for the $3000 repair bill.
For additional information on what damages the commercial general liability insurance policy covers, visit our insight, "What Damages Are Covered By A CGL Policy?"
2. Commercial Property Insurance
Unlike commercial general liability insurance, which covers damages that you cause to others, commercial property insurance covers damages that happen to the property that you own.
For some businesses, this can be damage to items as small as laptops and printers; for others, the damage can relate to massive buildings that are a significant part of the owner's net worth or business operations.
A commercial property insurance policy covers events such as tornados, hail storms, hurricanes, fires, theft, vandalism, and much more.
But the policy doesn't just replace or repair the covered property—it has additional coverage that help your business survive if your property is damaged.
Other business insurance coverages, such as business interruption insurance (or time element coverage) can pay your bills and sustain your net income during the period while your property is getting fixed or replaced.
For more information on what property insurance is and all the different coverages included on this type of policy, check out our insight, "Commercial Property Insurance: The Ultimate Guide"
3. Commercial Auto Insurance
The commercial auto insurance policy covers vehicles that are either owned by the business or used in your business operations. Unlike personal auto insurance, this policy can cover almost any operation.
Wondering if you need to switch your personal auto insurance policy into a commercial auto policy? Check out our insight, "Commercial Vs. Personal Auto Insurance - What's The Difference?" for more information.
This policy includes three important coverages: auto liability, uninsured motorists, and physical damage. Here is what each of those mean:
Auto Liability - This portion of the commercial auto policy provides coverage when you are liable for damage or bodily injury caused to others by a car accident. With small accidents, this policy could pay to fix the car you hit, but claims under this portion of the policy can often exceed $1,000,000. This is why we suggest never purchasing a business auto policy with limits lower than $1,000,000.
Uninsured Motorist - In the United States, there are approximately 32 million uninsured drivers on the road. And in some states, that number gets even worse. In Florida, for example, 26.7% of all drivers on the road are uninsured!
Plus, uninsured drivers are 72% more likely to be in an accident than those who are insured, creating a situation where you are in an accident involving an uninsured or underinsured driver.
Uninsured motorist coverage pays for the damages and injuries that motorist caused in the car accident. This is very important because it’s how you get reimbursed for missed work, medical bills, passenger medical bills, and various other things. This is the part of this policy that takes care of you in an accident.
Physical Damage - This portion of the policy covers damage in the event your insured vehicle is in an accident, vandalized, stolen, or similar things.
An important feature of this policy is that it will pay physical damage claims even if you are in the wrong. What if you left your car unlocked and it was stolen? Even though you could be viewed as negligent in that theft, the policy would cover it.
4. Workers Compensation Insurance
This policy is usually required by your state government. Sometimes there are exceptions for small family or agriculture businesses, but the general rule is that you need workers compensation is you have an employee.
This policy pays the medical bills and lost wages that result from an accident that occurs while someone is working for you.
These injuries can range from minor issues, such as a strained back from sitting at a computer, to catastrophes, such as fatalities.
5. Commercial Excess Liability
The most common limit on a general liability or commercial auto policy is $1,000,000 per occurrence.
While this might have been adequate at one point, that million dollars pays for less with each year that passes. This is partially due to monetary inflation, but there is also a form of inflation happening in the court system called social inflation.
Social inflation is the phenomenon of increasing judgement amounts against corporate defendants, due to a large number of jurors (typically from younger generations) holding anti-corporate sentiments.
When companies are getting handed $89 million judgements for car accidents they didn't cause, $1,000,000 simply isn't enough coverage anymore.
A commercial excess liability policy allows you to increase the limits on your other liability policies (general liability, employers liability, auto liability, etc.) to whatever you feel is necessary to protect your business.
For more information on commercial excess liability insurance, check out our insight, "What Is Excess Insurance?"
Although you might have unique risks that involve an insurance policy other than what is listed, these five types of business insurance coverages should protect you from most of the risks your business will face.