Business Insurance FAQ
Get your questions answered by the pros
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Jeff Green has held a variety of sales and management roles at life insurance companies, Wall street firms, and distribution organizations over his 40-year career. He was previously Finra 7,24,66 registered and held life insurance licenses in multiple states. He is a graduate of Stony Brook University.
Q. What is business insurance?
Q. What does business insurance cover?
Q. How does business insurance work?
Q. How much does business insurance cost?
Q. Is business insurance tax-deductible?
Q. Is business insurance required by law?
Q. What business insurance do I need?
Q. Does business insurance cover embezzlement?
Q. Does business insurance cover flood damage?
Q. Does business insurance cover lawsuits?
Q. What does general liability insurance cover?
Q. What is errors and omissions insurance?
Q. What is a business owners policy?
Q. How do I get business insurance?
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What Is Business Insurance?
Business insurance includes a broad range of policy options designed to protect businesses from financial loss. Every commercial operation has its own unique set of risks, which means a commercial insurance policy must be tailored to the business.
Many factors, from the size of your company to the number of workers you employ, the materials they handle, and whether you have business vehicles, will determine the specific coverage you need to mitigate risk and protect your company’s financials.
Many business owners find that they must turn to a number of different insurance companies to get all of the coverage needed to cover their risks. If you work with an independent insurance agent, you can get all of your business insurance policies from one office.
What Does Business Insurance Cover?
Business insurance coverage for a commercial operation can include the following and more:
- General liability insurance: Covers third-party liability claims for injuries to other people.
- Professional liability and malpractice insurance: Covers professionals against loss due to negligent professional duty, wrongful acts, and advice and services that lead to another person’s loss or injury.
- Product liability insurance: Covers against faulty products and damage, illness, injury, or death that may occur from using a faulty product.
- Commercial property insurance: Covers loss and damage to your commercial business property due to fires, storms, and other causes.
- Commercial vehicle insurance: Covers commercial vehicles and drivers for collision, liability, property damage, personal injury, and comprehensive coverage (also known as "other than collision").
- Workers compensation: Covers your employees if they get ill or are injured while working on the job.
- Loss of income: Covers your business expenses, such as rent and employee wages, if you can’t operate your business.
- Key person insurance: Covers loss of income that may result from the head of the business or other key personnel becoming incapacitated or passing away (also known as key man insurance).
- Cybercrime insurance: Provides protection for risks due to internet use and online communications.
- Records retention policies: Covers loss of important data and financial records.
- Specialty coverage: Insurance that covers various specific business risks, such as those of landlords, farmers, and commercial operations that put on one-day events, such as seminars or concerts.
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.
How Much Does Business Insurance Cost?
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.
Effective risk management practices and comparing costs from several different insurance carriers can reduce the costs of business insurance.
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.
Is Business Insurance Tax-deductible?
Business insurance is tax-deductible as long as the coverage is for the purpose of operating a business, profession, or trade. Businesses may not deduct their business insurance premiums if the coverage is for the purpose of a self-insurance reserve fund or a loss of earning insurance policy. Consult your tax professional for advice.
Is Business Insurance Required by Law?
Business insurance is required by law, but only under certain conditions. The following business insurance is required by law if it is applicable to your situation:
- Unemployment insurance: Applies to a business that has employees and may be obligated to pay unemployment insurance taxes under prescribed conditions. If these conditions are applicable to your business, then you must register your business with the state workforce’s agency.
- Workers compensation insurance: If your business has employees, you are most likely legally obligated to carry workers compensation insurance, either on a self-insured basis or through a commercial insurance carrier or a state workers compensation program. Workers compensation laws vary by state.
- Professional liability insurance: Some states require specified professionals to carry insurance against professional liability.
- Disability insurance: Several states require that a business have partial wage replacement insurance coverage for eligible employees for non-work related injury or illness. These states are California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.
What Business Insurance Do I Need?
Depending on the nature of your business and any insurance that you are legally obligated to carry, the following types of business insurance should be considered essential:
- General liability insurance: Coverage against accidents, injuries, and negligence claims.
- Product liability insurance: Coverage against product defects.
- Professional liability insurance: Covers professionals against malpractice, negligence, or errors.
- Commercial property insurance: Covers against damage to your business property, such as from a fire or a severe storm.
- Business interruption insurance: Protects your business if you are no longer able to conduct your business because of a loss.
Some businesses need specialty coverage for equipment, shipping, and other risks. Because commercial insurance needs to be tailored to each business based on risks, it is critical to work with an agent who will get to know your company and ensure that your coverage adequately protects your business investment.
Does Business Insurance Cover Embezzlement?
If your business carries commercial crime/theft coverage, your business insurance will cover employee fraud and embezzlement.
There are several different forms of employee dishonesty coverage. You can purchase several types of fidelity bonds to protect the business in the event of dishonest acts by all employees or by named employees.
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Does Business Insurance Cover Flood Damage?
In order for your business insurance to cover flood damage, your company must carry a separate flood insurance policy or endorsement. A typical commercial property insurance policy covers specific water damage situations but excludes flooding.
The wording and water damage exclusions vary from one insurance company to another. Be sure to review your policy carefully and discuss your specific risks and concerns with an independent insurance agent who can help you get the coverage you need.
Does Business Insurance Cover Lawsuits?
Business insurance covers lawsuits as long as you have the appropriate business liability insurance for your situation and enough liability coverage to pay your legal costs.
To ensure that enough liability coverage is in place for extreme circumstances like a lawsuit that exceeds $1 million in damages, many businesses buy a commercial umbrella liability policy.
Certain liability exclusions also apply, such as if an injury or damage was expected, or was caused intentionally. Some policies also have something called a “workmanship” exclusion, and some exclude coverage of punitive damages.
Liability insurance is available in many different forms, including:
- General liability
- Professional liability, errors and omissions and malpractice
- Directors and officers liability
- Product liability
- Premises or property liability
- Employers' liability
- Employment practices liability
- Environmental and pollution liability
What Does General Liability Insurance Cover?
General liability insurance provides insurance protection for a company’s assets, financial obligations, legal defense, and any settlements or judgments awarded to an injured party.
It may also include claims for copyright infringement, false or misleading advertising, or libel and slander. If a patron is injured in some way in the course of doing business with your company, your general liability insurance will provide coverage.
What Is Errors and Omissions Insurance?
Errors and omissions insurance (or E&O) is a form of professional liability insurance. It covers a business for services rendered that did not have the expected or promised results, or that result in a loss or personal injury suffered by the person receiving those services.
It also covers situations where the individual or company failed to render services at all. Engineers, stockbrokers, accountants, insurance agents, and lawyers may be covered by E&O.
Malpractice insurance is also a form of professional liability insurance. Malpractice insurance covers healthcare professionals, physicians, dentists, pharmacists, and others.
What Is a Business Owners Policy?
A business owners policy, or BOP, is insurance coverage designed specifically for small or mid-sized businesses. Depending on the insurance company, the size of a business that qualifies for a business owners policy may be based on revenue or the number of employees.
A BOP combines several types of insurance coverage in a packaged format and can be customized to suit a particular business. Generally, this type of policy includes both property and liability coverage.
Policies may also provide coverage that includes the following:
- Property claims
- Breakdown of equipment
- Loss of income/business interruption
- Copyright infringement
- Libel
- Products and completed operations
- Premises liability
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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 specializing 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 your business insurance needs out of one office.
Find a local independent insurance agent in your area, and get the business insurance you need to protect your company’s bottom line.