What is Business Insurance and is it Needed?
What is business insurance? In general, a business insurance policy is a contract between an insurance company and a business owner. In exchange for a monthly payment, called a “premium,” the insurance company agrees to protect the business against financial losses or legal proceedings incurred as a result of common operations of the business. Since there are different types of businesses, the coverage required by two different companies can differ significantly.
Why Does A Business Need Insurance?
In addition to protecting against financial losses or legal claims, companies may be required to carry certain types of insurance to meet the requirements they demand for:
Leases
Commercial contracts
The Property
The Employees
Common Types Of Business Insurance
While any insurance policy taken out by a business owner is considered “business insurance,” certain types of policies are more common:
General Liability Insurance
What is business insurance in terms of general liability? It protects the business if an individual, called a "third party", is harmed as a result of business operations. This covers:
Third party injuries, for example, if a customer trips and falls on commercial property
Damage to third party property
Lawsuits for injury or property damage
Product Liability
This covers the business if legal action is taken against it, specifically for a product that it manufactures, sells, or distributes, which means, if it:
Hurts someone
Make someone sick
Damage someone's property
It is sometimes included in the general liability policy, but can also be purchased separately.
Professional Responsibility
This provides coverage to professionals from lawsuits brought against them for damages caused by mistakes or failure to provide adequate services to clients. Certain activities require professional liability insurance. Thus, regulated professions must take out professional life insurance. In general, professional liability insurance covers three types of guarantees: business insurance, company property insurance, and personal insurance. Building professionals must take out ten-year liability insurance. It covers for ten years the damage observed in the work delivered. It is also called "errors and omissions" insurance.
For professionals like:
Doctors
Lawyers
Investment Advisers
Accountants
Real Estate Agents
Insurance agents
Damage to Property
This covers damage to offices, factories, or other physical spaces of the company. It includes coverage for inventories, equipment, signage, supplies, and raw materials. Generally, the covered causes of loss include:
Fires
Stole
Vandalism
Storms
While damage from storms or water leaks may be covered, damage from natural disasters, such as floods, hurricanes, and earthquakes, is often not covered. For companies in states where these are common, and generally have a separate policy to cover these risks.
Workers Compensation
What is business insurance as it relates to worker’s compensation? Well, it covers the business against lawsuits brought by employees who are injured on the job or the families of employees who die while working. To collect benefits under a workers' compensation policy, the injured party agrees not to sue the company. If an employee is injured on the job, these policies cover:
Partial lost wages
Medical costs
Recovery costs, such as physical therapy
If an employee is killed on the job, these policies cover funeral costs and other miscellaneous expenses incurred as a result.
Funeral Costs
Financial assistance to the family of the deceased to make up for lost wages. Most states require that all employers have a workers' compensation policy.
Business Interruption
This covers a company against financial losses if the company is unable to maintain normal operations due to a loss. For example, if an office burns down, the business will lose money because the expenses will remain, even though the employees cannot work.
These policies generally cover:
Lost income that you would have earned during normal operations, based on past records
Operating expenses that continue while the business is suspended
Additional expenses that you would not have incurred had there not been an outage
Business Owner Policies (BOP)
A Business Owner Policy combines several types of insurance coverage. Since many companies have specific needs and require multiple lines of coverage, insurance companies can offer custom packaged policies (BOPs) to accommodate each business.
The Type of Business Insurance You Need
You should choose the type of business insurance you need. Legal structures like an LLC or C Corporation offer some protection of your personal property in the event of lawsuits, but that protection may be limited. Good business insurance can offer additional protection to help cover your personal and business assets in the event of unexpected catastrophes or lawsuits. What's more, you may be legally required to obtain certain types of business insurance.
If you have employees, the government requires you to have workers ' compensation insurance, unemployment insurance, and disability insurance.
Research your state's requirements, as they will likely require additional insurance as well. Business owners can save money by bundling several types of coverage in one. The BOP package typically combines property damage, general liability, and business interruption coverage into one large policy with the same insurer.
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The Law
The law does not establish any exhaustive and common list of compulsory insurance. The obligation to insure depends mainly on the activity of the company. It can be prescribed:
By the law and this is the case, for example, with ten-year liability
By the texts which govern certain activities
By contractual provisions, such as a commercial lease contract
Many types of insurance are not compulsory. However, they make it possible to guarantee the company against the various risks to which it is exposed. The exercise of economic activity can indeed be the source of numerous damages or losses, which can be very expensive for the company. It is not advisable to ignore insurance policies, even if they are optional. You must think carefully about the risks you take! For this, a distinction must be made between the risks that the company can assume, given its financial capacity, and the risks for which it appears essential to take out a guarantee.
Company Inventory Insurance
Inventory insurance is not among the compulsory insurance. However, it often turns out to be essential. Storage insurance covers losses and damages caused to the company on raw materials and goods, whether the latter remains on the premises of the company or are in motion. This guarantee is particularly suitable for companies specializing in the import, export, distribution, or transformation of goods. There are many inventory insurance contracts. Everything here depends on the activity of the company, the nature of the goods to be insured, and the conditions of transport. For example, stock and transit insurance can be cited.
Thus, the stock and transit insurance contract guarantees the goods sent to the customer or to the service provider, when they depart from the company until their arrival at the final destination. It can be applied to all modes of transport: rail, land, air, etc.
Insure Business Premises
Business premises are exposed to many risks: flood, fire, water damage, etc. Business premises insurance enables company premises to be insured against damage and involuntary damage, such as natural disasters. Business premises insurance helps to get back on track quickly after a disaster. The compensation paid by the insurance company allows the entrepreneur to resume his activities. With this sum, new premises can, for example, be rented while waiting for the old ones to be operational again.
The extent of the guarantee varies according to the contract taken out. It may include additional guarantees, such as breakage of glass, breakage of equipment, etc. In the event of damage, the indemnities are calculated according to the precise estimate of the value of the goods, made by the company when taking out the insurance contract. The company can call on an expert to carry out the valuation of the goods.
Please note, some insurers require compliance with the safety standards in force. This is particularly the case with the anti-theft system and the alarm system. Insurance companies may reduce the amount of the reimbursement, or even cancel it when these requirements are not met. The phase during which the offer comparisons and negotiation are made is particularly important, in order to conclude an insurance contract adapted to the needs and the activity of the company.
Operating Loss
You should also consider insuring the operating loss following a disaster. Business interruption insurance covers the costs necessary to restart activities after a disaster. This insurance, generally included in the comprehensive insurance, ensures the continuity of the company's activities. The operating loss insurance makes it possible to compensate for the loss of turnover. It covers fixed costs (rent, salaries, etc.) as well as operating costs incurred following the disaster (rental of new premises, call for subcontracting, etc.). Business interruption insurance is not compulsory but strongly recommended for all companies whose premises, equipment, or stock of goods are exposed to the risk of damage.
Uninsured Company: What Are The Risks?
The annual cost of insurance can cause some companies to not meet their obligations. This situation then presents serious risks, since their responsibility can then be engaged without forgetting the financial consequences.
The law severely punishes companies that fail to meet their obligations. For example, the Insurance Code punishes the lack of compulsory ten-year insurance, which is aimed at building professionals. It could come with a penalty of ten days to six months' imprisonment and a large monetary fine. In addition, the law allows the victim of an offense to seek compensation for the damage directly suffered. It is a double penalty for the company!
Optional Insurance
The risks in the absence of insurance do not stop only with compulsory insurance!
When starting up its activity, the company must therefore pay particular attention to the compulsory insurance that concerns it. There are risks associated with not taking out optional insurance. Indeed, a company can at any time suffer or cause damage. No activity is without risk.
The law cannot blame the entrepreneur for not having taken out optional insurance. However, the company may be required, in the event of damage, to pay colossal sums, which greatly exceed the annual cost of an insurance contract! If the company does not have the necessary funds to repair, replace or compensate, the occurrence of damage can lead to its loss. For this reason, it is really not advisable to ignore business insurance.
Taking Out Insurance
More and more online insurance service offers are appearing on the Internet, making it convenient for you to secure business insurance. All of this is linked to the evolution of technology and a large movement towards digitization services. Most of the formalities relating to the creation of a business are now dematerialized. With just a few clicks, the business owner can compare multiple insurance offers for his business and receive a personalized quote in real-time.
Conclusion
Business insurance is important because it protects you in a number of ways. As you can see, there are different types of business insurance to cover different areas of the business.
If you want to learn more about which to choose and more about how it will benefit you, go on over to the Goalry platform and enter the store, Insurry.