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What Is Commercial Insurance?
Protect Your Business: A Guide to Commercial Insurance
Commercial insurance, also known as business insurance, protects companies from losses stemming from unexpected events during normal operations. For example, it can cover lawsuits, natural disasters, or accidents. Businesses can choose from many types of commercial insurance, including policies for property damage, legal liability, and employee-related risks.
Companies evaluate their insurance needs based on potential risks, which can vary significantly depending on the business type and its operating environment. This guide will explore the different types of business insurance and what they provide.
How Commercial Insurance Works
Small business owners, in particular, must carefully consider and evaluate their risks because they may face personal financial exposure after a loss. Fortunately, commercial insurance protects business owners from potential losses they couldn’t afford to cover on their own. This protection allows businesses to operate when it might otherwise be too risky.
If you need business insurance, it’s best to work with a reputable and licensed insurance broker. You can find a list of licensed agents in your state through the department of insurance or the National Association of Insurance Commissioners. It is important to remember that commercial policies differ from personal lines insurance because they protect a business, not an individual.
Types of Commercial Insurance
Federal regulations mandate certain types of insurance, such as workersâ compensation. Furthermore, some states may require specific businesses to carry additional coverage. In most situations, it is wise for a business to protect itself with coverages that are not legally required. Here are seven common types of business insurance.
Commercial General Liability Insurance
Commercial general liability insurance is a foundational policy suitable for all businesses. While it is considered comprehensive, it does not protect against all risks. Generally, this policy provides coverage for bodily injury, property damage, medical expenses, libel, and slander. It also covers the costs of defending lawsuits and settlement bonds or judgments.
Professional Liability Insurance
Unlike general liability insurance, which applies to any business, professional liability insurance (PLI) is designed specifically for businesses that provide services. This coverage is for losses caused by the service provided. Consequently, it protects against expenses related to malpractice, negligence, or errors.
Commercial Property Insurance
Property insurance is designed for businesses with significant physical assets, like equipment, signage, inventory, and furniture. It protects the company from losses in events such as fire, storms, or theft. For instance, this policy can cover damage to computers, inventory, or signage.
Typically, commercial property insurance does not cover the costs of events like floods and earthquakes. If your business is in an area at risk for these events, you will need to purchase a separate policy.
Home-Based Business Insurance
If you operate a home-based business, you will likely need additional coverage for your equipment and inventory. Standard homeownerâs policies do not typically cover home-based businesses in the same way commercial property insurance covers other businesses. However, you can add home-based business insurance to a homeownerâs policy as a rider. This usually provides a small amount of coverage for equipment and liability.
A business ownerâs policy (BOP) is often an ideal insurance package for small and home-based businesses. Essentially, it bundles typical insurance options into one package, so you can buy it efficiently and save money.
Product Liability Insurance
Product liability insurance is created for businesses involved with products, such as manufacturers, wholesale distributors, and retailers. This type of insurance protects a business from costs associated with damages its products cause, such as a defective item leading to bodily injury. Without product liability insurance, a business can become vulnerable to paying for expensive lawsuits.
Vehicle Insurance
You should insure any vehicles used for business purposes. Whether you have vans, buses, tractor-trailers, or passenger cars, you need insurance in case of damage to the vehicles, cargo, or injuries to others. Each state has a minimum amount of required insurance. Several factors can also affect the price of vehicle insurance, such as the driverâs record and the condition of the vehicles.
Business Interruption Insurance
Business interruption policies are especially applicable to companies with physical locations, like retail stores or manufacturing facilities. This type of insurance compensates a business for its lost income due to events that disrupt normal operations. It is typically added as a rider to a property insurance policy or included as part of a business ownerâs policy. Policies may also include a civil authority provision, which details compensation in the event a government action closes the business.
How Much Does Commercial Insurance Cost?
The price of a commercial insurance policy will depend on a number of factors related to your business and the coverage you select. For example, Progressive reports a median monthly cost of $70 for a business owner’s policy. Similarly, The Hartford shares that the median monthly cost of its commercial policies is $55.
What Affects Business Insurance Costs?
Several factors can influence the price of a business insurance policy. These include the number of employees you have, the location of your business, and the amount of coverage you want. Generally, the more employees you have and the more coverage you need, the more expensive your policy will be. Prices also vary by region depending on the associated risks.
How Do You Get Commercial Insurance?
You can get commercial insurance through an agency that provides the type of policy you need. An agent can give you a quote and guide you through your options and the application process. Often, you can get a policy online or by calling the insurance agency directly.
The Bottom Line
Ultimately, commercial insurance can be a valuable tool, as it protects a business against potential losses from unexpected events. When shopping for business insurance, explore several policy options and make sure you fully understand the terms for each. Consider consulting a professional financial advisor to ensure you make the best choice for your company’s needs.
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