There are many different expenses associated with starting and operating a business. Paying for equipment, renting or purchasing office space, staffing expenses, marketing and advertising costs, and incorporation fees (to name only a few) are all necessary expenses that any new organization will need to budget for just to get started. With so many different expenses eating up your startup capital, it only makes sense to want to find less-vital areas where you might be able to cut back. But what about commercial insurance?
Do businesses need commercial insurance? And if so, what kinds of commercial insurance are the right fit?
Here, we shine a light on commercial insurance, discuss what it means to be commercially insured, and take a look at some of the most common types of commercial insurance you should be familiar with, providing you with summaries of the coverages they provide.
Commercially Insured: Definition
What is commercial insurance? Commercial insurance (also referred to as business insurance) is a kind of financial risk protection for businesses provided through insurance coverage designed for businesses and commercial enterprises rather than individuals for their personal, family, or household needs. What does commercial insurance provide? Should a business suffer a financial loss as a result of a claim or an occurrence covered by its commercial insurance policy, the insurer will provide the business with financial compensation in accordance with the terms and conditions contained in its policy or policies.
Common situations that may trigger coverage under different types of commercial insurance include, among others:
- Personal injury
- Property damage
- Data breaches
- Business interruption
In other words, commercial insurance policies provide coverage that can help protect your business against losses from a wide range of risks. These may be related to your business premises, staff, stock, or the services you provide to your customers. Where personal insurance tends to cover a single individual or property, commercial insurance goes further, covering potentially every employee and stakeholder within an organization and often including higher coverage limits to match the greater value of property and assets associated with the business.
Is Commercial Insurance Required by Law?
In every state except Texas, businesses with employees are required to maintain valid workers' compensation, and some states have their own additional insurance requirements depending on the type of business. But beyond that, unless a business is engaged in certain types of activities (such as operating a commercial auto), businesses are not typically legally required to maintain certain types of insurance coverages.
Even so, operating without commercial insurance is generally not a prudent business strategy. This is because having the right commercial insurance can provide your business with an important safety net. Without proper coverage in place to help mitigate the potential financial impact of a loss occurring, a single error, accident, or unmitigated disaster could easily result in your business being financially liable beyond what it can afford to pay. And when that happens, it is possible that bankruptcy may be the only alternative.
No matter how small your business is or what services you offer, commercial insurance is always a good risk management tool to consider. By choosing an insurance broker who understands the unique needs and challenges of your business, you can find affordable commercial insurance policies that help protect your organization from a range of perils and pitfalls.
Types of Commercial Insurance
Because every business faces different types of risk, commercial insurance programs can be structured specifically for the organization and its activities. Customized commercial insurance programs may include one or more of the following types of coverages summarized below to help create a comprehensive insurance and risk management solution:
- General Liability. If bodily injury or property damage occurs to a customer or another third party as a result of negligence on the part of a business or one of its employees, commercial general liability insurance may cover all or part of the resultant loss (such as medical costs and legal fees).
- Errors and Omissions (E&O). Also referred to as “professional liability insurance,” errors and omissions insurance covers claims as a result of alleged acts, errors or omissions made by a business or its employees.
- Property. Commercial property insurance provides coverage for losses to the property and physical assets of a company. This first party insurance can cover, for example, the cost of replacing or repairing your property should it be destroyed or damaged due to events such as fires, storm damage, or vandalism.
- Commercial Auto. Commercial auto insurance is designed for businesses that have vehicles used in the course of their business operations, and helps protect the business as a result of claims related to bodily injury, property damage, or other losses caused to people or their property by the business’s vehicles.
- Cyber Liability. Cyber liability insurance helps protects businesses against the costs of a cyber attack and other related events, including the costs to repair damage to a company’s computer systems caused by the attack.
- Fidelity Bonds. Fidelity bonds help protect certain types of businesses from losses as a result of fraud or dishonesty on the part of their employees, such as embezzlement, forgery, larceny, and fraud.
- Workers’ Compensation. One of the few types of mandated commercial insurance, workers’ compensation insurance provides for statutorily-prescribed wage replacement and medical benefits for employees injured while in the course of their employment.
- Employment Practices Liability. Employment practices liability insurance (EPLI) covers the costs of defending a business against claims related to its employment practices and employment disputes, such as alleged discrimination, wrongful termination, or sexual harassment.
- Business Interruption. Business interruption insurance can help protect a business against the cost of lost revenue due to a covered loss. This insurance can compensate a business for the lost revenue, helping to provide ongoing financial support until the business can resume its normal operations.
- Management Liability. Also referred to as directors and officers (or “D&O”) insurance, management liability insurance helps protects a business and its directors and officers against the cost of claims arising from alleged practices by the company and/or its management, and may be necessary when facing claims related to management decisions and practices that may lead to litigation.
- Crime Coverage. Commercial crime insurance covers the costs incurred by a business resulting from criminal or dishonest acts by its employees, such as theft, fraud, and burglary. It can also cover the cost of any payouts that a business is required to make to the victims of a crime.
Common Questions About Commercial Insurance
How much does commercial insurance cost?
The cost of each type of commercial insurance policy will vary from one policyholder to the next. This is due to several factors, including the company’s risk profile, type of business, location, and the types of coverage and limits selected.
How can I get commercial insurance for my business?
If you’re interested in purchasing any of the commercial insurance types listed above, it’s essential to work with a trusted commercial insurance broker. A broker can help you select the right type of policy and level of coverage to fit the unique needs of your business based on the risks that you are most likely to face.
Commercial insurance takes many different forms, but its purpose is always the same: to help protect businesses against financial losses from common risks and perils. Without commercial insurance, even the most well run business may find itself struggling to remain profitable in the face of lawsuits, disasters, cyber attacks, and more.
There are a lot of investments that go into getting a business up and running, but commercial insurance may be the most important investment when it comes to keeping the business running. Don’t leave your organization undefended in the face of risk; contact Acrisure today, and together we can help create a business insurance program that’s right for your business’s needs.