Business Insurance
Frequently Asked Questions

First, the basics: every business owner needs General Liability Insurance and Commercial Property Insurance. Some smaller companies choose to combine these into a single Business Owner's Policy (BOP) or Commercial Package Policy (CPP).

If you have employees, most states require you to carry Workers Compensation Insurance, too, or have created laws which incentivize carrying the insurance, or disincentivize not carrying the insurance, to the point where it becomes disadvantageous not to do so.

No business owner wants to spend more than he or she has to!

You might be tempted to control costs by taking lower policy limits, but that means you'll be responsible for anything your insurance doesn't cover. Costs can exceed policy limits more quickly than you think. It's important to set them appropriately for your industry and mode of business.

You might also be tempted to control posts by opting for a higher deductible, but that means you'll have to pay the deductible before any benefits kick in. That could prove untenable, or at least very expensive. There are better ways to do it.

You can control costs by taking the following steps:

1. Shop Around - Comparing quotes is one of the best ways to control costs. Just make sure you're comparing apples-to-apples. You want to make sure you're getting the same amount of coverage for the price. Some companies try to drive their rates down artificially by excluding events you really need to cover.
2. Bundle Policies - Sometimes, purchasing multiple policies from the same provider can result in discounts on each type of policy you buy. These savings can really add up.
3. Adopt an Effective Risk-Management Strategy - Your insurance rates are determined in part by the steps you've taken to manage your own risks. For example, you can reduce your risks of theft or vandalism by adding a burglar alarm and security cameras, by adding lighting in your parking lots, or by hiring private security guards. And you can reduce your liability risks by keeping your premises well-maintained, up-to-code, and safe.

Not exactly. The problem is that a truly comprehensive policy capable of covering every single risk a business owner could possibly face would be so expensive few would be able to pay for it. Having smaller policies addressing specific types of scenarios mean insurance companies can limit their own risks, reducing costs.

It's almost impossible to keep your business open for any length of time without some sort of accident, natural disaster, or lawsuit. And for some unlucky business owners a major event could happen sooner rather than later: even hours after opening for the first time.

Need a certificate of liability insurance to apply for a professional license, lease a space, to file documents with the city, state, or county, or to finally land that contract with a major client you've been pursuing for months? There are plenty of situations where a business owner must prove he or she is adequately covered to move forward with necessary transactions.

The certificate is a one page document declaring your coverages. It will include a description of your coverage limits, the date the policy started, the date the policy expires, and "additional insureds," which are non-employee third parties, like independent contractors, you might have opted to cover with your policy.

It would be nice to think working out of your home on your own computer would never produce a situation requiring business insurance. But remember, for the most part, your clients aren't covering you with their business insurance policies. And many will actually require you to have your own insurance before you can start working for their company.

Cash flow can be a big issue for freelancers, and purchasing insurance coverage may feel like an outlay you don't have room for right now. But take heart: buying business insurance can improve your professional image in the eyes of potential clients, which could mean increasing your income. And if you ever face a situation where you need the insurance, the policy really will pay for itself by ensuring the policy pays for the disaster: not you.

Covering independent contractors is complicated...

Mostly because they're a third party, which means using them exposes your business to risk you wouldn't have been exposed to if you'd stuck to working with employees.

That's the trade-off: you don't have to cover their vacation time, benefits, or handle their taxes, but you also don't have total control over how they conduct their tasks. And if you do have total control, they may be classified as employees after all.

And because you don't have total control, you could find their work failing to meet safety standards, or client expectations. Even the best contractors sometimes damage a customer's property or cause an accident by mistake. And while in a perfect world the contractor would be the one who had to field that liability, the truth is the client's lawyers are going to try to frame you as one of the responsible parties as well. That could mean a lot of money out of your pocket if you haven't handled insurance correctly.

There's no getting around the need to get great business insurance. But if you're feeling a little "insurance poor," even after taking steps to reduce costs, take heart. You can claim business insurance as a tax deduction. The IRS has specifically named it as one of the costs of doing business.

You may deduct premiums for most types of business insurance. You may not deduct:

• Disability policies covering lost income.
• Loan protection insurance.
• Self-insurance reserve payments, which is a good argument for avoiding "self-insurance" options when addressing your Workers Compensation obligation.

Most states on the US only require two types of commercial insurance policies - and only under specific circumstances:

• Workers Compensation: Small businesses with any non-owner employees are required by state law to have workers comp insurance coverage (except Texas).
• Business Auto: If the business owns any vehicles (titled to the business), those cars or trucks must have commercial auto insurance.

Commercial property insurance is a must-have for anyone who does business out of a physical location. It's also a must-have for anyone who maintains an inventory or who has invested in expensive tools.

This form of insurance will cover your replacement and repair costs in the event of fires, theft, vandalism, or natural disasters.

Opting out of this coverage may not be an option for your company if you have a loan or a lease. Both promissory notes and lease documents tend to make commercial property insurance a requirement of receiving the loan or occupying the property.

Even if it were optional, you probably wouldn't want to go without it. An investment into commercial property insurance is an investment in your ability to reopen after any significant event. Without commercial property insurance, a single unforeseen event could put you out of business for good.

If a lawsuit settlement or court-ordered payout exceeds your insurance limits you could end up having to pay the difference out-of-pocket. There are two solutions to this problem.

The first is to carry as much coverage as you can afford, and the highest level of coverage on offer. Lawsuit costs can skyrocket quickly.

The second is to carry umbrella insurance. This form of insurance coverage is designed to make up the difference when your basic liability policy just can't get the job done.

Bodily injury covers any damage done to people while they're at your establishment, or while you're working at their home.

It's designed to cover the injured party's medical expenses. It can also cover funeral expenses, lost wages, pain and suffering, and legal expenses should the injured party choose to sue.

This form of insurance protection can help you if you harm another party without injuring them. This is most often some form of financial harm.

For example, if you're a landlord this form of insurance can protect you if a court finds you've conducted an unlawful eviction against one of your tenants.

If you're a copywriter or a blogger, it can protect against claims of libel, slander, plagiarism, copyright infringement, or publication of materials violating an individual's right to privacy.

"Claims made" coverage only covers you when the insurance policy is in force, when a claim is being made, and when that claim is being made in a timely fashion.

It is contrasted with an occurrence policy, which offers coverage for any incident that happens while the policy is active, regardless of whether or not you filed a claim. This can be important if you switch insurance companies, or if someone sues you for something that happened years ago.

Most insurance policies don't cover you for any incident that takes place prior to the date the policy goes active. An insurance policy which offers prior acts coverage will cover some retroactive events.

Commercial auto insurance isn't just for people with branded fleets of vehicles. It's also for anyone who drives for work, or who sends employees to drive for work in their own personal vehicles.

The reason is twofold. First, personal insurance policies don't cover drivers when they're using their vehicles for work purposes. And the lawyers are going to come after your business in the event of an accident, not your employee.

Second, commercial auto insurance coverage limits are much higher than personal auto insurance limits. This is great news, because it means the policy is far more capable of covering you should the injured driver sue.

There are a couple of different ways you can do it. First, you can choose a lower deductible. This has the advantage of lightening the load on your monthly cash flow, but will mean more money out-of-pocket when you need to make a claim.

Another way is to package different insurance coverages together, taking as many as is feasible from the same company to take advantage of discounts.

Finally, it helps to work with an agent who can get you set up with multiple insurance packages. This allows you a one-stop shop for the best rates you can possibly get.

Many of the steps outlined above can help with commercial property insurance as well. In addition, it's a good idea to look closely at the coverages.

For example, most business owners only need to insure their building, not the property it's sitting on. But some commercial property insurance policies include coverage for the land, too. There's no point in paying for coverage you don't need.

Second, look at some safety and security features like closed circuit cameras, spotlights, alarm systems, sprinkler systems, storm windows, and other pieces of equipment that can help you keep your building and your inventory much safer.

Use a program to monitor your employee's driving records and habits. When they have a lot of points on their licenses, your rates go up, especially if driving is part of their jobs. Create a policy which addresses the number of traffic tickets and accidents you'll tolerate before an employee will be terminated.

Risk management helps here, too. Look at GPS devices and safe driving programs to help you lower your costs.

First, don't hire new employees until you absolutely have to. Worker's compensation rates are based, in part, on your payroll costs. Thus, a business owner who writes $900,000 in payroll checks every year will pay a lot more for worker's compensation than the business owner who writes $150,000 in payroll checks every year.

Second, install a safety program. Worker's compensation rates are also based on your industry's typical risk and where you stack up versus the number of claims you receive. While this doesn't help a new company much at first, reducing or eliminating accidents will pay off in spades as your company continues to grow.

Another way is to consciously look for ways to bring injured workers back to your workforce as quickly as possible, even if you have to offer light duty positions. This means the insurance policy saves on wage payouts. You get discounts in the future.

How long can your company survive without doing business? If the answer is less than six months then you definitely need to invest in this kind of insurance.

Business interruption insurance means you, your employees, and your vendors all get paid while you rebuild from a disaster. Without it, you might end up having to hire a brand new set of staff members from scratch, as they'll be forced to find other jobs while you put everything back in order.

While this insurance is most often associated with doctors, accountants, and lawyers, it's a good idea for any provider who offers any professional service for a fee. Also know as Professional Liability.

Anyone can make a mistake, and certain mistakes can cost your customers a great deal of time and money. They are within their rights to sue if your mistake causes them damage. General liability coverage doesn't usually cover these sorts of damages, making E&O vital.

For certain professions and in certain states, E&O insurance isn't optional.

Many states protect employers from negligence lawsuits so long as they carry worker's compensation insurance. But some states don't, and when that's the case you'll want an employer's liability policy. General liability policies only cover visitors and customers, so you'll need this policy to help you foot the bill if your employee sues you.

Employer's practices liability insurance covers you when you or your managers violate employment law. Wrongful termination, discrimination, and harassment lawsuits can be just as pricey as bodily injury suits. And these claims can happen, even if you've attempted to prevent them by promoting a healthy company culture.

Corporate and business law is very complex, and it's easy to violate it in some form or fashion. While the corporate veil offers directors and officers some protection from resulting lawsuits, it isn't absolute. Sometimes lawyers manage to argue that the veil has been pierced.

When that happens, you and your directors or officers could become personally liable for the lawsuit. This could mean losing your own assets such as your home or your retirement account.

The best security software in the world eventually fails; hackers are always looking for new exploits. Certain data breaches put both you and your customers at risk, both for direct theft and for identity theft.

When this happens, companies can be held liable. Cyber liability insurance ensures you don't have to pay the costs of these lawsuits out of your own pocket.