Business Insurance Commonly Asked Questions
Business Insurance Frequently Asked Questions. We often receive similar questions from small business owners: How do I choose the right business insurance? How can I save money on small business insurance?
This Business Insurance Frequently Asked Questions provides answers to these - and other - questions about commercial insurance for small businesses.
Please take a few minutes to browse our comprehensive FAQ section. Chances are you'll find the answer to your question about small business insurance here.
Find answers to questions on various commercial insurance topics below.
Read Business Insurance Frequently Asked Questions to get answers to commonly asked commercial insurance questions including: How do I choose the right business insurance? How can I save money on small business insurance? and others.
You can skip to the following types of business insurance using these links:
Business Insurance FAQs:
- What type of business insurance do I need?
- How can I save money on small business insurance?
- Is there a comprehensive insurance policy that will cover all my risks?
- What happens if I don't have small business insurance?
- How do I get a certificate of liability insurance?
- I'm a freelancer. Do I need business insurance?
- I hired contractors to help with my business. Are they covered by my business insurance?
- Is business insurance tax deductible?
- What are the minimum commercial insurance requirements?
- What is commercial property insurance, and why do I need it?
- What happens if liability insurance can't cover my lawsuit settlement?
- My liability insurance mentions "bodily injury." What does that mean?
- What does "personal and advertising" injury mean?
- What is "claims made" coverage?
- What is "prior acts" coverage?
- Do I really need commercial auto insurance?
- How can I lower my liability insurance rates?
- How can I lower my commercial property insurance rates?
- How can I lower my commercial car insurance rates?
- How can I lower my worker's compensation rates?
- Do I really need business interruption insurance? What does it do?
- Do I need errors and omissions insurance?
- What's the difference between employer's liability and employer's practices liability insurance?
- What is a directors and officers policy?
- Do I really need cyber liability insurance?
- What insurance should my business have?
- What policies do I need for my specific industry?
What type of business insurance do I need?
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.
Because almost every business gets sued eventually. This policy pays the settlement or damages when one of your products hurts a customer, when a customer gets hurt on your premises, or when one of your employees damages a customer's property.
The statistical likelihood that someone will eventually slip and fall on your property is high, no matter how well you keep it maintained. You want this insurance against the day it happens.Why Commercial Property Insurance?
Because sooner or later something or someone could damage your property and physical assets, and you need a way to replace them if you're going to stay in business! These threats could come from fire, weather events, or criminals who target your company.
Commercial Property Insurance protects more than the building. It also protects your furniture, fixtures, and equipment, or FFE, as well as your inventory. Just imagine what would happen if you lost all your computers overnight, or if all your inventory was wiped out with no clear way to replace it.
Many lenders absolutely require this insurance as a condition of loaning you money to purchase your business location.What Other Types of Insurance Might I Need?
This depends on several factors:
- The size of the business you own.
- The industry you're in and the type of risk that industry usually carries.
- Your normal modes of operation and the risk they generate.
Other types of insurance you might need may include:
- An Errors & Omissions policy, for professionals like doctors, lawyers, and accountants whose decisions have serious personal, physical, and professional consequences for their clients.
- A Commercial Auto policy if you drive your personal vehicle for company purposes, have your employees drive personal vehicles for company purposes, or maintain a fleet of vehicles.
- If you are in the home services industry you definitely want to consider Contractor's Insurance, since risk skyrockets whenever you are doing any kind of construction work, plumbing work, electrical work, or landscaping work.
- A Cyber Liability policy for any company who stores and keeps customer data, who takes credit cards, or who does business online.
- If your normal mode of operations creates pollutants or deals with hazardous materials, you might require an Environmental Policy.
- A Management Liability policy could protect you if one of your employees wrongfully terminates someone, sexually harasses another employee, or takes a discriminatory action.
- A Commercial Umbrella Insurance policy is nearly always a good idea, since it will provide coverage when you reach the limits of your liability policy so you don't have to pay the difference out-of-pocket.
How can I save money on small business insurance?
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:
- 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.
- 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.
- 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.
34% of small businesses will face a lawsuit sooner or later. Without the proper insurance package, you're going to have to pay those costs out of pocket. Being sued can cost many times what business insurance will cost.
Is there a comprehensive insurance policy that will cover all my risks?
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.
A comprehensive policy wouldn't benefit you either. Imagine you're running a small cupcake shop. Now imagine you're being asked to pay for a policy that covers the types of risks roofers incur. That wouldn't make a lot of sense for you, since your cupcake shop isn't nearly as dangerous for employees or customers as your standard roofing job.
The closest we can offer you may be a Business Owner's Policy (BOP) or Commercial Package Policy (CPP), which includes both Commercial Liability Insurance and Commercial Property Insurance. This policy will still have some gaps. If you drive your own car for business purposes, send your employees to drive for business purposes, or maintain a fleet of vehicles, for example, you'll also need a Commercial Auto Policy.
You may even choose to purchase all or most of your policies from the same company, bundling them together for more costs savings and generating a single bill to pay each month. This customized approach is in reality pretty close to having a "comprehensive policy" in every way that counts. It just needs to be put together properly so you get all the coverage your business needs.
What happens if I don't have small business insurance?
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.
One event could incur losses so large as to put you out of business if you don't have insurance. Every lost piece of inventory, every dollar from a lawsuit, every replaced window...it would all have to come out of your pocket.
And in truth, it can be impossible to do business at all if you don't have certain types of insurance.
Want to sign a commercial lease? Your landlord will make certain types of insurance a condition of your lease.
"No problem," you say. "I'll just buy a piece of property." Unless you have cash to do it yourself, you'll need a loan. The bank will make certain types of insurance a condition of your loan, too.
Have employees? If you don't have Workers Comp insurance, you could even be in violation of the law.
Need a business license? Your licensing body will probably demand certain types of insurance as well.
And believe it or not, failing to get small business insurance could even limit your growth. Larger clients may demand to know what kind of coverage you have before they'll do business with you. They want to know they'll be compensated if something goes wrong when they work with you...and they already know you probably don't have the amount of money they'd need for proper compensation sitting around in your bank account. When you have proper insurance, they'll know they'll get paid. They also want to know you can cover your share of the liability if a lawyer goes after both of you.
In short: if you don't have small business insurance, chances are you don't have a business, either.
How do I get a certificate of liability insurance?
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.
I'm a freelancer. Do I need business insurance?
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.
Still reluctant? Ask yourself the following questions:What kinds of assets do I use in my freelancing business?
If it's just a cheap laptop you might be able to bounce back pretty fast. Your freelancing equipment may even be covered by another equipment replacement policy.
But if you have a state-of-the art graphic design computer with $6000 of 3D rendering software on it you might want to consider a small business policy to ensure you can replace the equipment and software in the event of a fire or theft.Are there sources of risk or liability I'm not considering?
For example, could you be sued?
Is there any chance something you post on a blog post could be construed as libel? What if you accidentally create a problem for a client with something you wrote by accidentally violating someone else's copyright? What if you damage your client's equipment while working on-site?
What if you mess up and use an image without the proper licensing? Even the world of stock photo licensing can be confusing and intense enough to create problems.
Do you ever drive to client locations? If you do so and get into an accident, your auto insurance company may refuse to cover you, which could mean huge medical and property damage expenses you're not prepared to face.
Most freelancers are sole proprietors, which means any liability they incur is personal. This means you could lose your home or other assets if you're targeted by a big enough lawsuit. Don't take the chance.Do any of my target clients request or require insurance prior to starting work?
While you might never have had a client make this request in the past, it could happen in the future. Who would you like to work for? Do they ever require you to be insured?
If so, it might be smart to put your coverage in place right now.Is it really going to be as expensive as I think?
There's no reason not to at least investigate the possibility of covering your freelance business with a Business Owner's Policy (BOP) or Commercial Package Policy (CPP).
I hired contractors to help with my business. Are they covered by my business insurance?
Covering independent contractors is complicated...Many insurance policies specifically exclude contractors...
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.
Most states have come to recognize many businesses use independent contractors in the hopes of working around certain requirements, like covering them under Workers Comp. They've handled that by mandating coverage for independent contractors too.
You may not have to cover them if they're already covering themselves. Check your local laws for more details, or ask your insurance agent.It's important to protect yourself when working with independent contractors.
First, always use a contract! You might be tempted to hire your independent contractors with a "handshake agreement" or with the exchange of a few emails. But a contract is the best way to make sure obligations are understood on both sides...and it gives you the ability to require proof of insurance before work begins.
Once the contractor has signed, get a copy of their Certificate of Insurance to make sure they have the coverage you want to see. You want them to have General Liability Insurance at a minimum. If your state's laws let you get around paying for Workers Compensation if they're handling their own, then get a Certificate of Workers Compensation coverage, too.
You can also handle the problem by reaching out to your own insurance agent. Most policies allow you to name "additional insureds," third-parties whom the policy covers. You can name specific contractors which will be covered by the policy. All other contractors get covered by the exclusion, but you remain protected from the actions of your contractor or contractors of choice.
Is business insurance tax deductible?
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.
Make sure you keep your billing statements. Provide them to your accountant or tax professional if you use one, or make sure to enter them correctly into Quickbooks or similar software.
Be careful about health insurance premiums if you're a sole proprietor. The Affordable Care Act means they're handled on a different part of the tax form, one where you're both claiming an expense and demonstrating you've met your insurance obligations. The rules governing health insurance are complex, so be sure to keep that separate.
Finally, keep in mind that tax laws change every year. Staying on top of them is a full-time job even for CPAs. Getting help from an accountant is good risk-management of a different sort: avoiding an IRS audit, or large tax bills you can't pay!
What are the minimum commercial insurance requirements?
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.
Any other policies and coverages are optional for the business to purchase. There is not one commercial insurance policy that covers every risk small businesses face. There are different commercial insurance policies that cover various accidents, damages and lawsuits that could financially devastate a small business without the right protection.
What is commercial property insurance, and why do I need it?
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.
What happens if liability insurance can't cover my lawsuit settlement?
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.
My liability insurance mentions "bodily injury." What does that mean?
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.
What does "personal and advertising" injury mean?
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.
What is "claims made" coverage?
"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.
What is "prior acts" coverage?
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.
Do I really need commercial auto insurance?
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.
How can I lower my liability insurance rates?
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.
How can I lower my commercial property insurance rates?
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.
How can I lower my commercial car insurance rates?
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.
How can I lower my worker's compensation rates?
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.
Do I really need business interruption insurance? What does it do?
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.
Do I need errors and omissions insurance?
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.
What's the difference between employer's liability and employer's practices liability insurance?
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.
What is a directors and officers policy?
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.
Do I really need cyber liability insurance?
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.
What insurance should my business have?
Click on the links below to read state specific commercial insurance FAQs for the states we are currently licensed in, including information on minimum business insurance requirements, coverages, policies, limits and more:
- Business Insurance FAQ
- Small Business Insurance FAQs
- California Business Insurance FAQ
- Colorado Business Insurance FAQ
- Delaware Business Insurance FAQ
- Florida Business Insurance FAQ
- Georgia Business Insurance FAQ
- Illinois Business Insurance FAQ
- Iowa Business Insurance FAQ
- Kentucky Business Insurance FAQ
- Michigan Business Insurance FAQ
- North Carolina Business Insurance FAQ
- New Jersey Business Insurance FAQ
- New York Business Insurance FAQ
- Oregon Business Insurance FAQ
- Pennsylvania Business Insurance FAQ
- Tennessee Business Insurance FAQ
- Texas Business Insurance FAQ
- Virginia Business Insurance FAQ
- Washington Business Insurance FAQ
- Wisconsin Business Insurance FAQ
What policies do I need for my specific industry?
Learn about the insurance coverages and surety bonds available for specific industires with the Insurance FAQs below:
- Artisan Contractors
- Automotive Sales and Service
- Aviation Risks
- Boats and Yachts
- Construction Contractors
- Eating and Drinking Establishments
- Educational Institutions
- Farm and Ranch
- Financial Institutions
- Food Processing Plants
- General Liability
- Government, Institutions and Utilities
- Health Care Providers
- Lodging Places
- Logging, Mining and Quarries
- Printing Services
- Real Estate and Rental Property
- Recreation and Sports
- Retail Food and Beverage
- Retail Stores
- Services Businesses
- Trucking and Transit
- Warehouses and Storage
- Wholesalers and Distributors
Business Insurance Frequently Asked Questions - The Bottom Line
There are many questions that our readers ask. We answered some of the most common ones here. If you have additional questions, or would like to contribute to the Business Insurance Frequently Asked Questions, please contact us here:Contact Us.