Manufacturing Insurance Policy Information
Manufacturing Insurance. Manufacturing is an extremely broad category that includes countless potential hazards and exposures in virtually all coverage areas. Because of this, every individual manufacturer is unique and a specific risk survey of every operation is advisable.
The basic insurance needs for every class of business or operation includes property coverage for buildings, machinery and equipment, as well as for raw stock and finished products. Liability insurance for premises exposures is important but products liability insurance presents greater concerns so these exposures and coverage needs must be evaluated carefully.
In addition, protection for injuries to workers, environmental coverages and automobile insurance are priority items.
Choosing the right type and level of manufacturing insurance is important to your business' sustainability, profitability, and health. A combination of coverage keeps your business protected from all possible perils.
Manufacturing insurance protects your business from product liability lawsuits with rates as low as $57/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked manufacturing insurance questions:
- How Much Does Manufacturing Insurance Cost?
- What Type of Insurance Do Manufacturing Businesses Need?
- What Other Types Of Business Insurance Should Manufacturers Consider?
How Much Does Manufacturing Insurance Cost?
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small manufacturing businesses ranges from $57 to $89 per month based on location, size, payroll, sales and experience.
What Type of Insurance Do Manufacturing Businesses Need?
Manufacturers usually need more than one type of insurance policy to properly cover all of their needs. There usually isn't just one policy that will get the job done for them fully.
You likely have significant capital invested in your manufacturing business, and you must protect it with the right level and type of insurance. You must also protect your workers and the production capabilities of your business. There are generally three primary components that make up suitable manufacturing insurance policies for manufacturers. These include:
- Product liability. Pays for the legal costs when a product you make injures someone or makes them ill.
- Product recall. Fills the gap caused by the CGL product recall exclusion. This insurance covers the expenses incurred by the insured when it conducts mandated and/or voluntary product recalls.
- Product contamination. Provides coverage when a product becomes contaminated or may become contaminated. The contamination can be due to an error or due to a criminal act. Coverage also applies when threats are received that contamination will occur unless ransom is paid. Costs that are covered include necessary inventory destruction, lost profits, business interruption, product recall and product rehabilitation. Crisis management, reputational advertising and more damage control measures are often covered too. However, there is no coverage for third-party products liability.
- Worker's compensation. Employers are required by state statute to provide coverage for on-the-job injuries sustained by their employees through either a workers compensation policy or a state-approved self-insurance plan. If the manufacturer uses independent contractors at off-site locations, they must verify that they actually qualify as subcontractors before an accident occurs. Otherwise, the injured party could be treated as an employee.
- Commercial auto. The commercial automobile exposures of manufacturers can vary tremendously. Some may have no exposures while others have only a salespersons' fleet. In other cases, a manufacturer may use a fleet of owned commercial trucks to deliver its finished products. The amount of international travel, if any, should be determined, due to territorial limits restrictions in the commercial auto policy, and due to restrictions, laws and regulations in a number of foreign countries.
Working with an commercial insurance broker who understands the unique nuances of manufacturers is important when choosing manufacturing business coverage types. A pro agent can access quotes and information from a variety of insurance companies, help you compare the policies available, and be instrumental in helping you choose the right type of coverage for your unique needs.
This allows you to get the right policies at the right policy limits, keeping your premiums lower while ensuring your coverage remains high.
What Other Types Of Business Insurance Should Manufacturers Consider?
Covering the assets that your business owns with a manufacturing insurance policy is important to your business' ongoing growth and overall financial health. If someone touring your facility becomes injured and files a claim against you, or if a fire guts your facility and leaves you without a place to manufacture your items, you need to be assured that your business can continue to operate.
In a similar vein, if a key piece of equipment becomes non-operational, you need to be ensured that the piece can be replaced without the need to shut down. Business insurance for manufacturers can be a godsend. Some essential manufacturing insurance policy types include:
- Aviation. Larger manufacturers may own or lease aircraft and use them as a convenient way to visit their other plants and customers. In addition, some products may be transported and delivered by air cargo.
- Business Income. In the event of a work stoppage due to a covered peril, income loss coverage can help. It protects the business' building and its equipment if the loss prevents you from continuing your normal operating procedures. It can also combat lost income and operating expenses, generally for a fixed period of one year.
- Business Owner's Policy (BOP). This coverage combines general liability and commercial property along with business income and other coverages all in one package.
- Commercial Property. Output policies were designed for manufacturers as a way to close coverage gaps as raw material moved through the manufacturing processes and became finished stock. The same coverage may be achieved by combining the inland marine coverages with the building and business personal property coverage form, but the coverage is not as seamless, leaving the potential for a coverage gap. A number of valuation options are available that should be considered. Time element coverages are a vital component and the form and limits should be reviewed carefully. Business income from dependent and secondary dependent properties is an especially important coverage to be considered as companies utilize fewer and fewer suppliers and may supply fewer and fewer very large customers.
- Crime. Employee theft is the most important crime coverage needed by most manufacturers. Because of the way business is now transacted, computer fraud and funds transfer fraud are also major coverage and loss concerns. Forgery coverage should not be overlooked because checks are regularly written for large amounts. Money and securities are not usually subject to holdup losses but loss to or destruction of them is only covered under crime forms. Extortion, kidnap and ransom coverages should be seriously considered if international travel makes up part of the operation.
- Excess And Umbrella. The types of injuries that might occur because of a faulty manufactured product are the major issues in considering the appropriate higher limits and type of excess or umbrella policy to use. If the underlying coverage is written on a claims-made policy, retroactive excess liability coverage should be considered.
- General Liability. General liability coverage provides protection for accidents such as slips-and-falls or when a person in your facility is otherwise injured. It also covers property damage to third parties on your premises. It covers your legal costs and any judgement granted against you. Products liability is the major liability exposure for most manufacturers. The limitations within the CGL on products-related issues have prompted some new coverages that should be carefully reviewed with the customer. A liquor and alcoholic beverage manufacturer is wise to purchase a liquor liability policy because even limited liquor exposures are excluded in the CGL policy. If a manufacturer has a railroad sidetrack or spur on the premises, a railroad protective liability policy may be needed. When the CGL coverage form is moving from a claims-made basis to occurrence basis form then a claims-made to occurrence coverage form is vital in preventing a significant coverage gap.
- Inland Marine. Stock and other property is constantly on the move and must be covered wherever it is. Inland marine coverages are designed to follow that stock and other property. A thorough review of the manufacturing processes and operations helps determine potential coverage gaps and highlights the correct coverages needed in each situation. A transportation policy should always be written, even if the insured does not have a fleet and uses carriers for hire. Patterns and dies can be extremely valuable and are sometimes overlooked because they are located away from the insured's premises.
- Ocean Marine. Manufacturers that export products need to arrange for coverage through an ocean marine cargo policy on products shipped at their risk. In addition, if they ship to or through a war risk area, a separate cargo war risk policy should be purchased. Finally, some manufacturers own boats or yachts used to entertain both customers and employees.
- Surety Bonds. Bonding may be a major coverage concern for some manufacturers, especially if they enter into service or supply arrangements with governmental entities.
Remember, your exact policy needs may depend on how you do your business and what you are making. Sit down with your insurance agent to discuss your current risks and exposures. These can depend on the specific types of goods you are manufacturing, where your business is located, your annual revenue, and more.
Commercial Insurance And Business Industry Classification
The manufacturing industry can be defined as:
The branch of manufacture and trade based on the fabrication, processing, or preparation of products from raw materials and commodities. This includes all foods, chemicals, textiles, machines, and equipment. This includes all refined metals and minerals derived from extracted ores. This includes all lumber, wood, and pulp products.
Following are major manufacturing industry categories according to Standard Industrial Classification:
- Apparel Industry: All establishments producing clothing and fabricating products by cutting and sewing purchased woven or knit textile fabrics and related materials, such as leather, rubberized fabrics, plastics, and furs. This does not include knitting mills (see Textile Mill Products) or custom tailors and dressmakers (see Retail Trade: Apparel and Accessory Stores).
- Chemical and Allied Industry: All establishments producing basic chemicals, and establishments manufacturing products by predominantly chemical processes. This does not include the mining of natural chemicals and fertilizers (see Mining and Quarrying of Nonmetallic Minerals), nor does it include establishments primarily engaged in packaging, repackaging and bottling purchased chemical products (see Wholesale or Retail Trade).
- Electronic and Electrical Equipment Industry: All establishments engaged in manufacturing machinery, apparatus, and supplies for the generation, storage, transmission, transformation, and utilization of electrical energy. This does not include industrial machinery and equipment powered by built-in or detachable electric motors (see Industrial and Commercial Machinery and Computer Equipment).
- Fabricated Metal Industry: All establishments engaged in fabricating ferrous and nonferrous metal products, such as metal cans, tinware, handtools, cutlery, general hardware, nonelectric heating apparatus, fabricated structural metal products, metal forgings, metal stampings, and a variety of metal and wire products not elsewhere classified.
- Food and Kindred Industry: All establishments manufacturing or processing foods and beverages for human consumption, and certain related products, such as manufactured ice, chewing gum, vegetable and animal fats and oils, and prepared feeds for animals and fowls. This does not include chemical sweeteners (see Chemicals and Allied Products).
- Furniture and Fixtures Industry: All establishments engaged in manufacturing household, office, public building, and restaurant furniture; and office and store fixtures. This does not include establishments engaged in the production of millwork or wood kitchen cabinets (see Lumber and Wood Products); those manufacturing cut stone and concrete furniture (see Stone, Clay, Glass and Concrete Products); those manufacturing hospital furniture other than beds (see Measuring, Controlling and Analyzing Instruments); nor, those manufacturing beauty and barber shop furniture (see Miscellaneous Manufacturing Industries).
- Industrial and Commercial Machinery Industry: All establishments engaged in manufacturing industrial and commercial machinery and equipment and computers. This includes machines powered by built-in or detachable motors, with the exception of electrical household appliances. This includes power-driven handtools, but does not include other electrical equipment (see Electronic and Other Electrical Equipment and Components).
- Leather Industry: All establishments engaged in tanning, currying, and finishing hides and skins, leather converters, and establishments manufacturing finished leather and artificial leather products and some similar products made of other materials.
- Lumber and Wood Industry: All establishments engaged in cutting timber and pulpwood; mills engaged in producing lumber and wood basic materials; and establishments engaged in manufacturing finished articles made entirely or mainly of wood or related materials. This does not include furniture and office and store fixtures (see Furniture and Fixtures), musical instruments, toys and playground equipment, and caskets (see Miscellaneous Manufacturing Industries). This also does not include wood reconditioning and repair (see Nonmanufacturing Industries).
- Measuring, Analyzing and Controlling Instrument Industry: All establishments engaged in manufacturing instruments for measuring, testing, analyzing, and controlling, and their associated sensors and accessories; optical instruments and lenses; surveying and drafting instruments; hydrological, hydrographic, meteorological, and geophysical equipment; search, detection, navigation, and guidance systems and equipment; surgical, medical, and dental instruments, equipment and supplies; ophthalmic goods; photographic equipment and supplies; and, watches and clocks.
- Miscellaneous Manufacturing Industries: All establishments primarily engaged in manufacturing products not classified in any other manufacturing category. This includes establishments engaged in the production of goods such as jewelry, musical instruments, toys, sporting goods, etc.
- Paper and Allied Industry: All establishments primarily engaged in the manufacture of pulps from wood and other cellulose fibers, and from rags; the manufacture of paper and paperboard; and the manufacture of paper and paperboard into converted products, such as paper bags and paper boxes. Also included are establishments primarily engaged in manufacturing bags of plastics film and sheet. This does not include abrasive paper (see Stone, Clay, Glass, and Concrete Products), carbon paper (see Miscellaneous Manufacturing Industries), nor photosensitized and blueprint paper (see Measuring, Controlling, and Analyzing Instruments).
- Petroleum Refining and Related Industry: All establishments primarily engaged in petroleum refining, manufacturing paving and roofing materials, and compounding lubricating oils and greases from purchased materials. This does not include establishments manufacturing and distributing gas to consumers (see Transportation, Communications, and Utilities), nor those engaged in producing coke and byproducts (see Primary Metal Industries).
- Primary Metal Industry: All establishments engaged in smelting and refining ferrous and nonferrous metals from ore, pig, or scrap; in rolling, drawing, and alloying metals; in manufacturing castings and other basic metal products; and in manufacturing nails, spikes, and insulated wire and cable. This also includes the production of coke.
- Printing, Publishing, and Allied Industry: All establishments engaged in printing and those establishments which perform services in the printing trade, such as bookbinding and plate making. This also includes establishments engaged in publishing newspapers, books, and periodicals, regardless of whether they do their own printing. This does not include establishments primarily engaged in textile printing and finishing fabrics (see Textile Mill Products), nor does it include establishments manufacturing products that contain incidental printing, such as advertising or instruction.
- Rubber and Miscellaneous Plastic Industry: All establishments not elsewhere classified manufacturing products from plastics resins and from natural, synthetic, or reclaimed rubber, gutta percha, balata, or gutta siak. Many products made from these materials are classified in other industries, such as boats, toys, Buttons, etc. This includes the manufacture of tires, but does not include recapping and retreading automobile tires. This also does not include the manufacture of synthetic rubber and synthetic plastics resins (see Chemicals and Allied Products).
- Stone, Clay, Glass, and Concrete Industry: All establishments engaged in manufacturing flat glass and other glass products, cement, structural clay products, pottery, concrete and gypsum products, cut stone, abrasive and asbestos products, and other products from materials taken principally from the earth in the form of stone, clay, and sand.
- Textile Mill Industry: All establishments engaged in the preparation of fiber and subsequent manufacturing of yarn, thread, braids, twine, and cordage; in manufacturing broad woven fabrics, narrow woven fabrics, knit fabrics, and carpets and rugs from yarn; in dyeing and finishing fiber, yarn, fabrics, and knit apparel; in coating, waterproofing, or otherwise treating fabrics; in the integrated manufacture of knit apparel and other finished articles from yarn; and in the manufacture of felt goods, lace goods, nonwoven fabrics, and miscellaneous textiles.
- Tobacco Industry: All establishments engaged in manufacturing cigarettes, cigars, smoking and chewing tobacco, snuff, and reconstituted tobacco and in stemming and redrying tobacco. This also includes the manufacture of nontobacco cigarettes. This does not include the manufacture of insecticides from tobacco byproducts (see Chemicals and Allied Products).
- Transportation Equipment Industry: All establishments engaged in manufacturing equipment for transportation of passengers and cargo by land, air and water. This includes the manufacture of products such as motor vehicles, aircraft, guided missiles and space vehicles, ships, boats, and railroad equipment. This does not include the manufacture of mobile homes (see Lumber and Wood Products), nor the manufacture of equipment used for moving materials on farms, in mines, on construction sites, in plants, etc. (see Industrial and Commercial Machinery and Computer Equipment.)
Manufacturing is a broad industry. Below are the SIC codes for the major groups from OSHA SIC classifications:
- Major Group 20: Food And Kindred Products
- Major Group 21: Tobacco Products
- Major Group 22: Textile Mill Products
- Major Group 23: Apparel And Other Finished Products Made From Fabrics And Similar Materials
- Major Group 24: Lumber And Wood Products, Except Furniture
- Major Group 25: Furniture And Fixtures
- Major Group 26: Paper And Allied Products
- Major Group 27: Printing, Publishing, And Allied Industries
- Major Group 28: Chemicals And Allied Products
- Major Group 29: Petroleum Refining And Related Industries
- Major Group 30: Rubber And Miscellaneous Plastics Products
- Major Group 31: Leather And Leather Products
- Major Group 32: Stone, Clay, Glass, And Concrete Products
- Major Group 33: Primary Metal Industries
- Major Group 34: Fabricated Metal Products, Except Machinery And Transportation Equipment
- Major Group 35: Industrial And Commercial Machinery And Computer Equipment
- Major Group 36: Electronic And Other Electrical Equipment And Components, Except Computer Equipment
- Major Group 37: Transportation Equipment
- Major Group 38: Measuring, Analyzing, And Controlling Instruments; Photographic, Medical And Optical Goods; Watches And Clocks
- Major Group 39: Miscellaneous Manufacturing Industries
The Occupational Safety and Health Administration (OSHA) says, "The manufacturing division includes establishments engaged in the mechanical or chemical transformation of materials or substances into new products. These establishments are usually described as plants, factories, or mills and characteristically use power driven machines and materials handling equipment.
Establishments engaged in assembling component parts of manufactured products are also considered manufacturing if the new product is neither a structure nor other fixed improvement. Also included is the blending of materials, such as lubricating oils, plastics resins, or liquors.
The materials processed by manufacturing establishments include products of agriculture, forestry, fishing, mining, and quarrying as well as products of other manufacturing establishments. The new product of a manufacturing establishment may be finished in the sense that it is ready for utilization or consumption, or it may be semi-finished to become a raw material for an establishment engaged in further manufacturing.
For example, the product of the copper smelter is the raw material used in electrolytic refineries; refined copper is the raw material used by copper wire mills; and copper wire is the raw material used by certain electrical equipment manufacturers.
The materials used by manufacturing establishments may be purchased directly from producers, obtained through customary trade channels, or secured without recourse to the market by transferring the product from one establishment to another which is under the same ownership.
Manufacturing production is usually carried on for the wholesale market, for interplant transfer, or to order for industrial users, rather than for direct sale to the domestic consumer.
There are numerous borderline cases between manufacturing and other divisions of the classification system. Specific instances will be found in the descriptions of the individual industries. The following activities, although not always considered as manufacturing, are so classified:
- Apparel jobbing (assigning of materials to contract factories or shops for fabrication or other contract operations) as well as contracting on materials owned by others
- Electroplating, plating, metal heat treating, and polishing for the trade
- Fabricating of signs and advertising displays
- Fresh fish packaging (oyster shucking, fish filleting)
- Lapidary work for the trade
- Leather converting
- Milk bottling and pasteurizing
- Ready-mixed concrete production
- Various service industries to the manufacturing trade, such as typesetting, engraving, plate printing, and preparing electrotyping and stereotype plates, but not blueprinting or photocopying services
- Wood preserving
There are also some manufacturing-type activities performed by establishments which are primarily engaged in activities covered by other divisions, and are, thus, not classified as manufacturing. A few of the more important examples are:
Agriculture, Forestry, and Fishing. Processing on farms is not considered manufacturing if the raw materials are grown on the farm and if the manufacturing activities are on a small scale without the extensive use of paid labor. Other exclusions are threshing and cotton ginning.
Mining. The dressing and beneficiating of ores; the breaking, washing, and grading of coal; the crushing and breaking of stone; and the crushing, grinding, or otherwise preparing of sand, gravel, and nonmetallic chemical and fertilizer minerals other than barite are classified in Mining.
Construction. Fabricating operations performed at the site of construction by contractors are not considered manufacturing, but the prefabrication of sheet metal, concrete, and terrazzo products and similar construction materials is included in the Manufacturing Division.
Wholesale and Retail Trade. Establishments engaged in the following types of operations are included in Wholesale or Retail Trade: cutting and selling purchased carcasses; preparing feed at grain elevators and farm supply stores; stemming leaf tobacco at wholesale establishments; and production of wiping rags. The breaking of bulk and redistribution in smaller lots, including packaging, repackaging, or bottling products, such as liquors or chemicals, is also classified as Wholesale or Retail Trade. Also included in Retail Trade are establishments primarily engaged in selling, to the general public, products produced on the same premises from which they are sold, such as bakeries, candy stores, ice cream parlors, and custom tailors.
Services. Tire retreading and rebuilding, sign painting and lettering shops, computer software production, and the production of motion picture films (including video tapes) are classified in Services. Most repair activities are classified as Services. However, some repair activity such as shipbuilding and boatbuilding and repair, the rebuilding of machinery and equipment on a factory basis, and machine shop repair are classified as manufacturing."
The manufacturing sector has wide range of industries. Below are the NAICS classification codes for manufacturing subsectors:
- NAICS 311 - Food Manufacturing
- NAICS 312 - Beverage and Tobacco Product Manufacturing
- NAICS 313 - Textile Mills
- NAICS 314 - Textile Product Mills
- NAICS 315 - Apparel Manufacturing
- NAICS 316 - Leather and Allied Product Manufacturing
- NAICS 321 - Wood Product Manufacturing
- NAICS 322 - Paper Manufacturing
- NAICS 323 - Printing and Related Support Activities
- NAICS 324 - Petroleum and Coal Products Manufacturing
- NAICS 325 - Chemical Manufacturing
- NAICS 326 - Plastics and Rubber Products Manufacturing
- NAICS 327 - Nonmetallic Mineral Product Manufacturing
- NAICS 331 - Primary Metal Manufacturing
- NAICS 332 - Fabricated Metal Product Manufacturing
- NAICS 333 - Machinery Manufacturing
- NAICS 334 - Computer and Electronic Product Manufacturing
- NAICS 335 - Electrical Equipment, Appliance, and Component Manufacturing
- NAICS 336 - Transportation Equipment Manufacturing
- NAICS 337 - Furniture and Related Product Manufacturing
- NAICS 339 - Miscellaneous Manufacturing
The North American Industry Classification System (NAICS) says, "The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufactured products is considered manufacturing, except in cases where the activity is appropriately classified in Sector 23, Construction.
Establishments in the Manufacturing sector are often described as plants, factories, or mills and characteristically use power-driven machines and material handling equipment.
However, establishments that transform materials or substances into new products by hand or in the worker's home and those engaged in selling to the general public products made on the same premises from which they are sold, such as bakeries, candy stores, and custom tailors, may also be included in this sector.
Manufacturing establishments may process materials or may contract with other establishments to process their materials for them. Both types of establishments are included in manufacturing.
The materials, substances, or components transformed by manufacturing establishments are raw materials that are products of agriculture, forestry, fishing, mining, or quarrying as well as products of other manufacturing establishments.
The materials used may be purchased directly from producers, obtained through customary trade channels, or secured without recourse to the market by transferring the product from one establishment to another, under the same ownership.
The new product of a manufacturing establishment may be finished in the sense that it is ready for utilization or consumption, or it may be semi-finished to become an input for an establishment engaged in further manufacturing.
For example, the product of the alumina refinery is the input used in the primary production of aluminum; primary aluminum is the input to an aluminum wire drawing plant; and aluminum wire is the input for a fabricated wire product manufacturing establishment.
The subsectors in the Manufacturing sector generally reflect distinct production processes related to material inputs, production equipment, and employee skills. In the machinery area, where assembling is a key activity, parts and accessories for manufactured products are classified in the industry of the finished manufactured item when they are made for separate sale.
For example, a replacement refrigerator door would be classified with refrigerators and an attachment for a piece of metalworking machinery would be classified with metalworking machinery. However, components, input from other manufacturing establishments, are classified based on the production function of the component manufacturer.
For example, electronic components are classified in Subsector 334, Computer and Electronic Product Manufacturing, and stampings are classified in Subsector 332, Fabricated Metal Product Manufacturing.
Manufacturing establishments often perform one or more activities that are classified outside the Manufacturing sector of NAICS. For instance, almost all manufacturing has some captive research and development or administrative operations, such as accounting, payroll, or management.
These captive services are treated the same as captive manufacturing activities. When the services are provided by separate establishments, they are classified in the NAICS sector where such services are primary, not in manufacturing.
The boundaries of manufacturing and the other sectors of the classification system can be somewhat blurry. The establishments in the Manufacturing sector are engaged in the transformation of materials into new products. Their output is a new product. However, the definition of what constitutes a new product can be somewhat subjective.
As clarification, the following activities are considered manufacturing in NAICS:
- Apparel jobbing (assigning materials to contract factories or shops for fabrication or other contract operations) as well as contracting on materials owned by others
- Electroplating, plating, metal heat treating, and polishing for the trade
- Fabricating signs and advertising displays
- Fresh fish packaging (oyster shucking, fish filleting)
- Grinding lenses to prescription
- Lapidary work for the trade
- Leather converting
- Machine shops
- Milk bottling and pasteurizing
- Printing and related activities
- Ready-mix concrete production
- Rebuilding or remanufacturing machinery (i.e., automotive parts)
- Ship repair and renovation
- Tire retreading
- Water bottling and processing
- Wood preserving
Conversely, there are activities that are sometimes considered manufacturing, but which for NAICS are classified in another sector (i.e., not classified as manufacturing). They include:
- Logging, classified in Sector 11, Agriculture, Forestry, Fishing and Hunting, is considered a harvesting operation.
- Beneficiating ores and other minerals, classified in Sector 21, Mining, Quarrying, and Oil and Gas Extraction, is considered part of the activity of mining.
- Constructing structures and fabricating at the construction site by contractors are classified in Sector 23, Construction.
- Breaking bulk and redistributing in smaller lots, including packaging, repackaging, or bottling products, such as liquors or chemicals; assembling computers on a custom basis; sorting scrap; mixing paints to customer order; and cutting metals to customer order, classified in Sector 42, Wholesale Trade, or Sector 44-45, Retail Trade, produce a modified version of the same product, not a new product.
- Publishing and the combined activity of publishing and printing, classified in Sector 51, Information, transform information into a product for which the value to the consumer lies in the information content, not in the format in which it is distributed (i.e., the book or software compact disc).
Types Of Small Business Insurance - Requirements & Regulations
Perhaps you have the next great idea for a product or service that you know will appeal to your local area. If you've got a business, you've got risks. Unexpected events and lawsuits can wipe out a business quickly, wasting all the time and money you've invested.
Operating a business is challenging enough without having to worry about suffering a significant financial loss due to unforeseen and unplanned circumstances. Small business insurance can protect your company from some of the more common losses experienced by business owners, such as property damage, business interruption, theft, liability, and employee injury.
Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a loss or recovering with minimal business interruption and financial impairment to your company's operations.
Insurance is so important to proper business function that both federal governments and state governments require companies to carry certain types. Thus, being properly insured also helps you protect your company by protecting it from government fines and penalties.
Small Business Insurance Information
In the business world, there are many risks faced by company's every day. The best way that business owners can protect themselves from these perils is by carrying the right insurance coverage.
The The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.
Commercial insurance is particularly important for small business owners, as they stand to lose a lot more. Should a situation arise - a lawsuit, property damage, theft, etc. - small business owners could end up facing serious financial turmoil.
According to the SBA, having the right insurance plan in place can help you avoid major pitfalls. Your business insurance should offer coverage for all of your assets. It should also include liability and casual coverage.
Types Of Small Business Insurance
Choosing the right type of coverage is absolutely vital. You've got plenty of options. Some you'll need. Some you won't. You should know what's available. Once you look over your options you'll need to conduct a thorough risk assessment. As you evaluate each type of insurance, ask yourself:
- What type of business am I running?
- What are common risks associated with this industry?
- Does this type of insurance cover a situation that could feasibly arise during the normal course of doing business?
- Does my state require me to carry this type of insurance?
- Does my lender or do any of my investors require me to carry this type of policy?
A licensed insurance agent or broker in your state can help you determine what kinds of coverages are prudent for your business types. If you find one licensed to sell multiple policies from multiple companies (independent agents) that person can often help you get the best insurance rates, too. Following is some information on some of the most common small business insurance policies:
|Business Insurance Policy Type||What Is Covered?|
|General Liability Insurance||What is covered under commercial general liability insurance? It steps in to pay claims when you lose a lawsuit with an injured customer, employee, or vendor. The injury could be physical, or it could be a financial loss based on advertising practices.|
|Workers Compensation Insurance||What is covered under workers compensation insurance? This type of insurance protects a business and its owner(s) from claims by employees who suffer a work-related injury, illness or disease. Workers comp typically provides the injured employee with benefits to cover medical expenses, a portion of his/her lost wages, rehabilitation costs if applicable, and permanent partial or permanent total disability.|
|Product Liability Insurance||What is covered under product liability insurance? I pays an injured party's settlement or lawsuit claim arising from a defective product. These are usually caused by design defects, manufacturing defects, or a failure to provide adequate warning or instructions as to how to safely use the product.|
|Commercial Property Insurance||What is covered under business property insurance? General liability policies don't cover damages to your business property. That's what commercial property insurance is for. It protects all of the physical parts of your business: your building, your inventory, and your equipment, giving you the funds you need to replace them in the event of a disaster. If you work from home, you might consider a Home Based Business Insurance policy instead.|
|Business Owners Policy (BOP)||What is covered under a business owners policy (BOP)? This is a policy designed for small, low-risk businesses. It simplifies the basic insurance purchase process by combining general liability policies with business income and commercial property insurance.|
|Commercial Auto Insurance||What is covered under business auto insurance? This type of insurance covers automobiles being used for business purposes. This could include a fleet of business-only vehicles or a single company car. In some cases it might cover your car or your employee's car while they're being used for business. These policies have much higher limits, ensuring you can cover your costs if one of these vehicles gets into an accident.|
|Commercial Umbrella Policies||What is covered under commercial umbrella insurance? This type of policy is a sort of "gap" insurance. It covers your liability in the event that a court verdict or settlement exceeds your general liability policy limits.|
|Liquor Liability Insurance||What is covered under liquor liability insurance? It covers bodily injury or property damage caused by an intoxicated person who was served liquor by the policy holder.|
|Professional Liability (Errors & Omissions)||What is covered under professional liability insurance? This type of business insurance is also known as malpractice oe E&O. It covers the damages that can arise from major mistakes, especially in high-stakes professions where mistakes can be devastating.|
|Surety Bond||What is covered under surety bonds? Bonding is a contract where one party, the SURETY (who assures the obligee that the principal can perform the task), guarantees the performance of certain obligations of a second party, the PRINCIPAL (the contractor or business who will perform the contractual obligation), to a third party, the OBLIGEE (the project owner who is the recipient of an obligation).|
Who Needs General Liability Insurance? - Virtually every business. A single lawsuit or settlement could bankrupt your business five times over. You might also need this policy to win business. Many companies and government agencies won't do business with your company until you can produce proof that you've obtained one of these policies.
Business Insurance Required by Law
If you have any employees most states will require you to carry worker's compensation and unemployment insurance. Some states require you to insure yourself even if you are the only employee working in the business.
Your insurance agent can help you check applicable state laws so you can bring your business into compliance.
Other Types Of Small Business Insurance
There are dozens of other, more specialized forms of small business insurance capable of covering specific problems and risks. These forms of insurance include:
- Business Interruption Insurance
- Commercial Flood Insurance
- Contractor's Insurance
- Cyber Liability
- Data Breach
- Directors and Officers
- Employment Practices Liability
- Environmental or Pollution Liability
- Management Liability
- Sexual Misconduct Liability
Whether you need any or all of these policies will depend on the results of your risk assessment. For example, you probably don't need an environmental or pollution policy if you're running an IT company out of a leased office, but you would need data breach and cyber liability policies to fully protect your business.
Also learn about small business insurance requirements for general liability, business property, commercial auto & workers compensation including small business commercial insurance costs. Call us (855) 767-7828.
Additional Resources For Manufacturing Insurance
Learn all about manufacturing insurance. Manufacturers face many unique risks such as product libility and/or product recall exposures due to the nature of their business operations.
- Audio & Video Equipment
- Auto Parts
- Brooms & Brushes
- Camping Equipment
- Canned Fruit & Vegetables
- Canvas Products
- CBD Oil And Hemp
- Clock & Watch
- Commercial Air Conditioning
- Commercial Electronics
- Communications Equipment
- Construction Equipment
- Cork Products
- Down And Feather Products
- Dry Ice
- Dyes & Pigments
- Electronic Toys & Games
- Exercise Equipment
- Farm Equipment
- Feed & Grain
- Fur Garment
- Garage Door
- Gypsum Products
- Iron & Steel Foundries
- Lawn Mowers
- Leather Apparel
- Lighting & Wiring
- Lumber & Wood Products
- Machine Shop
- Major Electrical Appliances
- Marijuana Products
- Mattresses & Box Springs
- Metal & Plastic Furniture
- Metal Heat Treating
- Metal Toys
- Musical Instruments
- Nonferrous Foundries
- Ornamental Metalwork
- Paper & Allied Products
- Pet Food
- Plastic & Rubber Toys
- Plastic Goods
- Plastics Molding, Forming & Extruding
- Product Liability
- Pulp & Paper Mills
- Residential Air Conditioning & Heating
- Rubber Goods
- Sawmills & Planing Mills
- Screw Machine Products
- Sheet Metal
- Soap & Detergent
- Small Electrical Appliances
- Sporting Goods
- Stone Products
- Textiles Finishing & Coating
- Tool & Die Shops
- Vending Machines
- Wire Rope
- Wood Furniture
- Writing Instruments
For manufacturers, having the proper coverage is very important. You will need Products/Completed Operations Liability Coverage to protect you against injuries or property damage cause my the products you make or sell.
Manufacturing is an extremely broad category that includes countless potential hazards and exposures in virtually all coverage areas. Because of this, every individual manufacturer is unique and a specific risk survey of every operation is advisable.
The basic insurance needs for every class of business or operation includes property coverage for buildings, machinery and equipment, as well as for raw stock and finished products.
Liability insurance for premises exposures is important but products liability insurance presents greater concerns so these exposures and coverage needs must be evaluated carefully.
In addition, protection for injuries to workers, environmental coverages and automobile insurance are priority items.
What does the insured does that could result in a covered loss? The insuring agreement only requires that the insured be legally obligated to pay damages for injury to others or damage to their property included within the products-completed operations hazard covered by the insurance.
Because of this, every product manufactured and completed operation exposure for each named insured must be determined, described and evaluated to be certain that each represents acceptable exposures, or are acceptable classes of business to the insurance company providing coverage.
Once the extent of all business activities and operations is determined, the process of identifying hazards begins. The first step in the process is completely listing and describing all current products being manufactured and projects being worked on.
The next step is obtaining the same information for discontinued products and completed projects for the past five to 10 years, depending on the products or projects involved. This should include an explanation of why the products were discontinued. If some completed projects were of a different type than those currently being worked on, an explanation is in order, including whether the insured may resume them in the future.
Minimum recommended small business insurance coverage: Building, Business Personal Property, Business Income with Extra Expense, Equipment Breakdown, Employee Dishonesty, Accounts Receivable, Computers, Goods in Transit, Valuable Papers and Records, General Liability, Employee Benefits Liability, Environmental Impairment Liability, Umbrella Liability, Hired and Non-owned Auto Liability & Workers Compensation.
Other commercial insurance policies to consider: Earthquake, Flood, Cyber Liability, Employment-related Practices Liability, Business Auto Liability and Physical Damage and Stop Gap Liability.