Business Insurance – What Is It and What Does It Cover?
As a licensed business insurance agent, the two questions I am asked most often are: what is business insurance and what does it cover?
Unfortunately, there are no clear answers because all businesses are unique in their scope of operations. Your business insurance policy might be completely different from someone else’s. In this post, I am going to walk you through some of the basics of business insurance, and hopefully educate you on the different areas of a small business insurance plan. Most people have some sort of personal policy, like a homeowner’s policy or a car insurance policy, but not everyone needs to worry about business insurance. Using examples to relate to your personal policy, we are going to go over the five major areas of a business insurance policy: Property, General Liability, Auto, Worker’s Compensation, and an Umbrella policy.
When assessing the insurance needs of a small business, I find that it is sometimes better to imagine that business as a person to put things in perspective. Now the business could have one person working there or could have fifty employees working there, but either way we need to take a look at the company as a whole and identify any risks associated.
The most logical place to start when looking at business insurance is at the property of the business. Usually, the first question to ask is, “do you own your location?” If you own the building or space out of which your business operates, then you will need to insure that actual structure.
Many small businesses do not own their building, so this part doesn’t come into play often. But most businesses have some amount of personal property to insure. Your business’ personal property is all the equipment that you use on a day-to-day basis to run and operate your business. This includes everything from computers, desks, chairs, and office supplies, to your store inventory or even the tools on your truck. Personal property is essentially everything owned by the business, and it is important when discussing this section with your Bridge First Insurance agent that you are insuring everything to 100 percent of value. Business owners will sometimes estimate on the low side of this number to save premium dollars, which can be problematic. At times of loss there is no negotiating for a higher limit.
The second part of a business insurance policy is the general liability section. While some businesses might not need a property section on their insurance plan, every business has a general liability exposure and needs to have coverage for it. Even if you are a one-man show or if you have 150 employees working in three different states, every time you or an employee does work for a customer, there is a liability risk.
A business’ general liability risk is determined by a few different factors: scope of operations, claims history, and size of the company. Your scope of operations and claims history are obvious factors. You will get charged the appropriate rate for your particular industry, and if you have a clean claims history you might be eligible for some discounts.
The size of your company is the variable factor, and the number of employees you have or your annual revenue is used to calculate your premium. Your annual revenue is used because it provides a common factor across industries. For example a one person HVAC contractor that has $250,000 will pay less than a HVAC contractor with 15 employees and $2,500,000 in annual revenue. It is important to work with your Bridge First Insurance agent on these numbers to make sure you are properly rated and covered.
While every business has a general liability exposure, your business might not have an auto liability exposure, or it might have one of which you are not aware. If your business has a vehicle titled to it, then you need to have a commercial auto policy. Similar to your personal car insurance policy, a commercial auto policy is designed to protect your company’s vehicle(s) if they are ever involved in an accident and provide liability protection for any damage cause if you or one of your employees is at fault for the accident.
Auto accidents are the number one source of claims made by business owners, and can often times prove to be costly. Your rates are obviously determined by the number of vehicles you have, but they are also determined by the drivers’ history.
Each employee that is allowed to drive a company vehicle will have their Motor Vehicle Record (MVR) checked, and bad driving records can negatively affect your rate. Your Bridge First Insurance agent can help you implement some best practices and policies in your work place, but here are a few free tips.
First, ask prospective employees to provide a copy of their driving record prior to employment. Second, implement monthly safety meetings to explain cell phone and other driving policies. Lastly, do not let someone drive if you are worried about his or her driving ability, and always make your insurance company aware of any new drivers. The last thing you want to read is a headline in your local newspaper about your company’s van causing a 10-car accident. Even if your company doesn’t own any vehicles but you have an employee, you still have an auto liability exposure for your employees that often take their own vehicles to pick up coffee or run to the post office. Make sure you work with a Bridge First Insurance agent on your small business insurance policy to cover your auto liability exposure.
If you are an employer, you have a risk that can be protected by worker’s compensation. Most states don’t require worker’s compensation until you employ a certain amount of employees (3 in VA), but if you have one employee working for you, then you have at least one employee that could get hurt working for you. Worker’s compensation, commonly referred to as just “work comp”, is used to protect your employees from work related injuries.
To determine work comp rates, each industry has a specific code or classification that it uses. These codes are determined and monitored by a third party entity called the National Council on Compensation Insurance (NCCI), which collects national data every year from each particular industry. Since work comp is calculated as part of your company’s payroll, NCCI uses payroll and claims history to determine rates and classes.
Take a roofing company for example, the roofer doing the work has a higher chance of getting hurt then the administrative assistant in the office, therefore their payrolls are multiplied by different rates to come up with the annual premium.
While every business needs general liability and auto liability, work comp has the highest risk of severity when it comes to claims. If an employee gets hurt on the job and has to miss several weeks of work, your work comp policy would pay for all medical expenses and wage losses. All of which can add up quickly. Work comp also looks back for a 3-5 year claims history, and if you have incurred one of these bigger losses, you will pay for several years. Working with an experienced Bridge First Insurance agent can help lessen the likelihood of these losses and can also help put systems and processes in place to help your company control the cost of these claims.
The last area of risk on a small business insurance policy is an Umbrella policy. Just like a personal umbrella policy will add liability on top of your personal car or homeowner’s insurance, a commercial umbrella will do the same. A commercial umbrella will add liability coverage to your general liability, auto liability, and work comp policies. An umbrella policy will also help in the event of a lawsuit by providing first dollar coverage for legal and defense costs.
We have briefly discussed the five major sections of a business insurance policy, and I hope you learned a few things. Because businesses are so unique, their business insurance policy needs to be tailored to fit their particular industry and add some additional coverage if required. If you have any questions about business insurance or if you are worried about your business liability insurance policy, please don’t hesitate to reach out to your Bridge First Insurance Agent.
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.