Purchasing property and liability insurance for your business can protect you from unforeseen disaster and make it easier to sleep at night.
You may be able to get broader coverage and a cheaper premium by buying property and liability insurance together in what's called a "business owners" policy ("BOP") or "comprehensive general liability" ("CGL") policy. But you'll want to take a good look at what you need to insure and shop around before settling on one policy.
Basic Property Insurance
You'll definitely need fire, theft and damage coverage for:
Buildings
Furniture
Equipment
Inventory
Accounts receivable records
Vehicles
Intangible property like trademarks or business goodwill
Insuring for Special Property Issues
If your business is in an area where floods, hurricanes or earthquakes are common, or if your business is prone to specific safety risks, such as glass breakage or toxic chemicals, you might want to check into the cost of extra insurance to cover those mishaps.
What Business Insurance Costs
Property insurance costs are based on actual cash value (meaning the market or depreciated value of the property) or replacement cost.
The cost of business property insurance will vary depending on whether you have a named-peril or an all-risk policy. A named-peril policy only covers losses from specific named perils, such as fire, smoke, and so forth. An all-risks policy covers losses from all perils except those specifically excluded from the policy. An all-risk policy will usually be more expensive, but it's important to carefully compare policies to be clear about what coverage you're actually getting.
The cost of property insurance will also depend on the type of business you have, where your business is located, the presence of safety equipment, such as water sprinklers and how many employees you have.
Deciding on a Deductible
The number of insurance claims you're anticipating will determine the type of deductible you need. If you think your chance of having a claim is low, you might want to consider what's called a per claim deductible. If you have a lot of claims, you'll probably want your deductible calculated on what's called an aggregate basis.
Liability Insurance
Business liability insurance is necessary to protect against losses your employees or machinery may cause. Even if your state's laws don't require you to carry liability insurance, it's a good idea.
Business liability insurance covers:
Premises and operations
Leasing mishaps
Contracts
Products and operations
Injury to customers
Vehicle accidents
Professional malpractice
Professional liability insurance - sometimes referred to as errors and omissions insurance - protects against professional misjudgments that cause damage to others. An example would be insurance to cover surgery where the doctor used the wrong procedure or otherwise made a mistake.
Liability insurance is usually purchased according to "limits of liability," the maximum amount the policy will pay on a single incident. Limits of liability are sometimes divided into bodily injury and property damage, and should cover the costs of defending yourself in court.
Typically, a liability policy won't protect you against claims from:
Contract nonperformance
Wrongful employee termination
Sexual harassment
Other employee-related lawsuits
You can sometimes purchase separate insurance called employment practices liability insurance (EPLI) to cover such claims.
Checking Out Insurance Companies
When shopping for insurance, you can get information about the companies you're interested in from many sources. Ask the agent for background materials on the company.
Most states have governmental agencies that regulate insurance activities, and can provide information about complaints against specific insurance companies. You may also want to review rating services reports published by such companies as A.M. Best, Standard & Poors, Moodys or other rating services.
A little bit of research when purchasing business insurance can save you money in the long run.
Sherrie Bennett is the former director and staff attorney at the University of Washington Student Legal Services in Seattle.
