Business Insurance

Business insurance offers protection against significant risks to the business. There are different types of policies to cover different types of risk. The business (also called the “policyholder” or the “insured” in this context) pays a fee called a premium to the insurer to maintain the policy. The premium is often charged monthly or annually. Policies have coverage limits that set the maximum amount the insurance company will pay in the event of a claim or loss. Many policies have limits for each claim (known as “per occurrence”) and aggregate limits that set maximum payout amounts for all claims against the policies. Like in the case of health insurance, business insurance policies also have deductibles that must be met before the insurance company will start paying. Under some policies, these deductibles are structured as self-insured retentions that work slightly differently in that it requires the policyholder to pay out of pocket first before the insurance kicks in (rather than in the case of a deductible, the insurance company pays out first and then seeks reimbursement from the policyholder for the amount up to the deductible).

There are many different business insurance products on the market and insurance companies are constantly developing new products to cover different types of risk. In many cases, the decision of whether to obtain business insurance (assuming it is not required by law or by a commercial partner), will depend on the risks facing the business and the willingness of the business owners to cover those risks themselves.

In some cases, the business activities may be relatively low-risk and the costs of insuring the business might outweigh the potential benefit of obtaining coverage. In other cases, there are clear risks to the business and obtaining insurance coverage can provide valuable protection. It’s important to talk to a qualified legal professional and a licensed insurance agent to evaluate risk and understand the different insurance options that are available. Keep in mind that insurance agents typically receive commissions based on the sale of policies, so it is important to shop around and speak with advisors who have your best interests in mind.

Some of the common business insurance policies are listed below. 

  • General liability insurance – a broad-based policy that covers many different claims brought by third-parties.
  • Workers’ compensation insurance – required by law in most states and by the federal government. 
  • Cyber liability insurance – covers claims related to online and digital activity, including data breaches and cyber security claims.
  • Errors and omissions insurance (called “E&O” insurance) – covers claims that the business made mistakes, misrepresented information, was negligent in providing certain information, published inaccuracies, and other similar claims. 
  • Directors and officers insurance (called “D&O” insurance) – covers claims against the directors and officers of the company resulting from their actions in their capacity as representatives of the company.
  • Commercial auto insurance – covers claims related to automobiles used for the business (typically, helpful for companies with employees who travel by car frequently).

Smaller businesses can also take out a business owner’s policy (also called a “BOP”) that bundles together many different policies into one package. A BOP is typically replaced by individual policies as the company grows in revenue, operations, and employees.