If you are staring a new business, there are many things to think about and usually commercial insurance is last on the list. Here is a very simplified guide to the basic coverages to consider.
1. General Liability: Every business should have Commercial General Liability Insurance. There are three basic coverages General Liability provides:
- Bodily injury: This is your basic customer slips and fall type of coverage. For your General Liability coverage you have to be negligent in some way (did you properly clear the sidewalk). However, most General Liability policies have what is called Medical Expense coverage. This is a goodwill type of coverage. You may not be negligent when your customer fell and broke their leg but your insurance carrier will usually pay up to $5,000 to help with medical expenses.
- Property damage: Provides coverage for property damage to another business or person that your business is legally liable for. Property damage is defined as physical injury to tangible property.
- Personal and advertising injury: This covers claims such as libel, slander, false arrest, use of another’s advertising idea or infringing on another copyright.
It is also important to note the Commercial General Liability covers non-professional negligent acts.
2. Property: Property coverage also has three main components:
- Building coverage: You may need coverage for the building you bought for your business. This can often be confusing on what value you need to insure the building at. When it comes to insurance buildings are typically insured on replacement cost or actual cash value. The most common coverage type is replacement cost which is the value to replace the building. If you choose to insure on actual cash value it is replacement cost minus depreciation. Most insurance companies have a software system they use to help determine the building value. It is important to note that replacement value and market value of a building are usually two very different numbers.
- Contents or Business Personal Property: This is any item that would fall out if you took the building and turned it upside down. This can also be insured on Replacement Cost or Actual Cash Value. As with building coverage we highly recommend insuring on Replacement Cost.
- Business Income and Extra Expense: Business income provides net income that would have been earned or incurred, if you are unable to operate for a period of time due to a covered loss. This can be done with a limit on the policy or insured for actual loss sustained. Whenever possible we recommend insuring on actual loss sustained. There is usually a time deductible on this coverage which means coverage won’t start until you have been unable to operate for usually 24 to 72 hours. Extra Expense provides the necessary expenses you incur during the “period of restoration” that you would not incurred if there had been no direct physical loss. This includes relocation expenses, cost to equip and operate the temporary or replacement location.
As I mentioned this is just the basics, there are many other coverage options and depending on your type of business other important coverages you may need. It is important to consult your insurance agent to determine what types of coverages are necessary for your business needs.