Business Insurance 101 - What You Need to Know

Business Insurance 101 – What You Need to Know

In this video and post, I’m going to give you a broad overview of business insurance – the basics of understanding insurance policies in general, the types of policies most business owners need, how you want to go about buying business insurance and a whole lot more.

My goal is to help you understand how business insurance works so you have the knowledge to make better decisions on protecting your business.

And that’s really the bottom line – we’re talking about buying protection for what is probably your biggest asset – your business.

You can go cheap and maybe not get all the right coverage, or you can do it right and safeguard this asset. That’s up to you.

Now, if you have a specific question I didn’t answer here, or you need further guidance – contact me.

Even if you’re not ready to buy or switch brokers, I’m happy to go over your questions or issues with you.

Okay, so let’s jump into it.

The first thing I want to talk about is how most business insurance policies are structured.

There are five important points here to go over.

Coverage

Sometimes called the coverage grant or insuring agreement is the section of the policy which defines what this policy intends to cover and under what circumstances.
For example, in a general liability policy, this will start with wording like: the insurance company will pay sums that the insured becomes legally obligated to pay as damages and so forth.
The second section of the policy is the exclusions

So the first part of the coverage broadly states what this policy covers, then the coverage grant is narrowed in scope.
These exclusions often will make sense.
Like in a liability policy there will be no coverage if you expect or intend to do harm to someone else.
In many policies, common exclusions will be for perils or acts which are better covered under other policies.
Such as in the liability policy workers’ compensation claims are excluded as are employment-related claims because these exposures are better covered by other policies.Now you may be thinking – that’s just like an insurance company – just exclude everything, but the truth is that if these exclusions weren’t in the policy, the cost of coverage would be too high to afford it.
The next item to look at in a policy are the limits of coverage.

These are the amounts the insurance company will pay up to if there is a covered claim.
For property insurance policies it’s important to review the limits with respect to your building, contents, business income, and more and to make sure they coordinate with things like co-insurance, valuation, and other policy conditions.For liability coverages, be aware of the occurrence limits – the maximum amount the insurance company will pay for any one claim and the aggregate limits – the maximum amount the insurer will pay for all claims in any one policy term or year.
Definitions

An insurance policy is a legal contract between you and your insurer.
Some policies are a hundred or more pages and there are a lot of terms and words used that have specific meanings that may not be exactly what you think they mean in common language so there’s a section in every policy called definitions.If a word is written in bold letters that means that word or term is defined, so you go to the definition section to understand how the insurance company is defining it.
The last one is deductible and in some policies, a deductible is called retention.

They both mean essentially the same thing – it’s the amount of money you will pay out of pocket before your insurance company pays in a claim.The one thing that I want to mention about deductibles is that the agent or company you’re working with may quote your insurance with what deductible they think makes sense, and depending on the size of your policy it may make sense to look at higher deductibles in order to save money.

If you think you’re not likely to have claims and you do a good job controlling risk then maybe it makes sense to have higher deductibles.

Okay, so that’s how most commercial insurance policies are structured and I want to add here that business insurance policies can be complex because after the basic policy there are often several amendatory endorsements and other forms added to policies that can expand or restrict coverage terms.

This means that having an expert guide you through all of this makes sense in my opinion.

If you decided to buy business insurance direct for an online portal with no human interaction, how do you know what you’re really getting?

How do you know what to ask for?

Yes, online insurers are fast and easy – but that doesn’t necessarily make them accurate, or comprehensive, or correct.

The deployment of artificial intelligence or AI in the insurance buying process isn’t going to know what questions to ask to make sure you’re getting what you really want so I just want to add that word of caution here.

So moving on to what types of insurance do most businesses need?

There are six categories of insurance policies most small businesses need that I’ll explain.

Again, keep in mind that this is a broad overview of the insurance 101 video, it’s not an in-depth examination of what you specifically need.

Generally speaking here’s what the most common policies are for business owners:

Property Insurance

This is coverage for your building, business personal property, or contents, if you’re a tenant then the improvements you put into your landlord’s building need to be identified and insured here, and lastly your business income.Business income or business interruption or loss of income is often misunderstood, but it pays you, the insured when you are forced out of your premises by a covered claim and cannot earn income.

This is a critically important coverage part and in most business owner policies or BOP policies, your insurer gives this coverage to you without a stated limit. Instead, you get up to 12 months of coverage for the actual loss you sustain in claims.
General liability

Often called GL coverage. GL provides protection for claims arising from bodily injury, property damage, and personal injury.Coverage includes not only protection from lawsuits and settlements but also defense costs – meaning lawyers’ fees and other costs associated with defending you from lawsuits even if those claims are baseless.

In many small business policies, property and liability coverages are combined in a BOP policy I mentioned just a minute ago.
At a minimum, you should purchase general liability limits of $1,000,000. for more detail on GL coverage you can view this video here: https://youtu.be/wXEwQsyhALo
Workers Compensation

Workers Comp protects you from claims of your employees who are injured on the job. It is intended to pay for their medical bills and a portion of lost wages incurred while injured on the job.Workers comp is mandatory in most states when you have employees.

A point I want to make here is that many small business owners will say to themselves – if I hire workers as independent 1099 contractors then I don’t need to worry about workers comp, payroll taxes, and similar issues like that.

But be careful, there are several litmus test rules the IRS uses to determine whether a worker is an employee or independent contractor, and regardless of what the IRS says, if a worker is injured in your employ, they may seek workers comp benefits.

The last thing you want to worry about is paying those benefits out of pocket – imagine a serious injury and how costly that would be – and then being fined by the workers’ comp board for failing to have workers comp insurance.

In my opinion, it’s wiser to pay the premium for workers, than risk paying a big claim out of pocket. For more detail on workers comp you can see this video; https://youtu.be/v0nycGQhcb0
Commercial Automobile

Commercial auto insurance covers you for both owned vehicles you have in your business as well as for firms with no autos, it can extend to non-owned and hired automobiles as well. I recommend purchasing limits of $1,000,000 of auto liability limits.
Number 5 on the list is a commercial umbrella or excess liability insurance.

Umbrella and excess insurance provide extra protection over and above your primary policies such as general liability, auto liability, and employers liability which is part of your workers’ comp policy.

Why do you need an umbrella or excess policy? Because $1M of primary general or auto liability is not sufficient to protect you from potentially catastrophic lawsuits that regularly happen today.

Again, going back to the premise that your business is your biggest asset means protecting that asset.

The other point I want to make about umbrella insurance is that it normally does not protect over and above the policies I’ll speak about in the next section Umbrella policies do not run over and above professional liability, employment practice liability, D&O liability, and similar policies.

To get higher limits of protection on these forms of insurance usually means purchasing separate excess policies on each coverage form.
Miscellaneous or other coverage forms to consider. Depending on the type of business you’re in you may want to consider the following:
1. Professional liability – if you provide advice or services of a professional nature then you may need professional liability insurance sometimes called Errors & Omissions or E&O Insurance.
  You can see more about that in this video: Professional Liability Insurance | E&O- When Do You Need It?
2. Employment Practice Liability – for any employer, Employment Practice Liability sometimes called EPL or EPLI is important to protect the employer and firm from claims which can arise from wrongful employment acts.
  I’ve done several videos on this topic and you can view that here: Employment Practice Liability Insurance (EPLI) – What Is It and Why You Need It
3. Cyber insurance – regardless of the size of your company, cyber insurance is must-have protection to protect you and your data from a variety of claims and losses that can occur.
  I believe that cyber risk is the number one threat to any small business’s sustainability and you can see more about that here:
  Cyber Insurance – Do You Need It? How Do You Get It? How Much Does It Cost?
4. D&O Insurance – Directors and Officers Liability insurance may not be needed by every business, especially smaller businesses, but many types of firms should consider purchasing it. Especially those in the financial services industry and any firm that has investors.
  In this video, I explain what D&O for private firms is all about: D&O Explained To Private Companies
5. There are tons of miscellaneous and extra coverages to consider such as flood insurance, inland marine, equipment breakdown, and more, and that’s the value of working with an independent agent or broker who is a commercial insurance expert to help you identify risks and policies you should consider.

How you can purchase business insurance?

I mentioned earlier that you can purchase insurance in a variety of different ways.

You can use a neighborhood insurance broker, you can use a broker you find online, you can purchase directly from an insurance company online or in person, or you can purchase from a newer breed of insurance providers called insur-tech firms who use a mostly human-less interface to make the buying process quick and easy.

I’m not going to say which one is right or better than the other because buyers have different buying styles, but what I will tell you about are some of the differences.

Buying direct from an insurance company like Allstate, Geico, Hartford online, or others means that you’re usually just getting their one brand of insurance and no other options.

That means you may need to initiate the buying process multiple times to get different ideas, quotes, and opinions. That can be inefficient and lack expertise.

Buying from an insur-tech firm with no human interaction leaves a lot up to chance.

You become the insurance expert and may need to do a lot of research to find out what you need and how much of what you need.

Lastly, you can buy from an independent agent or broker, whether you find them online or find them locally who probably represents multiple insurers to get you options and competitive quotes.

The bottom line is regardless of who you purchase from you want to make sure that person or firm is going to advocate for you and be there when something goes wrong.

You’re going to want to like and trust the firm you doing business with, and they should be an expert in your industry and in commercial insurance in general.

Here’s what you get when you work with a firm like mine:

No call centers. You get a dedicated account manager who is friendly, helpful, and there for you when you need help.

Clear, honest advice and guidance. We don’t work for an insurance company, we advocate for you in good times and bad.

Multiple company representation – we represent the top brand name insurers to find you the best coverage options to fit your needs.

Expertise – all we do is business insurance. We don’t get involved in home or auto insurance, life, or benefits.

That means we spend all day, every day working with clients like you on business insurance and have the experience and expertise to solve your problems and questions.

So that wraps it up.

I hope you found this video helpful and that it broadened your understanding of business insurance. If you’re online looking for coverage, I hope you’ll consider giving me a call or dropping me an email.

I’m here to help you get the right protection at the right price and I really enjoy working with business owners so let’s chat.

Thanks!