If you have a business, you need a commercial insurance policy to protect it.
No matter the size of your business (and yes, side hustles count!), do not rely on your regular policies (homeowners, auto) to provide coverage for your business and its assets (like vehicles). You could end up with a tremendous amount of liability.
Before you launch your new venture, ask yourself these questions:
- Who needs commercial (business) insurance?
- Why do I need commercial insurance?
- How does commercial insurance differ from personal insurance?
- When does my policy need to take effect?
Who needs commercial/business insurance?
The industry name for insurance that covers a business is “commercial insurance.”
You need to purchase a commercial insurance policy when you are starting a new business, taking over a business, or changing existing policies to better meet the needs of your business.
Be aware that your personal insurance does not cover your business. You need insurance that covers your specific business needs in order to protect yourself in the event of a calamity, false advertising, inventory loss, loss of income, and more.
What is commercial insurance?
Commercial insurance policies all begin as a simple liability policy, called a General Liability (GL) or Commercial General Liability (CGL).
A General Liability policy can be stand alone. It covers anything you could be sued for: bodily injury, damage to property, and personal injury.
Bodily injury is when someone slips and falls in your office, or cuts themselves on one of your tools. Personal injury is when the man who slipped and fell lies to the community about you resulting in a loss of business.
If your company is renting space, landlords will require you to have a GL policy to protect them from damages you could incur. The standard amount is one million dollars. This applies whether you are renting office space, warehouse space, industrial space, or a t-shirt shack at the beach.
In addition to those very practical coverage areas, a GL policy covers you against financial damages from things like breach of contract and false advertising. Why risk losing tens of thousands of dollars—or more—in damages from a dishonest client?
The cost of a commercial general liability policy is well worth the protection it affords. Because they are effective and cover so much, most small businesses only get a general liability policy.
How do commercial policies work?
Commercial policies start with general liability. To complete your coverage, depending on the industry in which you do business, you add endorsements to cover specific needs.
For instance, for certain retail, hospitality, and restaurant businesses, food spoilage, bacteria, and viruses are a concern.
If you are a restaurant owner, would your refrigerated and frozen food be covered if it all was ruined in a power outage?
What if bacteria got into your new shipment of meat?
A manufacturing company might not need an endorsement for food spoilage, but would need coverage for “completed operations” and “completed products.”
These are endorsements on your general liability policy; they are not separate policies.
Endorsements allow you to get coverage for what your specific business needs are, rather than paying for coverage specific to other sectors that you do not need.
If you own any property as part of your business (such as a building, equipment, furniture or even your inventory), you’ll add a property exposure endorsement. When you add endorsements to a general liability policy, your insurance is then considered a business owner’s policy.
Every business needs cyber-liability insurance
Do you operate a digital media company? You need one of the fastest growing kinds of insurance on the market today: cyber liability.
Cyber-liability insurance covers you if you are hacked, if you lose sensitive data, suffer a malware, DDOS, or other cyber attack.
Virtually every company connected to the internet has sensitive electronic data that can put your company at risk.
If you store personal employee information like addresses, social security numbers or bank accounts, your corporate financial information, or retirement plan information on a computer with Internet access, you are at risk for a loss. Lawsuits are monstrous when cyber attacks are concerned.
Another related insurance you should consider is business interruption insurance which supplements you in the event of loss of income.
Whether your business is closed for weeks due to road repair or storm damage, business interruption insurance can take the sting out of the loss of business.
Commercial auto insurance is different
A business owner’s policy does not automatically include coverage for company owned vehicles. Those will have to be covered by a separate commercial auto policy.
Imagine you own a plumbing company and have a general liability policy with property exposure. A tornado comes directly through your office, blowing out the windows and breaking three computer monitors and various office items. But, it also damages all of your vans and there isn’t a pipe wrench to be found.
Your business owner’s policy will cover your office items and the contents in the vans (including the pipe wrenches), but you need commercial auto insurance to cover your vans.
Don’t forget workers’ compensation
As you get your business owner’s policy in order, don’t forget your employees if you have any. Workers’ compensation insurance (worker’s comp) is additional to your GL and any endorsements.
If one of your employees is hurt doing the job, hurt while on the job, or in any way related to the job, you can be liable. Neither a general liability policy nor a business owner’s policy will protect you if an employee is injured. You need a worker’s compensation policy whether or not your state requires it.
Here’s a list of workers’ comp requirements for all 50 states from the National Federation of Independent Business.
What about professional liability insurance?
If your business has you offering advice, consulting, selling insurance, online training or other professional services, you need to be covered for the possibility that someone misinterprets or misapplies your advice—or, the possibility that you actually give bad advice—and they experience a negative outcome. This is called “errors and omissions.” That’s when you forget to advise your client in a certain way—or forget to do something—that ends up costing them money, and they want you to pay for it. That means you could be liable and it means you need professional liability insurance before it happens.
There are certain professions that require specialized malpractice insurance. Malpractice insurance is not available through a business owner’s policy; it must be secured separately. These professions include:
- Physicians
- Attorneys
- Therapists/counselors
- Architects
- Financial/investment advisors
- Physical/occupational therapists
When should I secure commercial insurance?
In short, before you open for business, not after. Even better, at least a month before you open the doors. That will give you plenty of time to have a discussion with a trusted advisor about the specifics of your policy, so you have the right coverage and also stay within your budget.
It is in your own interests not to wait until you open your doors for business to secure a policy. Here’s the main reason:
Commercial insurance policies take time for underwriting.
I always ask for 30 days advance notice when writing a commercial policy so the underwriting process can be thorough.
Remember this rule of thumb: The better underwritten your commercial policy is, the better it covers you. Don’t wait until the last minute.
How much does insurance for my business cost?
As you make plans for a commercial insurance policy, the question of “how much is it?” will surely rise. Specific policies differ and one thing to keep in mind is the amount of risk involved in covering your business.
If you are a window washer on the Empire State Building, it is a far greater risk to an insurer to cover you than, say, a custom quilt maker selling on Etsy or someone doing telemarketing from home.
Risk isn’t the only variable, but it is one that plays a big role in underwriting.
Other variables include how much property you have, real estate owned versus office space rented, number of employees to cover, the number of vehicles in your company fleet, how much inventory you keep, and more.
Because these items are different from company to company, you need a trusted agent to meet you at the exact point of your business’s needs.
But don’t let it scare you; navigating those options is where we come in!
Wherever you are in life, our team at the Egly Agency can be trusted to help you evaluate your needs and goals, and the right insurance coverage you’ll need at every stage of your business’s growth. We’d love to have a conversation with you, so call us at 615.250.2723, or fill out the form on this page.
3 Responses
Next year, my mom and aunt want to start a business together, so they’re currently working on their business plan. I liked what you explained about commercial insurance and how your personal plan doesn’t cover your business, so I’ll make sure my mom reads this to prevent a major financial issue. Thank you for the advice on acquiring a specific business insurance plan that protects you in case of inventory loss and more.
Hey Eli! I am sorry that I just saw this! I am so glad this was helpful to you. Reach out to us if we can be of further assistance to your mom and aunt! Sending our best vibes their way as they launch their new business 🙂
— Jason
Thanks for explaining how occupational therapists would also need commercial insurance policies in the long run. I’d like to find a good commercial insurance provider soon because I’m thinking about starting my own business soon. I think that getting the right kind of insurance for that would be crucial to look into as early as possible.