What Is Business Insurance and What Does It Cover? — Backoffice (2022)

In 1992, 79-year-old Stella Liebeck bought a cup of coffee from her local McDonald’s drive-thru in Albuquerque. As she tried to remove the lid to add cream and sugar, the cup tipped over and spilled scalding hot coffee onto her lap, causing severe third-degree burns. Liebeck then took McDonald’s to court, where a judge ruled in Liebeck’s favor, determining that McDonald’s irresponsibly heated his coffee, and awarded Liebeck millions of dollars in punitive damages.

This famous case is also a great illustration of why companies need business insurance. While McDonald’s can absorb the costs of the settlement, any business of any size can be hit hard if faced with a lawsuit. And companies can be held liable for all kinds of incidents, including property damage, car accidents or injured workers. This happens—and business insurance can help protect your company.

What is business insurance?

Business insurance protects businesses against financial losses related to unforeseen events, including property damage, lawsuits, loss of income, theft, employee injuries and illnesses, and workers’ compensation. Simply put, in the case of injury or damage, your business insurance reimburses your company, either in full or in part, for costs. Think of business insurance as a layer of protection.

What does business insurance cover?

“Business insurance”—sometimes called commercial insurance—is a general term, not the name of a business insurance policy you can buy. In fact, when you start researching business insurance, you may find that there are almost as many types of policies as there are businesses. Depending on the type of insurance you need and the policy you choose, business insurance can cover:

• Theft
• Property damage
• Liability coverage
• Legal action
• Vehicle insurance
• Loss of income
• Employee injury/illness
• Employee comp
• customer injury

You can also get a business owner’s policy (BOP), which is an insurance package that combines general liability insurance, commercial property insurance and business income insurance into one policy.

Here are three common types of business insurance and what is covered:

1. Commercial property insurance

Commercial property insurance covers damage to your business property through fire, storm, theft and other property-related events, depending on the policy. These policies usually do not cover against flooding, however, which often requires additional coverage.

Common types of commercial property insurance policies include business personal property, business income, commercial auto, commercial flood and home-based business insurance.

Situations that may require commercial property insurance include:

• Your grocery store is broken into and robbed. Commercial property insurance can help cover the cost of repairing and replacing stolen inventory.
• A forest fire destroys your property. Property insurance can help cover loss of income and potentially help buy a new property.

2. Liability coverage

A liability protection policy provides legal liability protection for all the ways your company could be sued. This includes bodily injury, property damage caused by your company (as opposed to damage to your company’s property), advertising injury, employment practices and errors or omissions. Common types of liability policies include general, commercial umbrella, directors and officers, and professional liability insurance.

Situations that may require liability insurance include:

• A customer was injured as a result of a fall on your property. Sometimes called a “slip and fall,” this condition can potentially lead to medical expenses and lawsuits.
• Your accounting business made a mistake. The result is that your customers have to pay hundreds of thousands of dollars in back taxes. Professional liability insurance—also called errors and omissions—can help cover these costs.
• An employee falls for a phishing email. The perpetrator managed to steal sensitive customer data. Cyber ​​liability insurance helps you compensate victims, cover legal costs, pay for public relations to repair damage to your reputation and cover credit monitoring costs for affected customers.

3. Employee insurance

Even small business owners need a business insurance policy: If your US-based business has three or more employees, you are required by federal law to have workers comp and disability insurance. Workers’ comp protects your employees’ lost wages if they are injured on the job and unable to work, and is typically used as a substitute for litigation. Employer’s liability insurance covers additional costs if the employee’s bill is not covered by either.

Disability insurance is either short-term or long-term. Long-term disability insurance is usually reserved for wealthy individuals or provided by the government, while short-term disability insurance is provided by companies. It is used for injuries that lead to more time off from work than the employee is covered for but usually last less than a year. It can also cover illness or injury that occurs outside of work.

Situations that may require workers’ comp insurance include:

• A worker hits a forklift. They didn’t know it had a flat tire. This type of workplace accident may be covered by the employee’s company.
• Your delivery driver had a car accident. Their leg was broken during the accident and they choose to sue you for more compensation. While your auto insurance covers the car and employee costs cover the initial costs, employer’s liability insurance can help cover the additional costs you claim.
• Your receptionist has cancer. Short-term disability insurance may cover 80% of their salary for three to six months.

When does a business need insurance?

It’s a very good idea to have business insurance, no matter what your company does or how big it is. Every company—from a small sole proprietorship to a large corporation is potentially at risk of accidents, natural disasters and being sued. It is a business reality.

Here are some specific situations you’ll want to make sure you’re covered for:

• You have employees. Employees help, but they create a whole area of ​​potential liability. Make sure you’re covered with workers’ comp, disability and employer’s liability insurance.
• Your business has grown. As your small business grows, so do your business insurance policy needs. Maybe you have a new property, more employees, or more profit. Update your insurance policy to keep up with changes at your company.
• You acquire a business vehicle. Got a new work car, van or truck? You will want to get auto insurance for the same reason you insure your personal vehicle.
• You need industry specific insurance. Some industries have specific insurance policies to cover incidents that are more likely to occur in their line of work. A photographer, for example, may have very different needs than a grocery store or auto mechanic.
• You have recently signed a lease. It is important to obtain general liability insurance any time your company signs a lease. In fact, many landlords require it.
• It is required by law in your jurisdiction. Most US states require some type of business insurance, whether it’s commercial auto insurance or workers’ compensation insurance. The federal government also has additional requirements, including workers’ comp, unemployment and disability insurance.

Business insurance FAQs

What is business insurance and why is it important?

Business insurance protects businesses from the costs of unexpected events or disasters. This is important because major events—such as lawsuits, natural disasters, or workplace accidents—can devastate a business financially.

What are the different types of business insurance?

There are different types of business insurance, including commercial property insurance, liability insurance and workers’ comp insurance, each of which covers different aspects of business operations.

What does business insurance usually cover?

Business insurance coverage varies from industry to industry, and from business to business. Generally, business insurance covers business assets, including physical property, financial assets and intellectual property.

source: https://www.shopify.co.id/blog/what-is-business-insurance