Buying commercial insurance is more than setting the amount of coverage. As you will see, a detailed analysis is necessary if the policy is to be written correctly.
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Commercial Insurance for Small Businesses
What types of insurance are there and which ones would I need?
Types of commercial insurance
As a small business owner, there is a wide and varied selection of commercial insurance available for you to consider. We have developed a comprehensive list of the different types of commercial insurance your small business might need. The most important elements of a good insurance policy are the types of coverage and the policy coverage amounts.
Please submit your questions and we will answer them! Policy explanations will be emailed to you and posted here. Other questions will be answered on our blog.
The Business Owners Policy (BOP) is an insurance package that provides essential coverage for the small business owner. This package of insurance coverages includes property and liability protection as well as business interruption and legal protection should you be sued for poor business practices by an employee or client. This broad protection policy combines coverage for most property and liability insurance risks, and includes a few additional coverages that will benefit most small businesses. By purchasing a BOP bundled policy, you might save on costs as well. BOP policies are a great way for you to assure that you have the protections you need without gaps in coverage or the expense of separate commercial insurance policies. BOP coverage is best suited for small business owners who do not have a need for a customized Property or Liability policy.
Business Liability Insurance, AKA Commercial General Business Liability, is very important when listing specific coverages—it can protect you in case you are sued by anyone outside of your business. There are several types of Business Liability Insurance that can help cover legal fees and settlements or award if you are sued. These policies list the specific coverage by name and cover liability costs up to the policy’s limit and often help cover damages if you are found liable, while helping with legal costs too.
|Errors and Omissions Insurance (E&O)/Professional Liability Insurance||This insurance is important if your business gives advice, makes recommendations, designs products, or provides physical care or help to clients, or patients.|
|Employment Practices Liability Insurance (EPLI)||This insurance covers damages, up to the policy’s limit, for violating an employee’s civil or legal rights.|
|Directors and Officers Liability Insurance (D&O)||This insurance provides coverage for directors and officers of corporations and organizations from a lawsuit should they fail to conduct business with proper regard for the rights of shareholders or others.|
|Business Identity Theft Insurance||This type of insurance protects corporations and organizations from identity theft or similar types of fraud situations.|
Commercial Property Insurance protects commercial property from specific listed accidents such as fire, theft and natural disaster depending on the type of plan you choose and may include personal property within the building such as furniture, inventory, technology, and anything used for your business. Commercial Property Insurance is important if your daily business depends on having a physical location, like a store or shop for sales or customer access.
Commercial Auto Insurance covers the financial costs from an auto accident if you or an employee is at fault. Commercial Auto Insurance helps pay for damaged or stolen property and medical expenses. The Business Auto Coverage Form (BACF) is the most commonly used contract for providing business auto liability insurance including cars, trucks, trailers, vans or other vehicles used on public roads. Note: if you are using your own personal car mainly for business, your private auto insurance policy might exclude coverage for an accident. Check with your PRI agent about business auto insurance.
Commercial Umbrella Insurance provides supplemental coverage when the cost of a lawsuit exceeds the liability limits your liability insurance policy. You might require this type of commercial insurance if you’re at risk of major law suits. Essentially, it provides coverage for liabilities above what your other insurance covers. For example: You lose a law suit for $2 million, and your Business Liability Insurance will only cover $1 million. The umbrella policy would cover the remaining $1 million, and it is usually applied to other liability insurance policies as well.
The Terrorism Risk and Insurance Act (TRIA) requires owners of certain types of commercial property which might attract terrorism to offer business owners the opportunity to buy coverage against terrorist attacks. The TRIA also requires Business Owner Policies (BOPs) to offer terrorism insurance in BOP packages. Small business owners are not required to have TRIA coverage. Under the Act, commercial insurers are required to offer coverage against terrorist incidents.
Boiler and Machinery Insurance
Provides coverage against the sudden loss or breakdown of machinery or equipment. These include electrical systems, refrigeration and air conditioning systems, mechanical equipment, modern office equipment such as computers in addition to heating systems your company uses. It is designed to reimburse you for property damage like water for example, and business interruption losses which can be linked as a result of the accident damage. If your production depends on a machine or a piece of equipment you should it insured. If there is a potential for loss of income, incurring extra expenses, such as utility services, or consequential loss such as spoilage, these can be covered through endorsements.
Debris Removal Insurance
Policies with a debris removal provision typically only cover debris resulting from an insured peril during the policy period. Most property insurance policies include payments for debris removal as an Additional Coverage. The insurer promises to pay your expenses to remove debris of covered property caused by or resulting from a covered cause of loss that occurs.
Commonly used policy language provides for a maximum amount of coverage equal to 25% of the amount paid for the direct physical loss, plus 25% of the amount of the deductible. If this amount is insufficient to cover the cost of debris removal, or the sum of the amount of direct physical loss plus debris removal exceeds the applicable limit of insurance, an additional $10,000 per occurrence is available to cover debris removal under the “limits of insurance” section of the policy with this typical term. For example: a 1-million-dollar coverage limit with a $10,000 deductible would provide $250,000 in direct debris removal and another $2500 of the deductible amount. Calculating the amount of coverage necessary should include the type of construction, hard cost to dispose, access for machinery and equipment, environmental impact potential.
Builder's Risk Insurance
Often written on a short-term basis, ranging from three to twelve months, Builder's Risk Insurance covers buildings while they are being constructed or renovated. It provides coverage to general contractors and other professionals who have insurable interest in materials, equipment, and fixtures used in construction projects, should those items sustain physical damage. This is because a general contractor can be held accountable for damages due to perils such as theft, vandalism, wind and fire until the improvements are installed and become the owner’s property.
An additional property insurance policy coverage for the breakage of plate glass and building glass regardless of cause. The standard property insurance policies provide very limited coverage for glass breakage, typically while situated at the insured's premises from any cause other than those specifically excluded in the policy.
Fine Arts Coverage
Artwork, collectibles, and similar items qualify as covered property under a standard Commercial Property Policy and will be insured on an actual cash value basis. However, many policies contain provisions that limit coverage for such property. Therefore you should not rely on your commercial property policy to cover valuable artwork. To protect your business against losses, you'll need to purchase Fine Arts Insurance. This coverage is often added to a Commercial Property Policy by an endorsement. It may also be written by itself as a separate policy. A fine arts form or endorsement is often referred to as a Fine Arts Floater.
Inland Marine insurance
Meant to help protect business property that is in transit or movable, shipped, used for transportation, held for someone else, stored by a vendor, or used in communication purposes. Special coverage includes:
Protects the client’s property entrusted to the care of your business. Any type or kind of this of transaction is called a bailment. Businesses that work on, service or hold customers’ possessions can cover losses to customers’ property due to perils including fire, lightning, theft, burglary, robbery. Businesses such as cleaners, repairers, warehouses, hospitality organizations and transporters.
An installation floater and or equipment floater covers your materials, tools and equipment while you take them to and from a project site. It is also known as tools and equipment coverage.
Provides coverage for a contractor's liability due to property damage or injuries to a third party once the contracted operations are completed. Construction products and the manufacturing of consumer goods and medicines should also carry completed operations insurance.
Exhibition and Fine Art Coverage
Keeps valuable items protected while on exhibit, in transit, or on loan.
Also called "Professional Liability Insurance" or "Errors and Omissions Insurance," Malpractice Insurance pays for losses resulting from injuries to third parties caused when a professional's conduct falls below the profession's standard of care. A malpractice policy will pay defense costs and any judgment or settlement. Professional Liability Insurance is for doctors, dentists, accountants, real estate agents, architects, and other professionals.
Business Interruption Insurance
An additional insurance coverage that replaces lost business income as a result of an event that interrupts the operations of the business, such as a civil action, fire or a natural disaster. The loss or damage must be caused by or result from a covered cause of loss. Business interruption insurance is not sold as a separate policy, but is either added as an endorsement to the insured’s Property and Casualty policy or included in a Comprehensive Package policy. This insurance would reimburse you for wages, taxes, rents, and net profits that would have been earned and extra expenses incurred during the interruption period.
Ordinance or Law Insurance
Provides coverage for loss to the undamaged portion of the building, demolition cost coverage, and increased cost of construction coverage. Typically unendorsed, standard commercial property insurance forms do not cover the loss of the undamaged portion of the building, the cost of demolishing that undamaged portion of the building, or the increased cost of rebuilding the entire structure in accordance with current building codes Additionally that coverage contained in the policy is just limited to $10,000 or 5% of the building limit. Ordinance or law insurance covers the costs associated with having to demolish and rebuild to code when your building has been partially destroyed (usually 50 percent), or if a local ordinance requires that the building be completely demolished and rebuilt according to current building codes. Property insurance covers only the replacement value, not the upgrade.
Provides protection coverage for a tenant’s business interest and liabilities to landlords and customers. Commercial leases often require tenants to carry and maintain insurance that protects both the landlord’s investment in the commercial property and from any liabilities that may arise during the tenancy.
A commercial tenant’s policy covers damages to improvements you make to your rental space and damages to the building caused by your employees. As a commercial tenant you need to ensure that at the very least your policy covers you for your obligations under your lease, and that your policy covers you for things that are important to you in running your business. These should be things such as Business Interruption, Stock and Contents, Theft, Liability, Machinery Breakdown, and items covered under an Inland Marine policy.
Designed to protect a business from losses due to third party fraud or employee dishonesty. It covers property crimes such as forgery, theft, burglary, and robbery of money, securities, stock, and fixtures from employees and outsiders. It might also cover kidnap, ransom, and extortion or computer fraud.
Provide insurance for your company against employee dishonesty and theft. If a bonded employee embezzles funds, the Fidelity Bond will reimburse your company for losses.
Surety Bond or Indemnity Bond
Protects a third party. A Surety Bond would protect your customers in the case of unethical or illegal behavior or business practices and for any legal/financial issues that might arise as a result of wrongdoing by the contractor.
A guarantee that a construction project will be completed to the terms specified in the bond, and the satisfaction of the project owner.
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