What Type of Insurance Do I Need to Obtain for My Business?
With regards to the individual risk characteristics of your business, the broker-agent will show you with various coverage choices for purchasing commercial insurance. A broker-agent’s proposal is just that, a proposal. When all is said and done it is your responsibility to make an educated decision and select the insurance that best fits your business plan. The partnership that you develop with a broker-agent is extremely important in this specific critical decision making process. A seasoned broker-agent has dealt with hundreds of businesses much like your own. Since commercial insurance can be complex, you need to feel free to discuss any terms, conditions, or concepts that are unclear to you with your broker-agent. It is a broker-agent’s obligation to answer your questions and to help you understand the insurance coverage you are purchasing. While your business may not require all commercial coverage lines, it is a good idea to possess a simple knowledge of the types of insurance coverage obtainable. While your business changes and grows you should have the essential knowledge to purchase insurance coverage as new exposures develop. The following commercial lines of insurance protect broad areas of exposure common to most business operations:
• Commercial Property
• Inland Marine
• Boiler and Machinery
• Casualty Insurance
• Commercial Automobile
• Commercial General Liability
• Commercial Umbrella
• Workers Compensation
Coverage Sections, Limits of Insurance, and Coinsurance
Buildings you own or lease as an element of your business, your business personal property, as well as the personal property of others make up the basic coverage sections of commercial property insurance. Commercial property insurance may be sold separately as an individual line policy termed as a monoline policy), or it could be sold as part of a Commercial Package Policy (CPP), which combines 2 or more commercial coverage parts for instance commercial property, general liability, and commercial auto. Building coverage consists of buildings or structures and any finished additions, which are outlined on the declarations page of the commercial policy. Permanently installed fixtures, machinery, and equipment are also insured as a part of building coverage. The limit of insurance coverage is the estimated sum required to rebuild your building as well as replace permanently installed fixtures, machinery, and equipment in the case of a total loss. You are required under the insurance policy to fully insure the value of your structures. If a building isn’t covered to value, you can be subject to a monetary penalty at the time of a loss. This kind of penalty is often referred to as “coinsurance.” It is important to go through and understand the coinsurance clause of your c commercial property policy and to discuss any concerns with your broker-agent.
Business Personal Property consists of furniture; fixtures, machinery, and equipment not permanently installed; inventory; or any other personal property owned by and used in your business.
Personal Property of Others identifies property that’s in your business’s care, custody and control. The sort of business you operate will determine if you need to safeguard the personal property of others.
Covered Causes of Loss:
Regardless of whether or not a property loss is covered is determined by the policy language, exclusions, and endorsements. Causes of loss will be divided into two primary categories: specified perils and open perils.
Specified Perils contain a list of each peril to be insured against, such as fire, explosion, windstorm, vandalism, et cetera. You can usually request basic specified perils or broad specified perils coverage. Broad specified perils protection adds to the list of covered perils found under basic specified perils.
Open Perils protection includes all losses unless they are specifically omitted. Earth movement (including earthquake) and flood are
2 common perils which are omitted within open perils coverage. Since open perils coverage provides more comprehensive protection, it is more expensive than a specified perils policy.
Commercial property coverage will incorporate a provision to establish what valuation method is to be used to pay the loss. The most common policy valuation method is Actual Cash Value (ACV). Unless otherwise described within the policy, ACV is considered to be
Fair Market Value. There are 2 other methods of property valuation: agreed value and replacement cost. Agreed value waives any coinsurance penalty and will pay 100% in the stated amount (agreed upon amount) for any covered loss. Replacement cost covers the amount it requires to replace your property with new property of like kind and quality up to the limits of insurance. Like ACV, replacement cost is subject to coinsurance.
Coverage Forms and Endorsements:
There are many coverage forms and endorsements in addition to the basic property coverages already discussed which can customize coverage in a commercial property insurance policy. What follows are classified as the most common coverage forms and endorsements found in commercial property insurance:
• Builder’s Risk – Added to a policy for a one-year minimum term to protect a new building or structure under construction or an existing structure undergoing additions, alterations, or repairs. Cancellation is permitted on a pro rata basis upon project completion; however, midterm cancellation will result in a short rate penalty. A reporting form or renovations form allows coverage to be carried according to the stage of completion (i.e., as more of the project is completed, more value is reported, leading to the proper amount of protection for every stage of construction).
• Legal Liability or Fire Legal Liability – Covers your legal liability for loss or damage to real and personal property of others as the result of your negligent acts and/or omissions. The loss or damage has to be caused by a covered peril (including loss of use). The loss must be accidental and the coverage most often is purchased for tenants in commercial buildings.
• Building Ordinance or Law – Gives coverage if the enforcement of any building, zoning or land use law brings about loss towards the undamaged portion of the building (Coverage A); demolition as well as removal costs of undamaged elements of the structure (Coverage B); or any increased expense of repairs or reconstruction (Coverage C). Replacement cost must be in effect for Coverage C to be applied.
• Improvements and Betterments – Usually applied by a lienholder. Covers all permanently installed improvements and betterments, which cannot be removed when a tenant vacates the building.
• Glass – Standard specified perils regarding glass coverage include any resulting damage to other property from broken glass as a result of vandalism and in addition vandalism to glass building blocks. Broad and specific perils covers $100 for each pane of glass up to $500 per occurrence. A glass form must be added for scheduled glass coverage whenever there’s a substantial glass exposure to insure. A glass form consists of the number of panes, dimensions, location, lettering, and ornamentation. A different glass deductible may be scheduled as well.
• Peak Season – An endorsement that offers additional limits on personal property inventory during a designated period of time. This is exclusively used to cover fluctuating inventory values before and during peak shopping seasons.
• Inflation Guard – Immediately modifies the limits of insurance to maintain with inflation. The adjustment can be associated with the construction cost index in a regional area or a specific percentage per year. This particular endorsement can be extremely important in assisting to maintain adequate coverage limits, which can protect against possible coinsurance penalties in a property loss.
• Time Element – Insurance that protects additional losses stemming from a direct loss by a covered peril to business property. Business interruption, extra expense, and loss of rents and rental value are the most common time element coverages. Business interruption coverage replaces lost business income following a covered loss. Certain key employees can be named, allowing the company to continue to pay their wages until the business restarts operations after a loss. Extra expense coverage mainly applies to service or product related companies where the business has to continue to ensure the survival of the company. Extra expense can pay for office space, equipment rental, advertising, or most expenses deemed realistic for keeping the company operating following a covered loss. Loss of rents and rental value cover loss of rental income to the property owner brought on by damage or destruction of a building rendering it unfit for occupancy.
Inland Marine Business Insurance:
Without having earlier information of inland marine insurance, it is possible to think that this insurance line has something to do with boating transportation. In fact, inland marine insurance can cover a variety
of transportation exposures; yet, it does not cover boating transportation, which is protected under ocean marine insurance. Inland marine is a dedicated kind of property insurance that mainly protects damage to or destruction of your business property while in transport. Inland marine also covers the liability exposure with regard to the damage or destruction that could occur to property in your care, custody, or control during transport.
Covered Reasons for Loss Standard perils in Inland Marine could include fire, lightning, windstorm, flood, earthquake, landslide, theft, collision, derailment, and the overturn associated with the transporting vehicle, and bridge collapse.
Coverage Forms and/or Specialty Coverages Inland marine has great flexibility in protecting many possible transportation risks. Many of the most typical types of protection available are accounts receivable insurance, consignment insurance,
equipment floaters (i.e., contractors equipment), installation floaters, motor truck cargo insurance, trip transit insurance, and valuable papers (records) insurance.
Boiler and Machinery Business Insurance:
Boiler and machinery insurance may add an important layer to potential business insurance coverage. Boiler and machinery insurance policies are currently marketed under such titles as “systems protector,” “systems breakdown,” and “machinery breakdown” insurance. Boiler and machinery business insurance protects business property, other property losses, and legal fees (if any) that may result from the malfunction of boilers and machinery. Boiler coverage consists of covering the costs of inspection and frequently upkeep of boilers. Machinery coverage can include many different types of machines found in retail, office and manufacturing settings. Machinery coverage in addition includes major machinery systems common to the majority of commercial buildings, for example heating, ventilating and air conditioning systems. Since most commercial property policies don’t include losses from boilers and machinery, it is very important be familiar with any exposure your business may have and discuss it with your broker-agent.
Crime Business Insurance:
Crime insurance offers protection for the assets of your business including merchandise for sale, real property, money and securities. It will be deemed a property business insurance line. Based on the crime coverage that you obtain, it is possible to be covered for the
following causes of loss: robbery, burglary, larceny, forgery, and embezzlement. Specialty coverage parts can be included based on need andxposure to loss such as mercantile open-stock, burglary insurance, mercantile robbery insurance, mercantile safe burglary insurance, money and securities broad form policy, office burglary and robbery insurance, and storekeepers burglary and robbery insurance.
Casualty Insurance / Business Insurance
Casualty business insurance offers coverage mainly for the liability exposure of an individual, business or organization. Liability from the negligent acts and omissions of an individual, business or organization that causes bodily injury and/or property damage to a 3rd party is the subject of casualty business insurance coverage. Commercial Automobile, Commercial General Liability, Commercial Umbrella, and Workers Compensation are the most familiar business casualty insurance lines.
Commercial Automobile Business Insurance:
Commercial automobile insurance coverage is similar to the coverage you might keep on your personal auto; however, commercial automobile exposures are usually more complex demanding specialized coverages to be considered based on the specific needs of your business. Essentially, commercial automobile business insurance coverage can protect your business from any liability stemming from automobiles utilized in your company or any damage to the covered automobile. A Business Auto Policy (BAP) has the flexibility to provide coverage for business, personal, non-owned, or hired autos centered on the coverage obtained and applied to each scheduled auto. Quite simply, automobiles may be separately scheduled along with related coverages. Coverage can differ by vehicle and a symbol or multiple symbols will designate the coverage issued to a scheduled auto. These symbols are referred to as covered auto symbols and use a straightforward numerical system (1-13). The automobiles are categorized by weight (light, medium, heavy, extra heavy) and by type of use (private passenger, service, commercial). Contrary to personal auto policies that separate bodily injury and property damage limits (split limits), BAPs frequently utilize a Combined Single Limit (CSL) for the limit of insurance. This creates higher limits for both coverages, including per occurrence limits. Common commercial automobile CSLs are $500,000 or $1,000,000.
Commercial General Liability:
One of the crucial principles of liability coverage is this : it is comprehensive in nature. What this implies is that the policy (insuring agreement) covers all hazards within the scope of the insuring agreement that are not otherwise excluded. It is likewise comprehensive in that it offers automatic coverage for new locations as well as activities of your business, that can come about after policy inception and during the entire policy term. Commercial General Liability (CGL) is the standard commercial liability policy used to cover businesses.
There is three main coverage sections that define a CGL policy: premises liability, products liability and completed operations. Premises liability covers liability for unintentional injury or property damage which results from either a condition on your premises or your operations in progress, whether on or away from your premises. A products liability hazard exists for any business that manufactures, sells, handles, as well as distributes goods or products. The hazard being the possible liability for bodily injury or property damage which occurs out of your goods or products. Completed operations addresses your potential liability for bodily injury or property damage which develops from your completed work.
The key exclusions within a CGL policy include: deliberate injury; insured contracts; liquor liability; workers compensation and employers liability; pollution; aircraft; automobile; watercraft; mobile equipment; war; care, custody, and control; damage to your work; impaired property; sistership liability; and failure to operate. It is always important to read and comprehend all coverage exclusions; however, it is particularly critical in a liability policy. If you do not understand the policy exclusions or limitations of the CGL policy,
then simply contact your broker-agent and discuss completely until a working understanding is achieved.
The type of business you run determines how a CGL policy is classified. Generally speaking, a specific code or codes (in some situations) will be assigned according to exposures that are common to your kind of company operation. Just how a business risk is classified is the first step to establish premium and a significant part to the
rating formula. Commercial rating and premium calculation will be discussed later within this article.
Limits of Insurance:
The CGL policy has individual limits of insurance for general liability, fire legal liability, products and completed operations liability, advertising and personal liability, and medical payments. An aggregate limit of liability is in force for the general liability, fire legal liability, advertising and personal liability, and medical payments claims. Whenever total claims for all these parts exceed a expressed annual aggregate limit of liability, the policy limits are exhausted and no additional claims will be paid through the policy for the duration of the policy period. There is also a separate aggregate limit of liability in force for products and completed operations liability claims.
When a liability claim proceeds above the aggregate limit of liability, the policy limits are depleted. By buying a commercial umbrella, you are able to safeguard your business from becoming responsible for this extra liability judgment. A commercial umbrella covers the amount of loss above the limits of a basic liability policy.
Commercial automobile, CGL, workers compensation, or any liability policy may be covered by a commercial umbrella. A commercial umbrella can also offer coverage if a basic liability policy is not in force. Also, commercial umbrellas can supply coverage for gaps in coverage under basic liability policies. When a commercial umbrella provides protection for basic liability loss it will not pay the loss from the first dollar. It is common to have a Self-Insured Retention (SIR) amount of at least $10,000. SIR is much like a deductible. If there’s a commercial umbrella loss and there is no related underlying policy in force, you have to pay the first $10,000 of the loss before the umbrella policy responds.
Workers Compensation Insurance:
Whenever an employee experiences a work related injury or illness, workers compensation insurance steps in to provide benefits based on the form of illness or injury sustained. Workers compensation is centered on a no-fault system, meaning that an injured employee does not need to establish that the injury or illness was someone else’s fault in order to receive workers compensation benefits for an on-the-job injury or illness.
You may obtain workers compensation insurance from your licensed insurance company or through a State Compensation Insurance Fund (SCIF), if that state provides it. Employers may also have the choice to self-insure. Your broker-agent can help you with obtaining workers compensation insurance from a licensed insurance company and can assist you with details on SCIF and self-insurance. SCIF is a state-operated organization which exists as a way to transact workers compensation insurance on a non-profit basis. SCIF competes with private workers compensation insurance companies for
business, and it also functions as the insurer of last resort if private insurance companies are not able to provide workers compensation insurance.
To become self-insured, you must obtain a certificate from the state in which your business resides in. Private employers have to post security as a condition of receiving a certificate of consent to self-insure. Self-insurance is merely a feasible option for very large, secure employers because of the considerable amounts of security required to be posted.
Workers compensation insurance is split into 2 coverage sections. In workers compensation part one the insurance company agrees to promptly pay all benefits and compensation due to an injured worker by workers compensation laws of the states listed on the declarations page within the policy. In employers liability part 2 the employer is safeguarded against situations where an employee can sue for injuries suffered under common law liability (i.e., consequential bodily injury, loss of consortium, dual capacity, or third party over actions). These types of injuries in the course of employment are not protected under workers compensation law and are therefore not compensable under the workers compensation part one.
Classification and Rating:
Classification of workers compensation insurance is based upon the specific duties that your employees perform in the course of their employment with your company. These types of classifications are created and designated by the Workers Compensation Insurance Rating Bureau (WCIRB) typically. Your workers compensation insurance company when working with the WCIRB must use the classification codes the WCIRB supplies when rating your specific policy. Insurance companies can design and submit their own classification system to the CDI for authorization, but this is uncommon. Each classification is designated a particular rate by the insurance company, which helps determine the overall premium for your policy. The WCIRB also creates the experience modification that has to be applied to your policy. The experience modification is calculated from loss data your insurance company is required to submit to the WCIRB on an annual basis. The WCIRB provides a policyholder ombudsman who is available to answer questions from employers on classification, experience modification,
and rating issues.
Your state, Division of Workers Compensation can assist you with questions or concerns regarding workers compensation claims. Also, you should be able to discuss any general workers compensation claims issues with your broker-agent or go over issues on a particular claim with the claim adjuster that has been designated to the case by your insurance company.