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Business Insurance 101

What is Business Insurance?

Business Insurance 101

Business insurance includes a broad range of policy options designed to protect a business from financial loss. Every commercial operation has its own unique set of risks, which means a commercial insurance policy must be tailored to the business. Many factors, from the size of your company, to the number of workers you employ, the materials they handle and whether you have business vehicles, will determine the specific coverage you need to mitigate risk and protect your company’s financials.


Many business owners find that they must turn to a number of different insurance companies to get all of the coverage needed to cover their risks. If you work with an independent agent in the Trusted Choice® network, you can get all of your business insurance policies from one office.


What Does Business Insurance Cover?

Business insurance coverage for a commercial operation can include the following and more:


General liability insurance: Covers third party liability claims for injuries to other people.


Professional liability and malpractice insurance: Covers professionals against loss due to negligent professional duty, wrongful acts, and advice and services that lead to another person’s loss or injury.


Product liability insurance: Covers against faulty products and damage, illness, injury or death that may occur from using a faulty product.


Property insurance: Covers loss and damage to your commercial business property due to fires, storms and other causes.


Commercial vehicle insurance: Covers commercial vehicles and drivers for collision, liability, property damage, personal injury and "comprehensive" (now known as "other than collision").


Workers compensation: Covers your employees if they become ill or injured while working on the job.


Loss of income: Covers your business expenses such as rent and employee wages if you can’t operate your business.


Key person insurance: Covers loss of income that may result from the head of the business or other key personnel becoming incapacitated or passing away (also known as key man insurance).


Cyber-crime insurance: Provides protection for risks due to Internet use and online communications.


Records retention policies: Covers loss of important data and financial records.


Specialty coverage: Insurance that covers various specific business risks, such as those of landlords, farmers, and commercial operations that put on one-day events, such as seminars or concerts.

How Does Business Insurance Work?

Business insurance is a contract between the insurance company and the business. The insurance company agrees to share the business risk with the business entity in exchange for premium payments. In the event of a covered loss, the insurance company pays for the financial losses the business incurs up to the limit of the policy after the deductible amount is paid by the business filing a claim.

At the time of a loss, the business will typically file a claim. If a fire destroys a portion of the business premises, for example, the company will file a claim against the property insurance policy. An adjuster will assess the damage and process the claim. The company will then receive the appropriate amount of compensation for the loss.

There are many different scenarios with regard to business risk and how insurance claims are filed. For example, in the event that the incident is a loss suffered by a customer of the company, the injured party will likely file a claim against the businesses’ liability policy. How the claim is processed depends upon the size of the claim, whether the matter can be settled with an insurance payment, and if the claim results in a lawsuit.


How Much Does Business Insurance Cost?

The cost of business insurance varies. A number of factors affect how much business insurance costs, because it depends on the type of business and the types of coverage appropriate for that commercial operation. Cost also depends on the size of the business. A small, home-based business can often be adequately insured for $500 per year, while insurance for a large company with many employees and a wide range of business risks could $500,000 per year.

The costs of business insurance can be reduced with effective risk management practices, and by comparing costs from several different insurance carriers. An independent agent in the Trusted Choice network who specializes in commercial insurance can help with this process, and can manage a company’s complete business insurance portfolio through one office.

Is Business Insurance Tax Deductible?

Business insurance is tax deductible, as long as the coverage is for the purpose of operating a business, profession, or a trade. Businesses may not deduct their business insurance premiums if the coverage is for the purpose of a self-insurance reserve fund or a loss of earning insurance policy.


Is Business Insurance Required by Law?

Business insurance is required by law, but only under certain conditions. The following business insurance is required by law if it is applicable to your situation:

Unemployment insurance: Applies to a business that has employees and may be obligated to pay unemployment insurance taxes under prescribed conditions; if these conditions are applicable to your business, then you must register your business with the state work force’s agency.


Workers compensation insurance: If your business has employees, you are most likely legally obligated to carry workers’ compensation insurance, either on a self-insured basis or through a commercial insurance carrier or a state worker’s compensation program. Workers compensation laws vary by state.


Professional liability insurance: Some states require specified professionals to carry insurance against professional liability.


Disability insurance: Several states require that a business have partial wage replacement insurance coverage for employees eligible for non-work related injury or illness. These states include California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

What Business Insurance Do I Need?

Depending on the nature of your business and any insurance which you are legally obligated to carry, the following types of business insurance should be considered essential:


General liability insurance: Coverage against accidents, injuries and negligence claims.


Product liability insurance: Coverage against product defects.


Professional liability insurance: Covers professionals against malpractice, negligence or errors.


Commercial property insurance: Covers against damage to your business property, such as from fire or a severe storm

Business interruption insurance: Protects your business if you are no longer able to conduct your business because of a loss.


Home-based business insurance: Covers against general or professional liability.

Because commercial insurance needs to be tailored to each business based on risks, it is critical to work with an agent who will get to know your company and ensure that your coverage adequately protects your business investment.



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