Insurance companies selling business insurance offer policies that combine
protection from all major property and liability risks in one package. (They
also sell coverages separately.) One package purchased by small and mid-sized
businesses is the businessowners policy (BOP). Package policies are created for
businesses that generally face the same kind and degree of risk. Larger
companies might purchase a commercial package policy or customize their
policies to meet the special risks they face.
1. Property insurance for buildings and contents owned by the
company — there are two different forms, standard and special, which provides
more comprehensive coverage.
2. Business interruption insurance, which covers the loss of
income resulting from a fire or other catastrophe that disrupts the operation
of the business. It can also include the extra expense of operating out of a
3. Liability protection, which covers your company’s legal
responsibility for the harm it may cause to others. This harm is a result of
things that you and your employees do or fail to do in your business operations
that may cause bodily injury or property damage due to defective products,
faulty installations and errors in services provided.
BOPs do NOT cover professional liability, auto insurance, worker’s compensation
or health and disability insurance. You’ll need separate insurance policies to
cover professional services, vehicles and your employees.
Professionals that operate their own businesses need professional liability
insurance in addition to an in-home business or businessowners policy. This
protects them against financial losses from lawsuits filed against them by
Professionals are expected to have extensive technical knowledge or training in
their particular area of expertise. They are also expected to perform the
services for which they were hired, according to the standards of conduct in
their profession. If they fail to use the degree of skill expected of them,
they can be held responsible in a court of law for any harm they cause to
another person or business. When liability is limited to acts of negligence,
professional liability insurance may be called “errors and omissions”
Professional liability insurance is a specialty coverage. Professional
liability coverage is not provided under homeowners endorsements, in-home
business policies or businessowners policies (BOPs).
As a businessowner, you need the same kinds of insurance coverages for the car
you use in your business as you do for a car used for personal travel –
liability, collision and comprehensive, medical payments (known as personal
injury protection in some states) and coverage for uninsured motorists. In
fact, many business people use the same vehicle for both business and pleasure.
If the vehicle is owned by the business, make sure the name of the business
appears on the policy as the “principal insured” rather than your name. This
will avoid possible confusion in the event that you need to file a claim or a
claim is filed against you.
Whether you need to buy a business auto insurance policy will depend on the
kind of driving you do. A good insurance agent will ask you many details about
how you use vehicles in your business, who will be driving them and whether
employees, if you have them, are likely to be driving their own cars for your
While the major coverages are the same, a business auto policy differs from a
personal auto policy in many technical respects. Ask your insurance agent to
explain all the differences and options.
If you have a personal umbrella liability policy, there’s generally an
exclusion for business-related liability. Make sure you have sufficient auto
Business interruption insurance can be as vital to your survival as a business
as fire insurance. Most people would never consider opening a business without
buying insurance to cover damage due to fire and windstorms. But too many small
businessowners fail to think about how they would manage if a fire or other
disaster damaged their business premises so that they were temporarily
unusable. Business interruption coverage is not sold separately. It is added to
a property insurance policy or included in a package policy.
A business that has to close down completely while the premises are being
repaired may lose out to competitors. A quick resumption of business after a
disaster is essential.
1. Business interruption insurance compensates you for lost
income if your company has to vacate the premises due to disaster-related
damage that is covered under your property insurance policy, such as a fire.
Business interruption insurance covers the profits you would have earned, based
on your financial records, had the disaster not occurred. The policy also
covers operating expenses, like electricity, that continue even though business
activities have come to a temporary halt.
2. Make sure the policy limits are sufficient to cover your
company for more than a few days. After a major disaster, it can take more time
than many people anticipate to get the business back on track. There is
generally a 48-hour waiting period before business interruption coverage kicks
3. The price of the policy is related to the risk of a fire or
other disaster damaging your premises. All other things being equal, the price
would probably be higher for a restaurant than a real estate agency, for
example, because of the greater risk of fire. Also, a real estate agency can
more easily operate out of another location.
Extra Expense Insurance
Extra expense insurance reimburses your company for a reasonable sum of money
that it spends, over and above normal operating expenses, to avoid having to
shut down during the restoration period. Usually, extra expenses will be paid
if they help to decrease business interruption costs. In some instances, extra
expense insurance alone may provide sufficient coverage, without the purchase
of business interruption insurance.
If you’re running a business from your home, you may not have enough insurance
to protect your business equipment. A typical homeowners policy provides only
$2,500 coverage for business equipment, which is usually not enough to cover
all of your business property. You may also need coverage for liability and
lost income. Insurance companies differ considerably in the types of business
operations they will cover under the various options they offer. So it’s wise
to shop around for coverage options as well as price.
Regardless of the type of policy you choose, if you’re a professional working
out of your home, you probably need professional liability insurance. Some
types of in-home businesses, such as those that make or sell food products or
sell home-made personal care products, may have to buy special policies.
To insure your business, you have three basic choices, depending on the nature
of your business and the insurance company you buy it from.
- Homeowners Policy Endorsement.You may be able to add a simple endorsement to your existing homeowners policy
to double your standard coverage for business equipment such as computers. For
as little as $25 you can raise the policy limits from $2,500 to $5,000. Some
insurance companies will allow you to increase your coverage up to $10,000 in
increments of $2,500.
You can also buy a homeowners liability endorsement. You need liability
coverage in case clients or delivery people get hurt on your premises. They may
trip and fall down your front steps, for example, and sue you for failure to
keep the steps in a safe condition.
The homeowners liability endorsement is typically available only to businesses
that have few business-related visitors, such as writers. But some insurers
will provide this kind of endorsement to piano teachers, for example, depending
on the number of students. These endorsements are available in most states.
- In-Home Business Policy/Program.An in-home business policy provides more comprehensive coverage for business
equipment and liability than a homeowners policy endorsement. These policies,
which may also be called in-home business endorsements, vary significantly
depending on the insurer.
In addition to protection for your business property, most policies reimburse
you for the loss of important papers and records, accounts receivable and
off-site business property. Some will pay for the income you lose (business
interruption) in the event your home is so badly damaged by a fire or other
disaster that it can’t be used for a while. They’ll also pay for the extra
expense of operating out of a temporary location.
Some in-home business policies allow a certain number of full-time employees,
generally up to three. In-home business policies generally include broader
liability insurance for higher amounts of coverage. They may offer protection
against lawsuits for injuries caused by the products or services you offer, for
In-home business policies are available from homeowners insurance companies and
specialty insurers that sell stand-alone in-home business policies. This means
that you don’t have to purchase your homeowners insurance from them.
- Businessowners Policy (BOP).Created specifically for small-to-mid-size businesses, this policy is an
excellent solution if your home-based business operates in more than one
location. A BOP, like the in-home business policy, covers business property and
equipment, loss of income, extra expense and liability. However, these
coverages are on a much broader scale than the in-home business policy.
A BOP doesn’t include workers compensation, health or disability insurance. If
you have employees, you’ll need separate policies for these coverages.