Small Business Insurance Basics

Insurance companies often offer a combination of insurance coverages in a single package policy, known as a Businessowners Policy (BOP), which is commonly used by small businesses. The BOP provides coverage for property and liability insurance risks, along with additional coverages suitable for most small businesses. The ISO is responsible for developing and revising the policy language, as well as providing sample insurance policy language and research to insurance companies.

Business income insurance, which compensates a business owner for income lost following a disaster, is included in the BOP. This coverage also pays for additional expenses incurred if the business has to operate from a temporary location due to the disaster. Additional coverages may be added to the basic BOP to address specific risks associated with a business. For example, coverage for outdoor signs or electronic commerce can be added for an additional premium.

Small- to medium-sized businesses that meet certain criteria are eligible for a BOP. Insurers consider factors such as the size of the premises, required limits of liability, type of business, extent of offsite activity, business location, financial stability, building construction, security features, and fire hazards when determining premiums for BOP policies.

Major Coverages

For small businesses, it’s crucial to have insurance coverage to protect their assets and interests. The most common types of insurance that small businesses need are:

1. Property Insurance: This insurance covers the loss or damage of business property due to various perils, such as fire or theft. It includes not only the building but also the personal property such as office equipment, inventory, and machinery.
2. Liability Insurance: Any business can face legal action. Liability insurance covers the costs associated with claims of injury, property damage, or negligence caused by the business.
3. Business Auto Insurance: This type of insurance covers the costs of third-party injuries or property damage caused by vehicles owned by the business.
4. Workers Compensation Insurance: This insurance is mandatory in most states and provides medical care and wage replacement to employees who suffer injuries while on the job.

In addition to these, small businesses may also need other types of coverage such as Errors and Omissions (professional liability) insurance, Employment Practices Liability Insurance (EPLI), Directors and Officers Liability Insurance (D&O), Key Employee Insurance, and Umbrella Policies. These policies provide coverage for situations such as lawsuits against the business for errors or omissions in services, discrimination or harassment claims by employees, lawsuits against directors or officers, protection against financial loss due to the death or disability of a key employee, and additional liability protection beyond the limits of other policies.