Business Insurance Made Easy
• Business Owners Policy (BOP) • Commercial Property Insurance
• Commercial Liability Insurance • Commercial Auto Insurance
• Workers Compensation • Save Money on Business Insurance
Business Insurance Coverage In Texas
Business drives our economy. Small business really drives our economy. There are millions upon millions of small to medium sized businesses in the U.S., ranging from construction firms and landscapers, to grocery stores, home-based businesses, ranches and farms.
They all have one thing in common: without the right insurance coverage, each could be wiped out by a ‘disaster’ or a ‘lawsuit’. In addition, almost all businesses are accountable for the safety of their workers and bear responsibility for injuries suffered on the job.
Businesses small or large need to purchase at least the following four types of insurance:
- Commercial Property Insurance
- Commercial General Liability Insurance
- Commercial Auto Insurance
- Workers Compensation Insurance
The above listed business insurance types are only the business basics; businesses should always consult a business insurance professional to review other forms of specialized coverages as well.
Some examples of specific additional business insurance coverages are:
- Crime Insurance
- Business Interruption
- Business Contents Insurance
- Other specialized forms of Liability Insurance
- Specialized coverage for Rented or Borrowed Vehicles
Lets examine the needs of Small to Medium Business Owners first since there are so many small to medium businesses in America today and they are the engine of our economy:
BUSINESS OWNER POLICY (BOP)
Most small to medium businesses can purchase what is called a ‘Business Owner Policy’ or (BOP); it is a form of a packaged policy that is cost effective and offers a variety of valuable coverages that a small to medium business would find hard to purchase separately as some larger businesses must do because of the type of business they are or because of their risk exposure.
Business Owners Policies (BOPs) basically consist of the following:
- Property insurance covers buildings, equipment and inventory
- Business interruption insurance covers losses for reduced production (for a while) or shut operations. It can provide money to offset lost profits or to pay continuing expenses (typically for up to a year for insured losses in the event of a covered loss).
- Casualty or liability protection covers harm done by the employees or products to other people or their property.
- Crime insurance covers loss of money or securities resulting from burglaries or robberies or destruction as well as losses from employee theft or embezzlement.
- Liability insurance covers lawsuits arising from accidents (as when someone trips and falls on your business’s property) or when you sell a product that damages the customer’s property or you are accused of offenses such as slander, copyright or invasion of privacy.
- Vehicle coverage for rented or borrowed vehicles.
Most of the coverages that are needed by small and medium sized businesses, with the exception of ‘Commercial Auto Insurance’ and ‘Workers Compensation’ are generally included in a BOP; but there are several other coverages such as flood insurance or specialized liabilities for example that are generally not included in a BOP. Some of these may be available separately for extra premium(s). Always review your specific business insurance needs with your insurance agent.
Special Note: One of the distinguishing features of a BOP is that most automatically include business income and extra expense coverage (subject to some limitations).
Now let’s turn our attention to some specific business insurance coverage basics:
(CMP) Commercial Multi-Peril policies can combine multiple coverages, such as Commercial Property, Liability, Inland Marine, and Commercial Auto, to ensure more complete protection within the convenience of a single policy. It sometimes can be cheaper to purchase a combined CMP policy, depending on your business type, than to purchase the coverages individually.
Again it’s always best to consult an insurance professional for the correct answers for your specific business needs analysis.
COMMERCIAL PROPERTY INSURANCE
Commercial property insurance helps businesses including farms and ranches pay to repair or replace buildings, structures, and contents that are damaged or destroyed because of fires, storms, or other events outlined in the policy. It also pays to replace stolen or lost property. Business owners can buy commercial property insurance if they own, rent, or lease a building. If you rent or lease a building the building owner’s policy probably won’t cover the contents of your building. You will need to buy your own policy to insure your on-premises property; including machinery, furniture, and merchandise. Tenant coverage is usually significantly less than building owner coverage because the policy will only need to cover contents, not the building itself.
Businesses operating at multiple locations can be covered under a single policy, unless they have different functions and different risk profiles. This could be the case if your business has an administrative office and a separate factory.
Different types of commercial property insurance policies protect against different risks or disasters, often called causes of loss or perils. Some policies will cover only those risks specifically named in the policy. Other policies will cover all risks, unless the policy specifically excludes them. Be sure to read your policy carefully. You may need to buy additional coverages or specialized policies, such as flood, windstorm, or crime coverage, to fully protect a business.
Commercial property policies in Texas generally fall into one of three categories:
- Basic form policies typically cover common risks or perils, such as damage from fire, lightning, windstorm, vehicles, aircraft, or civil commotion.
- Broad form policies typically provide basic form coverage plus coverage for additional perils, such as water damage, structural collapse, sprinkler leakage, and losses caused by ice, sleet, or weight of snow.
- Special form policies cover against all types of losses except those the policy specifically excludes. Common special form exclusions include losses from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.
Special Note: Most commercial property policies cover damage from windstorms, except (for example) counties on the Texas coast. If your business is in one of Texas’ coastal counties you’ll need a separate windstorm policy.
Commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both. Replacement cost coverage will pay to replace your property with new property of like kind and quality, up to the policy’s dollar limit less your deductible. An actual cash value policy will pay the replacement cost of the property minus your deductible and minus determined depreciation due to age and normal wear and tear. Although replacement cost coverage is more expensive than actual cash value coverage, it might better ensure that your business fully recovers after a significant loss.
Commercial property policies are not standardized in Texas. Insurers must comply with minimum requirements but have a great deal of flexibility to develop their own policies. As a result, coverages and policy terms may vary significantly by insurer and by policy type.
Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate stand-alone policies.
Also be advised: ‘Exclusions’ do exist and are named. Be sure and review these important facts with your agent.
COMMERCIAL GENERAL LIABILITY INSURANCE
CGL (Commercial General Liability) Insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising).
- Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations.
- Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.
- Excess liability insurance pays for covered losses that exceed your CGL policy’s dollar limit.
- Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies.
Occurrence Policies Versus Claims-Made Policies:
Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.
Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer.
If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either ‘run-off coverage’ from your previous insurer or ‘prior acts coverage’ from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.
Special Note: There are ‘Exclusions’ that exist in CGL policies.
Here are some common examples of exclusions in a CGL policy:
- Damage to your work
- Damage to your product
- Contractual Liability
- Recall of products, work or impaired property
- Workers’ Compensation and Employers Liability
- Pollution Exclusions
Exclusions on a CGL policy vary by insurer and can include additional exclusions other than the examples above. You should carefully review your policy and any endorsements to know exactly what your policy does and doesn’t cover. Review these important factors with your agent if you have any questions about your policy, its coverages, or policy limits.
Most CGL Policies are ‘Auditable Policies’ and contain a stated condition commonly called a “Premium Audit.” The Premium that is paid at the inception of the policy is a deposit (estimated) Premium. Auditable policies usually use estimated payroll, sales, or units sold as the Premium base to calculate the deposit (estimated) premium.
The insurer is entitled to examine your books and records to determine whether the actual payroll, sales, or units sold are greater or less than what was estimated. This is usually done after the expiration of the policy, but may also be done during the policy period. If the actual payroll, sales, or units sold is greater than was estimated, you may owe additional Premium. If the actual payroll, sales or units sold is less than what was estimated, you may be due a return Premium. Therefore, it is important to provide an estimate of the payroll, sales, or units to be sold that is as accurate as possible to avoid having to pay an additional Premium.
COMMERCIAL AUTO INSURANCE
As a business owner, 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, PIP (personal injury protection) and coverage for uninsured/underinsured 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 named insured’ rather than your name. This will avoid conflict and potential serious problems 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 if employees, if you have them, are likely to be driving their own cars for your business as well.
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 between a personal auto policy and a commercial auto policy.
Special Note: If you have a personal umbrella liability policy, there’s generally an exclusion for business-related liability. Make sure you have sufficient auto liability coverage.
WORKERS COMPENSATION INSURANCE
Employers have a legal responsibility to their employees to make the workplace safe. However, accidents happen even when every reasonable safety measure has been taken.
To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents businesses should consider buying workers compensation insurance. Workers compensation insurance covers workers injured on the job, whether they’re hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses.
Workers compensation provides payments to injured workers, without regard to who was at fault in the accident, for time lost from work and for medical and rehabilitation services. It also provides death benefits to surviving spouses and dependents.
Each state has different laws governing the amount and duration of lost income benefits, the provision of medical and rehabilitation services and how the system is administered. For example, in most states there are regulations that cover whether the worker or employer can choose the doctor who treats the injuries and how disputes about benefits are resolved.
Consult your insurance professional about how Texas interprets an employer’s responsibility toward employees concerning this important insurance coverage in business.
HOW TO SAVE MONEY ON BUSINESS INSURANCE
Here are five basic ways to save money on business insurance:
1. Shop around prices vary from company to company, so it pays to shop around. Get the names of companies, brokers or agents who specialize in business insurance from major insurance companies. Call several so that you can compare insurance value, coverages, and price and to get a feel for the types of services they would provide. Unlike Personal Insurance, Business Insurance can be somewhat flexible.
It’s also important to pick an insurance company that is financially stable. Also look at their Claims History to make sure they pay claims in a timely manner. Remember, a business loss can be substantially greater than a personal insurance type loss and businesses need to get back on their feet quickly. So make sure you review these important points with your agent.
2. Choose a higher deductible because deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay for the policy Premium.
3. Buy a package policy. It can sometimes be cheaper to purchase a package policy, such as a Business Owners Policy (BOP), rather than individual coverages. A package policy provides standard coverages and limits of liability that are appropriate for typical small to medium businesses.
4. Work closely with your insurance agent. He is a licensed professional and can provide invaluable advice to help protect your business from unexpected disasters. But you need to keep him or her informed about any major changes in your business. This includes major purchases, expansions or changes in hiring or the nature of your operation. Also, get your agent’s advice in terms of disaster planning. Ask what you can do to both reduce risks like fire or work-related accidents, as well as the procedures that should be in place in case your business does suffer a major catastrophe.
Having the right coverage and a well thought out disaster plan can save you money in the long run. It may even save your business from going under.
5. Ask about ways to prevent losses you may be able to reduce your premium for certain coverages by following your insurer’s recommendations. These can include workplace safety, disaster preparation, and human resource intervention.
Disclaimer: Content and illustrations represented and provided here-in are for informational purposes only. This information should not be misconstrued to be considered Insurance or Binder Coverage for Insurance. Always consult a licensed insurance agent in the state of Texas for specific insurance coverage types and needs analysis as insurance policies in Texas vary.
Sources used to gather content for this Article and all Articles provided in this Series include:
The Costlow Insurance Group, Inc. / www.costlowinsurance.com
a. The Insurance Information Institute / http://www.iii.org
b. The Texas Department of Insurance / http://www.tdi.state.tx.us