4 Essential Types of Commercial Insurance Every Business Needs

Insurance is a vital tool for risk management, providing peace of mind and financial security to businesses. Learn about the nine types of commercial insurance every business should consider:

General liability insurance covers you for bodily injury, property damage, libel and slander claims, and defending lawsuits or settlement bonds. This type of insurance can also protect you against accidents and equipment breakdowns.

General Liability

It takes a lot to keep a small business running smoothly. Unexpected losses from accidents and lawsuits can easily push a small business into bankruptcy.

This is why you need general liability insurance. It protects your small business against financial loss resulting from third-party claims for bodily injury, property damage, and advertising injury (libel and slander).

You can get commercial general liability insurance either as a stand-alone policy or as part of a Business Owner or Commercial Package Policy. Sometimes, you may need a commercial excess policy to protect against claims exceeding your CGL policy limits.

There are two types of CGL policies: claims-made and occurrence. A claims-made policy covers any claim made, regardless of when the event occurred, whereas an occurrence policy is only effective for those events during the policy period. Most businesses purchase claims-made coverage. However, purchasing an occurrence-only policy for some smaller businesses is also possible.

Property Insurance

Property insurance reimburses your business for damage or loss and helps cover some of your lost income if your business can’t operate normally due to a covered event. It usually covers your premises’ building, equipment, inventory, and outdoor items. It can also include crime coverage and environmental damage from chemicals, smoke, sprinkler leakage, or other causes.

Your policy’s valuation method determines how much your insurer will pay for a covered loss. The most common is actual cash value, but replacement cost and agreed value (which waives the coinsurance penalty) are other options.

A New Jersey commercial insurance policy can incorporate additional coverages such as valuable papers, ordinances or laws, and boilers and machinery. Some policies can also be customized to meet your needs, such as a business owners policy (BOP) that combines property and general liability for small businesses. Ask your broker agent about these options.

Business Interruption Insurance

Business interruption insurance is a form of commercial insurance that protects against lost income resulting from closures caused by disasters. It also provides extra expenses to keep the business operating while the property is repaired or reconstructed. Typical costs covered by business interruption include:

  • Profits that would have been earned (based on historical financial statements).
  • Fixed costs.
  • Commissions.
  • The cost to move to or operate from a temporary location.

In some cases, businesses can also get coverage for loss of earnings from vendors or other companies they depend on. This is called contingent business interruption insurance or CBI.

Business interruption is typically bundled with general liability and property insurance into a commercial package or business owner’s policy. However, it can also be purchased separately as a separate insurance product. It is a good idea for all businesses that rely on their physical locations or equipment to get commercial interruption insurance.

Professional Liability Insurance

Professional liability, or errors and omissions (E&O) insurance, protects businesses like attorneys, architects, and accountants for mistakes they make that result in financial losses for their clients. It’s commonly included in service contracts and is often bundled with general business insurance policies.

For example, a bookkeeper makes a clerical error that costs their client thousands of dollars, or a web developer builds a website that fails to meet specifications and leads to a loss in sales. E&O insurance covers legal fees, judgments, settlements, and other fees.

However, it won’t cover alleged fraud or criminal acts, which would be covered by crime and fidelity insurance. Also, it’s typically a claims-made policy and only covers incidents reported while the policy is active. However, it can include a retroactive date and an extended reporting period to cover older incidents.