Commercial Insurance 101

There are several types of commercial insurance that are available for your business. In simple terms the purpose of commercial insurance is to protect you and others from loss. Property insurance covers damages to your business property and liability insurance covers damages to third parties. Here is a brief overview of commercial insurance:

Workers Compensation Insurance

Workers Compensation insurance provides wage replacement and medical benefits to employees who have been injured in the course of employment. It also does away with the employee's right to sue the employer for the tort of negligence.

Property Insurance

Property insurance pays for losses and damages to real or personal property. For example, a property insurance policy would cover fire damage to your office space. You can purchase additional coverages for business property, including:

Boiler and Machinery Insurance
Boiler and machinery insurance, sometimes referred to as "equipment breakdown" or "mechanical breakdown coverage," provides coverage for the accidental breakdown of boilers, machinery, and equipment. This type of coverage usually will reimburse you for property damage and business interruption losses. For example, this coverage would cover fire damage to computers.

Builder's Risk Insurance

Builder's risk insurance covers buildings while they are being constructed. For example, a Builder's risk policy would cover losses if a windstorm takes down your partially constructed condominium complex.

Glass Insurance
Glass insurance covers broken store windows and plate glass windows.

Inland Marine Insurance
Inland marine insurance covers property in transit and other people's property on your premises. For example, this insurance would cover fire-damage to customers' clothing from a fire at your dry cleaning business.

Business Interruption Insurance
Business interruption insurance covers lost income and expenses resulting from property damage or loss. For example, if a fire forces you to close your doors for two months, this insurance would reimburse you for salaries, taxes, rents, and net profits that would have been earned during the two-month period.

Ordinance or Law Insurance
Ordinance or law insurance covers the costs associated with having to demolish and rebuild to code when your building has been partially destroyed (usually 50 percent). For example, your three-story building is 100 years old. A flood destroys the basement and first two stories. Because more than 50 percent of your building has to be rebuilt, a local ordinance requires that the building be completely demolished and rebuilt according to current building codes. Property insurance covers only the replacement value, not the upgrade.

Tenant's Insurance
Commercial leases often require tenants to carry a certain amount of insurance. A renter's commercial policy covers damages to improvements you make to your rental space and damages to the building caused by the negligence of your employees.

Crime Insurance
Crime insurance covers theft, burglary, and robbery of money, securities, stock, and fixtures from employees and outsiders.

Fidelity Bonds
A bond company covers losses due to a bonded employee's theft of business property and money.

Liability Insurance

Liability insurance covers injuries that you cause to third parties. If someone sues you for personal injuries or property damage, the cost of defending and resolving the suit would be covered by your liability insurance policy. A general liability policy will cover you for common risks, including customer injuries on your premises.

Errors and Omissions Insurance
Errors and omissions ("E & O") insurance covers inadvertent mistakes or failures that cause injury to a third party. The act must actually be an inadvertent error, and not merely poor judgment or intentional acts. For example, an E & O policy would cover damages arising from an insurance agent failing to file policy applications, or a notary forgetting to fill out notarizations properly.

Malpractice Insurance

Malpractice insurance, or professional liability insurance, pays for losses resulting from injuries to third parties when a professional's conduct falls below the profession's standard of care. For example, if a doctor makes a mistake that other doctors of his specialty would not have made, his patient might sue him. A malpractice policy will pay his defense costs and any judgment or settlement. Malpractice insurance is available for doctors, dentists, accountants, real estate agents, architects, and other professionals.

Automobile Insurance
Commercial automobile policies cover the cars, vans, trucks and trailers used in your business. The coverage will reimburse you if your vehicles are damaged or stolen or if the driver injures a person or property.

Directors' and Officers' Liability Insurance

This type of insurance is generally purchased by corporations and nonprofit organizations to cover the costs of lawsuits against directors and officers.