What Is Commercial Insurance and What Types Are There?

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Although commercial insurance is something businesses must have in order to protect themselves from numerous potential accidents and unexpected events, many people are still unclear as to what is commercial insurance. This article defines commercial insurance and lists all the different types of insurance business owners should get to protect themselves from liability.

What Is Commercial Insurance?

Commercial insurance by definition provides protection for businesses from various risks—some insurance policies focus on protecting the business’ reputation, while others aim to maintain the financial aspect of the company. This type of insurance is different from personal insurance in that it has a higher coverage limit and it pertains to multiple stakeholders and employees.

How Does Commercial Insurance Work?

Commercial insurance is usually a one-year contract between business owners and an insurance company, under which the insurance company assumes responsibility for the business’ liabilities in exchange for a certain sum of money. The amount of money business owners have to pay is determined based on the amount of property the business has in its name or the potential liabilities the business might be exposed to.

The commercial insurance terms are often influenced by the requirements imposed on the business by vendors, landlords, or partners. It’s important to note here that every insurance policy has a limit—a predetermined amount of money the insurance will cover in the event of a loss. Most companies also have a limit per claim, as well as a limit per policy—most companies have a $1 million policy limit and smaller limits for each filed claim.

When discussing what does business insurance cover, it’s important to remember that this isn’t a single product, but a whole set of insurance products and services aiming to help companies of all sizes protect themselves from any unexpected losses and liabilities.

DID YOU KNOW: It’s a common misconception that insurance companies don’t give out policies to senior citizens—even seniors can get the best travel insurance.

What Does Commercial Insurance Cover?

Commercial insurance also referred to as business insurance, covers numerous unexpected situations that can be costly without an insurance policy—the insurance coverage typically includes employee or customer injury, property damage, theft, and any potential lawsuits against the company. It also provides protection from any liability claim made by  customers, employees, or members of the general public. However, insurance plans are often customized to accommodate the company’s specific needs and vary from industry to industry.

The policy can also be tailored according to the business’ location—each state imposes different requirements, so the business entity must comply with the requirements in the state it’s operating in. But the coverage mostly depends on the business’ insurance needs, so even though all businesses should acquire a basic commercial insurance policy, they might want to consider specialized policies to ensure maximum protection.

DID YOU KNOW: Commercial insurance is different from travel insurance, and you can get a travel insurance policy based on where you’re traveling, like getting the best travel insurance for the USA.

Key Takeaways

Commercial insurance protects a business from risks and liabilities.
Injuries, thefts, and lawsuits are just some of the things commercial insurance covers.
There are different commercial insurance policies, and you need to choose one according to your business needs.
Insurance policies have a different coverage limit, although it’s usually set at $1 million.

Types of Commercial Insurance

Managing a business can be a challenging experience, and the process of choosing the right commercial insurance for your business needs makes it even more difficult. A large number of insurance agents, brokers, insurance companies, and policies to choose from might overwhelm you if choosing business insurance is your responsibility.

Before you make your choice, you need to consider the cost of commercial insurance and the level of coverage it offers for the set price, in addition to the necessary requirements you need to fulfill in order to comply with state law. The most common types of business insurance include:

General Liability Insurance

This is the most basic type of commercial insurance and its purpose is to protect businesses from accidents that happen as a result of normal operations. This policy offers protection against lawsuits and covers the costs of any medical payments due to injuries or fees needed to repair some property damage.

It also protects against ‘advertising injuries,’ like libel and copyright infringement. As all other types of commercial insurance, general liability policies have limits, which are divided into three categories:

    • Premises limit – most policies have additional coverage for the premises rented in your business’ name.
    • Products/completed operations limit – the maximum amount the insurance provider will pay out for individual claims.
    • Aggregate limit – the maximum amount the insurance will pay out for all claims.

Although general liability insurance doesn’t cover employee injuries, punitive damages, car accidents, and intentional acts, it’s recommended for businesses of all sizes and in all industries.

Business Owners Policy (BOP)

This policy protects from risks and damages to your business property and covers the losses incurred during any interruptions of your business process. This type of commercial insurance coverage includes damage caused by storms, problems with the electrical grid, and even losses due to hacking attacks, and the company will either refund the money you’ve lost during the interruption or provide funds for you to operate from an alternate location until the problems have been resolved.

This insurance type is a very popular choice among small businesses because it covers the most common liabilities—having just a BOP is enough for smaller companies since they don’t have to worry about obtaining multiple policies and it’s easier to cover claims with just one provider.

Cyber Liability Insurance

Cyber insurance covers the financial losses due to a data breach or cyberattack, or even a simple coding error. The commercial insurance company will cover any damages caused by breaches in the company’s cyberspace— credit card numbers, Social Security numbers, names and addresses, health records, and other sensitive information can be obtained by malicious attackers and used for the wrong purposes. In such cases, the insurance will cover any legal fees and help the company with customer notification.

Commercial Auto Insurance

If you’re wondering what is commercial insurance for a vehicle, keep in mind that this policy covers the damages in case your company vehicle is involved in an accident. This insurance also covers vehicle theft and other types of damages to the vehicle and protects companies from lawsuits regarding the company’s use of a car or any other motor vehicle. Commercial auto insurance combines property and liability insurance with regard to the company’s use of vehicles registered as their property.

Compensation Insurance for Workers

Also referred to as workers’ comp, this insurance type covers the costs of medical bills for work-related injuries and the legal fees for possible lawsuits regarding employee injuries. If you’re wondering what are examples of commercial health insurance, keep in mind that aside from medical bills, these include pain and suffering lawsuits, punitive damages, and lost wages.

This insurance type is often compulsory for companies with more than one employee, and each employee has to be covered by the insurance policy. Even though some employers believe they don’t need to buy these policies because their work environment is safe, accidents and injuries can occur even in the safest surrounding, so it’s better to acquire a policy from a commercial insurance provider than have to pay for all expenses out-of-pocket when an accident happens. If all the employees are insured, the employer is also protected from lawsuits they might file against them.

Professional Liability Insurance

Understanding commercial insurance in terms of professional liability means that your company will be protected from all liabilities regarding your professional services. This is also known as errors and omissions (E&O) insurance or professional indemnity insurance, and it covers claims regarding negligence, inaccurate advice, and misrepresentation.

Even if you’ve done nothing wrong, one of your employees or clients can still file a claim against you or even sue you if they believe you’ve wronged them in some way. If you don’t have insurance, you’ll have to pay for the expensive legal fees in such cases yourself, but if you’re a policyholder, the commercial insurance coverage will apply to all the fees and costs of the process.

However, it’s important to note that these policies don’t cover everything, so you need to get additional policies for absolute protection.

DID YOU KNOW: If you’re a car owner, you can get insurance for your vehicle even if you don’t have good credit—check out these auto insurance companies that don’t check credit.

Information You Should Know About Commercial Insurance

If you’re a business owner, you need to become acquainted with business insurance policies and make sure you understand the commercial insurance meaning. Although commercial insurance policies seem uncomplicated, there are some things to keep in mind before you buy one:

Policy Limits

These limits represent the total amount of money the policy will pay out as coverage in case of unexpected events. There are also limits per claim, also known as per occurrence limits, and an aggregate limit that’s valid for the duration of the policy. Most policies have their limits set at $1 million.

Deductible

This is the amount of money that must be paid towards a claim before the insurance company offers funds for the remainder of the costs. Most insurance policies include a deductible—for instance, if the damages are estimated at $50,000, you’ll be responsible for paying the initial $10,000 and the insurance will cover the remaining $40,000.

The commercial insurance definition clearly states that after you’ve paid the deductible, the insurance provider has to cover the rest of the costs up to the policy limit. The higher the deductible, the lower the premium, so in case you’re considering choosing a policy with low premiums, keep in mind that if you need to file a claim, you’ll have to pay significant sums in deductibles.

Premium

If you’re wondering what is commercial insurance premium, it’s the number of money businesses pay for insurance coverage, i.e. the price of the insurance policy. The type of industry the business is operating in, the number of employees, the payroll amount, the business’ location, and the years in business can determine the total premium amount. When it comes to what is a commercial insurance payment plan, the payments can be conducted on a monthly, quarterly, or annual level.

  • Coverage

This part indicates all the cases in which the policy covers the damages caused by unfortunate occurrences.

  • Exclusions

This part of the policy mentions in which situations the commercial insurance provider won’t provide coverage—a textbook example is the denial of coverage when a person has been intentionally injured.

DID YOU KNOW: Even if your business is home-based, you should get commercial insurance for your business in case there’s a home accident that might affect your working conditions.

Conclusion

Commercial insurance is a necessity for any business that wants to minimize the risk of liability and unwanted costs. If you’re a business owner, you should look into how to get commercial insurance and find the policy that best suits your business needs—you have a lot of options to choose from, as long as you comply with state laws and regulations.

FAQ

What does commercial insurance mean?

Commercial insurance is a type of insurance for businesses and corporations that provides coverage for any liabilities that might occur during regular business operations.

How many types of commercial insurance are there?

There are several types of commercial insurance: general liability insurance, professional liability insurance, cyber liability insurance, commercial auto insurance, compensation insurance for workers, and business owners policy (BOP), in addition to several other insurance policies available.

What is the difference between commercial and private health insurance?

Commercial health insurance covers only injuries that have occurred during working hours and at the workplace, while private health insurance covers all medical conditions and injuries regardless of where they were acquired.

What is the cost of commercial insurance?

If you’re unclear as to what is commercial insurance and how much does it cost, you should know that this insurance is acquired by businesses and its median price is $63/month or $755/year, with a payout limit of $60,000.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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