Property and casualty insurance provides important protection for many business owners in the event of a disaster or other loss. In general, there are three types of insurance policies that are applicable to most business and commercial property owners:
- Property insurance
- Liability insurance
- Umbrella coverage
The coverage from each type of policy provides a broad set of protections in unexpected circumstances.
Property insurance provides compensation for property damage. A general property insurance policy typically covers damage due to fire, lightning, storms, and theft. This type of policy offers coverage for damage done by building collapse, snow or ice storms, and water leakage.
Commercial property insurance policies may extend coverage to furnishings used in the business, such as furniture, boilers, air conditioners, and some other types of machinery, as well as merchandise or inventory on the property. Some policies may also include a cash reimbursement for business interruption and additional expenses that might arise from any property damage.
However, property insurance policies often contain exclusions. In such a case, business owners may obtain endorsements or riders, which are amendments to an insurance policy that provides coverage for special circumstances not included in the basic contract, usually for an additional premium. Be sure the property insurance policy you are considering offers the coverage you need.
Liability insurance protects business assets when the business is sued for damages caused by an action taken or neglected by the business. The amount of liability insurance a business needs is based on the perceived risk, since some businesses have inherently higher risks. For instance, a business that uses toxic chemicals has more perceived risk than a business that does not use hazardous substances.
Under a liability policy, the insurer is obligated to “defend” and to “indemnify.” The insurer has the responsibility to engage legal counsel to defend against any liability claim. This may be an outside legal firm or in-house lawyers who work for the insurance company. The obligation to indemnify means the insurer covers all the costs, up to the policy limit, that the insured is found liable to pay for damages.
Under a liability policy, the insurer is obligated to protect the insured from lawsuits seeking compensation for bodily harm, property damage, personal injury, false advertising, and slanderous claims. Liability policies do not cover punitive damages that are awarded by the court because the harm done is perceived as intentional.
A commercial umbrella policy provides protection in million-dollar increments above the required liability limits of a commercial general liability, auto liability, and employers liability (workers compensation) policies. For instance, if you have liability coverage for $1 million, and a judgment is made against your business in excess of that covered amount, then the umbrella policy kicks in to provide coverage. In most cases, you are expected to maintain your underlying insurance, without alterations in terms or conditions, during the term of the umbrella policy. You may also be required to carry certain amounts of insurance in these underlying policies in order to qualify for an umbrella policy.
To protect your business, consider periodically reviewing your property and casualty insurance to ensure it provides an adequate level of protection. Be sure to consult your qualified insurance professional, who can help evaluate your business risks and offer advice for obtaining the appropriate insurance coverage.