commercial insurance 101 for dummies

Commercial Insurance 101: An Introduction

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What Is Commercial Insurance?

You’ve worked hard to build a successful business—which is why you need to protect it with commercial insurance. Commercial insurance (or business insurance) makes sure that all the effort and money you have invested in your business is covered in case a natural or financial disaster strikes. 

Commercial insurance is when you pay a set monthly or annual premium and enter an insurance contract. Once the insurance company's coverage begins, the insurance company agrees to assume liability for damage to property or people. Depending on the type of insurance policy, it can step in to help cover the financial loss you'd otherwise be responsible for. It is one of the best things small business owners can do to provide financial protection for their business assets.

4 Types of Commercial Insurance to Consider

If you're a business owner, we recommend these four types of insurance coverages for businesses.

Commercial Property Insurance

Commercial property insurance  covers costs to repair or replace the property that you operate your business in or lost or damaged equipment or inventory. Property insurance covers the building structure itself, as well as business property such as equipment, inventory, furniture, and more.

Covered perils in a property insurance policy usually include losses from fire, storms, theft, burglary, or vandalism. A property insurance policy typically excludes coverage for damage from flooding. If you live in a flood zone, consider purchasing a flood insurance policy .

An insurance company usually offers two coverage options to replace property: replacement cost or actual cash value. We recommend getting your building, personal property, and inventory appraised and then work with an experienced agent to determine which option is best for your business.

Commerical General Liability Insurance

General liability insurance  covers your business from liability arising from third-party bodily injury, third-party property damage, and advertising injury (libel, slander, copyright infringement, etc.). Liability insurance coverage will pay settlements to third parties resulting from anything for which your business is legally liable, up to the policy limits, as well as defense costs and legal fees associated with the claim. It also covers any medical bills for any people injured by your business.

Commercial Auto Insurance

Commercial auto insurance  provides coverage for the commercial vehicles owned by your business. This insurance pays any costs to third parties resulting from bodily injury or property damage for which your business or employees are found legally liable, up to the policy limits. Depending on what kind of commercial auto coverage you buy, the insurance may also pay to repair or replace your vehicle because of damage resulting from accidents, theft, flooding, and other events.

Workers’ Compensation Insurance

Workers’ compensation insurance —often shortened to workers’ comp—pays for medical bills and replaces a portion of lost wages for employees who suffer work-related injuries, regardless of who was at fault for the injury. It also helps protect the business from a lawsuit from an injured employee. Workers' compensation insurance is required—in almost every state—if you hire employees, contractors, or subcontractors. You'll likely be required to get disability and unemployment insurance for your employees as well, but again, this depends on your state's local rules.

Other Business Insurance Policies to Consider

In addition to the basic liability insurance highlighted above, there are various other business insurance coverages to consider to protect your business.

Business Owners' Policy

A  business owner's policy  is a package that insurance carriers usually offer small businesses at a discounted rate compared to purchasing each policy separately. It usually includes general liability insurance, commercial property insurance, and business interruption insurance. 

Business interruption insurance –also referred to as business income insurance—helps cover costs if you're unable to operate your business. Those costs can include lost income, employee payroll, taxes, debt repayment, and other operating expenses.

Commercial Umbrella Insurance

Commercial umbrella insurance  policies provide coverage over and above your other liability coverage limits if insurance claims exceed the limits of an underlying policy. They are designed to protect against unusually high losses. Some umbrella policies also include coverage for things excluded by underlying policies.

Professional Liability Insurance/Errors and Omissions Insurance

Professional liability policies  are designed to meet the specific needs of individual businesses that offer a professional service in the course of their jobs. It can also apply to professions that face high costs if they make an error. It includes coverage if you're accused of negligence, missed deadlines, undelivered services, and giving incorrect advice.

This group of insurance can include:

• Errors and omissions insurance (E&O)
• Employment practices liability insurance (EPLI)
• Directors and officers insurance (D&O)

Equipment Breakdown Coverage

Equipment breakdown coverage  is known as "boiler and machinery" insurance. This insurance covers things like A/C, furnaces, and other equipment if they break down

How Much Does Commercial Insurance Cost?

Business insurance costs and premium payments vary depending on the types of insurance coverages you choose and other factors, such as:

• How many employees you have
• Whether you own or rent a building
• The type of company you own
• The services you provide
• The type of business risk you face

Because the costs vary so widely with different insurance companies and depend on numerous factors, we always recommend talking with an insurance broker to help you determine your  business risk  and get a commercial insurance quote for accurate coverage.

Want to Learn More About Commercial Insurance Coverage?

Navigating the world of commercial insurance and determining the specific risks your business faces can be tricky. We always recommend speaking with a licensed agent about the coverage your business may need. If you need help assessing your business risks, need more information, or would like helping getting coverage, give us a call at  877-907-5267 .  Or, complete the form at the top of the page for a simple, free quote. Our goal is to help you as a small business owner get the coverage you need to protect your business—at the right price.

Additional Free Resources:

• The U.S. Small Business Administration (SBA) : The SBA offers some great articles to help you determine the type of business insurance you need.
• National Federation of Independent Business (NFIB) : As the "Voice of Small Business" they provide many useful resources.
• National Association of Insurance Commissioners (NAIC) website : Use this to research insurance companies and their history.

Reviewed By: Sarah Reid, Licensed Agent

Related Pages :  What is Business Insurance? ,  What Is Commercial Business Insurance?

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Learn about how business insurance works and what you'll need to protect your business.

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Running a business can be an exciting way to earn money, provide useful goods and services to your community, create jobs, and serve as a platform for personal creative expression. However, in addition to the opportunities it provides, business is also full of risk. Successful businesses use a variety of tools to manage their risks.

What is business insurance?

Insurance is a risk management tool that helps reduce financial risk for businesses. Your business (also called the policyholder) signs a contract (also called a policy) with an insurance company. Your company pays a small amount of money called a premium to an insurer. In exchange for your premium, the insurance company agrees to protect your company against financial losses if certain disasters or accidents listed in the contract happen.

Insurance is available for a wide variety of disasters or accidents, from fires and mudslides, to car crashes, lawsuits against your business, or even trade credit insurance which protects against the bankruptcy of a customer who has not yet paid. Insurance contracts are very specific about the types of events they cover, so it is important to read the contract and verify with an insurance professional that your risks are appropriately covered.

The most common types of insurance for businesses are property insurance , liability insurance , and business income insurance . Property insurance covers damage or loss of property that you use in your business. Liability insurance covers your business if it is sued for causing injuries to another party. Business income insurance helps your business continue to pay its bills and employees in the aftermath of an accident or disaster. Many other types of insurance are available for different kinds of businesses, and you can read about them in our article Types of Business Insurance .

If a disaster were to occur without insurance, your business would need to come up with the money to pay for repairs, replace property, or to pay for lawsuits. This can cause serious cash flow problems for your business if you do not have sufficient cash or profits. If the loss is large enough, it can drive your company out of business.

Pricing and Pooled Risk

Insurance operates on the principle of pooled risk. Insurance companies gather together many companies that face similar risk exposures and pool together their premium payments. Losses are paid out of these pooled funds plus the insurer’s capital that it raises from investors.

Although similar risks are pooled together, each policyholder’s business is different, so the insurance company will adjust each business’s pricing based on the risk factors unique to each company. For example, a software company and a chemical plant may both be exposed to the risk of fire, but a fire is much more likely at the chemical plant, so the plant’s premiums will be higher to cover the risk of fire.

How do I choose an insurance provider?

There are three major factors to consider when choosing an insurance company to insure your business.

The financial strength of the company. Since insurance claims are paid out of the money that an insurance company has available, you want to choose a company that has enough money to pay for potential claims. If an insurance company does not have enough money to pay claims in the event of a disaster, it may fail, and money may not be available to pay for your losses when a failure occurs. An insurance contract is a promise to pay, and you want to ensure that the insurer can fulfill its promise.

Major insurance carrier rating agencies, including AM Best, Fitch, Moody’s, and Standard & Poor’s provide letter grades evaluating the financial strength of insurance companies. Generally, it is safest to choose from insurance companies with ‘A’ ratings.

Pricing. Different companies have different models for pricing risks. You may find differences in premium rates for similar coverages from different insurance carriers. No insurer will have the cheapest rates all of the time, so it is worthwhile to shop around or work with an insurance broker to compare quotes.

Reputation for customer service. If you have to file a claim, make changes to your policy or billing address, or otherwise interact with the insurer, you will want an insurer with good customer service. Some insurance companies spend more than others on investments in technology and customer service. This can make a difference in your customer experience, especially when filing claims.

Where can I purchase business insurance?

You have several options when choosing where to purchase insurance: brokers, agents, and direct writers.

Direct writers are insurance companies that will sell you insurance directly, without the use of agents or brokers.

Insurance agents are independent companies that represent insurers in the sale of insurance. Captive agents represent only a single insurance company. Independent agents can represent more than one insurer, and can help you shop around with different companies.

Insurance brokers are independent companies that represent your company rather than representing the insurer. Brokers can also help you compare prices and policies from competing insurers.

Brokers and agents are paid by the insurance company through commissions for the insurance policies they sell. The commissions are a percentage of the premiums that you pay, and the brokers and agents are paid for every year that you renew your policy.

Usually, the price of the same insurance policy from the same insurance company will be the same whether you buy it through a broker, agent, or direct writer. However, in some cases, brokers will charge your company a fee, which they should disclose to you in advance.

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What is a policy period?

A policy period is the length of time that an insurance contract is valid. Many insurance contracts for business last for one-year periods and need to be renewed annually, although other policy periods also exist. At the time of policy renewal, the insurance company may raise or lower the price, or even decide not to renew the policy. However, if the insurance company decides to not renew, the law usually requires them to give your company advance notice.

Your company can usually cancel an insurance policy at any time, although advance notice is required for most policies. If you have prepaid premiums for the policy period, the insurance company will refund you for the portion of the policy period that has not elapsed yet. If you are late on paying your insurance premiums, you usually have a grace period as specified in the policy to make up the payments. If the grace period has passed, the insurance company can cancel the policy after giving you advance notice.

What is a limit of insurance?

A limit of insurance is the maximum amount that the insurance company will pay out for losses during the policy period. The limit of insurance can be negotiated between your company and the insurance company. Premiums increase as the limit of insurance increases.

On many commercial insurance policies, it is common to have a separate limit “per occurrence” as well as an “aggregate” limit. An “occurrence” is an accident or disaster specified in the policy that leads to a payout from the insurance company, while the “aggregate” is the total amount paid by the insurance company in a policy period. For example, if your policy has limits of $2 million per occurrence and $4 million per year, the maximum it will pay for a single disaster is $2 million, and if you have multiple disasters during the policy period, the maximum it will pay is $4 million total for the year.

What is a claim?

A claim is a formal request to the insurance company to pay for a loss that is covered in your insurance policy. When an accident or disaster occurs, it is important to notify the insurance company as soon as possible. After you have notified the company, the insurance company or your insurance broker or agent will assist you in filing a claim. After the insurance company receives the claim, they will investigate, and if the loss is covered by the policy contract, the insurer will pay the claim.

What is a deductible?

When your company experiences a loss, the deductible is the amount of money your company is responsible for paying before the insurance company’s coverage begins. For example, if you have a deductible of $500, and your company experiences a loss of $700, the insurance company will only pay you $200, which is the amount of the loss minus the deductible. The deductible applies to each loss individually, so your company would be responsible for the first $500 of each loss in this example.

The deductible is a form of risk-sharing. Rather than transfer all of the risk to the insurance company, having a deductible means that your company retains some of the risk of loss. This incentivizes your company to take measures that help prevent losses from occurring.

Occurrence vs. Claims-made Policy

Insurance policies can be written on an occurrence basis or a claims-made basis . Commercial property , general liability , and business interruption insurance are usually occurrence policies, while specialty coverages like errors and omissions and directors and officers insurance are more commonly claims-made policies.

Occurrence policies cover events that happen during the policy period, regardless of when a claim is filed. For example, if someone is exposed to hazardous chemicals in a given year (for example, 2010), but does not develop cancer and sue until many years later (for example, 2020), a liability insurance policy that is an occurrence policy for the year they were exposed to the hazard would cover the claim.

Claims-made policies , on the other hand, will only cover claims if they are filed while the policy is still active, even if the exposure occurred while the policy is active. For example, if a financial advisor’s client suffers losses in 2019, and the advisor drops insurance coverage in 2020, when the client sues the advisor in 2021, the claims-made policy will not cover the claim filed in 2021.

Understanding the basics of business insurance is an important first step in formulating a comprehensive risk management strategy for your business. Knowing your options and how different insurance products operate will help you to make better decisions in protecting your company. To learn more about business insurance, consider reviewing our guides on the different types of business insurance you may need.

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What is Commercial Insurance? A Guide for Beginners

If you’re a new business owner and are just learning the ropes , you probably have a lot of questions.

After all, there is a lot to learn.

Chances are, one of those questions will be, “What is commercial insurance?”

Most people know how car or homeowners insurance works, but if you’re new to owning a business, you probably won’t know much about commercial insurance.

Commercial insurance is a broad term encompassing many insurance policies available to businesses. Keep reading for a breakdown of standard commercial insurance policies and the benefits of each.

What is Commercial Insurance?

Commercial insurance works similarly to personal insurance.

Business insurance exists to protect your business from financial loss caused by specified events. Depending on the circumstances of the loss, different policies are available.

Overall, commercial insurance protects businesses from liabilities such as lawsuits from third parties, such as customers or those they entered a contractual relationship with, lawsuits from clients, injuries to employees or customers, and damage or theft of business property.

As technology advances, new types of insurance have come into play, such as cyber liability insurance , which protects businesses from liability when data breaches expose customer information.

Businesses with employees are usually required by state law to carry workers’ compensation insurance. Otherwise, choosing whether to purchase insurance is up to them.

The exception to this is contractual liability. When businesses enter contracts with other entities, such as landlords, they often commit to carrying commercial liability insurance.

What Commercial Insurance Looks Like

Commercial insurance policies are similar to personal policies in many ways. Both types of policies have similar language and coverage conditions.

Let’s look at some examples:

Policy Limits

Each policy and type of coverage will have a limit. This limits how much money the insurance policy will pay in the event of a loss.

There is usually a limit per claim and a limit per policy overall. For example, there could be a per-claim limit of $1 million and an aggregate policy limit of $2 million.

Most commercial liability insurance policies have a $1 million limit.

Deductibles

Some commercial liability insurance policies have a deductible, while others don’t. If you have a deductible, you must pay your deductible before insurance pays the rest of the claim.

Some insurance companies will pay the claim in full and allow you to reimburse them for your deductible if they are paying a third party.

Coverages/Exclusions

After the insuring agreement, the first section of your policy will tell you what the policy covers.

After your coverages, come the exclusions. The policy won’t pay for these things or conditions that exclude coverage. For example, all liability policies exclude coverage if you harm another party intentionally.

Types of Commercial Insurance

As we mentioned before, commercial insurance is a broad term. Technically, commercial insurance refers to insurance available to businesses.

In reality, there are a handful of specific commercial insurance policies that all businesses should have.

Sometimes, commercial insurance is used synonymously with general liability insurance, but for the sake of accuracy, let’s break commercial insurance down by some of its standard policies.

General Liability Insurance

Although sometimes used interchangeably with commercial insurance, general liability insurance is different.

General liability insurance has specific coverages and does not cover all potential losses. It covers you if someone is injured by or on your property because of your or your employee’s negligence.

It will also cover damage to others’ property that you cause. These policies also include coverage if you commit personal or advertising injury, which provides for defamation.

If a third party sues you for any of these reasons, your policy will pay for all legal and court fees incurred. The insurance company will pay the claim, defend you, or offer a settlement.

Property Insurance

Commercial property insurance policies are similar to personal property insurance policies.

You’ll need this coverage to protect your buildings and their contents from theft and physical damage. Natural disasters and fires can cause devastating financial loss.

Business property policies can also include additional coverages such as business interruption, loss of use, and business personal property.

Workers’ Compensation

Workers comp insurance  provides coverage and benefits for your employees if they are injured on the job.

It will cover their medical expenses and help them with lost wages if they miss time from work because of their injury. In exchange for these benefits, your employees will lose the right to sue you.

Errors and Omissions

This coverage is essential for those in the tech industry but is common for professionals like lawyers and insurance agents.

Errors and omissions coverage protects you from lawsuits based on a mistake you made. We all make mistakes, and that’s why this coverage is important.

If your mistake affects your client, they might sue you. This coverage will cover the cost of the lawsuit.

This insurance protects you when a data breach affects you or your clients.

This newer type of insurance can help cover the cost of data breaches and the costs associated with recovering from them.

Buying Commercial Insurance

Now that you know the answer to the question, “What is commercial insurance?” it’s time to shop for a policy.

Your insurance agent will help explain the coverages necessary for your business and provide you with a quote.  Contact us  today to speak to an insurance expert in our office.

What is commercial insurance, and why do businesses need it?

Commercial insurance provides financial protection to businesses against various risks, including property damage, liability claims, and business interruption. It’s essential for safeguarding business assets and mitigating financial losses.

What types of coverage are included in commercial insurance policies?

Commercial insurance policies may include coverage for property damage, general liability, professional liability, commercial auto, workers’ compensation, and business interruption, among others.

How does commercial insurance differ from personal insurance?

Commercial insurance is specifically designed to address businesses’ unique risks and needs, whereas personal insurance provides coverage for individuals and their assets.

Are businesses legally required to have commercial insurance?

The insurance requirements for businesses vary depending on the industry, location, and business size. While some types of insurance, such as workers’ compensation, may be legally required, others are typically recommended for adequate protection.

How do businesses determine the right amount of coverage for their needs?

Businesses should carefully assess their risks and liabilities to determine the appropriate types and levels of coverage needed. Consulting with an insurance agent or broker can help businesses tailor their coverage to suit their needs.

What factors affect the cost of commercial insurance premiums?

The cost of commercial insurance premiums depends on factors such as the type of business, its size, location, industry, claims history, coverage limits, and deductible amounts.

What steps should businesses take to file a commercial insurance claim?

In the event of an incident or claim, businesses should notify their insurance provider immediately and provide all relevant documentation and information to facilitate the claims process.

Can businesses customize their commercial insurance policies to fit their needs?

Yes, businesses can often customize their commercial insurance policies by adding endorsements, increasing coverage limits, or adjusting deductible amounts to better align with their risk tolerance and budget.

How can businesses find the right commercial insurance provider?

Businesses should research insurance providers, compare quotes, and consider financial stability, customer service reputation, and industry expertise when selecting a commercial insurance provider.

What Is Commercial Insurance? An Introduction

You have worked hard to build your business. Whether it be the significant cash investment required to open your doors or the hours spent building a profitable business,  you now need to protect that investment .

Commercial insurance can seem complicated. There are virtually unlimited options for you to purchase  or not purchase . Knowing the basics with some commercial insurance 101 knowledge can help you manage your business risk, while helping you save money on coverage that you may not really need.

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An Introduction To Commercial Insurance

Before jumping into commercial insurance 101, let's first understand the reasons why both large and small companies buy insurance.

Commercial insurance protects your business and investments from events that could devastate your assets. It provides critical protection to both the property you own and liability arising from the damages you cause others.

Many first-time buyers of commercial insurance purchase policies because their businesses are reaching a point where they are now exposed to risk. They might own significant assets that need protection, or they may have insurance requirements from the government, their customers, the bank, or their landlords in order to conduct business.

How Commercial Insurance Works

Commercial insurance is typically a one-year contract that agrees to assume your business liabilities for a negotiated amount of money at the beginning of a policy term.

This amount is generally determined by the amount of property you own or the liabilities you are exposed to. Oftentimes, the limits can be decided based on requirements that your landlord, vendors, or project partners need you to comply with.

4 Basic Commercial Insurance Coverages You Need

Every business is unique and requires different insurance coverage. Of these commercial insurance facts, there are four policies you should purchase or will most likely need to purchase at some point.

General Liability Insurance

General liability insurance covers bodily injury or property damage  you cause others  arising out of your business operations. This gives you protection from slips and falls, product liability, and various other costs.

This insurance policy covers not only the damages you cause, but it will also pay defense costs associated with settling lawsuits. Additionally, this policy will cover and pay for the defense costs of frivolous lawsuits that you might face if the accusation falls under a covered claim.

Commercial general liability can cover a variety of claims, but there are three core coverages to know about:

• Coverage A provides protection from claims that relate to when your business’s operations, products, or completed work cause bodily injury or property damage . Bodily injury includes a person’s physical injury, sickness, or disease, while property damage includes physical harm to a property, as well as the loss of use of that property. Coverage A also includes a "products-completed operations hazard" provision. This ensures you’re covered if a bodily injury and property damage claim arises after the work has been completed or product has been sold.
• Coverage B protects you against claims that relate to personal and advertising injury . For example, these claims are often centered on libel, slander, invasion of privacy, copyright infringement, and the like.
• Coverage C provides a no-fault coverage for the medical expenses of people who sustain bodily injuries on your premises or due to your operations. Coverage C typically has a lower limit than Coverage A and does not require you to be found legally liable for the injury, which is why it is often called “goodwill coverage.” Coverage C is designed to help businesses avoid expensive litigation.

Every business is different, which is why we always advise that you talk to an insurance expert to determine the coverages you need and those you don’t. But one of the most important rules to remember in this introduction to commercial insurance is that  every business and nonprofit operation should have a general liability policy  at a minimum .

Buildings/Contents Insurance

Commercial property insurance covers assets that you own from direct damage. This includes the building, the contents inside and around the building and even your property while off-premises or in transit. More specifically, this policy will cover:

• Your Building: This can be a structure you own or do not own but are responsible for insuring (referred to as a triple net lease). In addition to the actual structure, building coverage insures completed additions, indoor and outdoor fixtures, and permanently installed machinery and equipment.
• Your Business Personal Property: This element of the policy covers the building’s contents, such as furniture, fixtures, machinery and equipment, stock, tenant upgrades made to a rented space, leased personal property for which you have a contractual responsibility to insure, and all other personal property you own and use in your business.
• Personal Property of Others: This is coverage for the property of others in your care, custody, and control. This could mean property that you are borrowing or even customer’s property.

Commercial property insurance is often required if a bank financed the property, but most business owners voluntarily choose to purchase coverage to protect their investment. If not required by a bank, a business owner has to decide how critical the property is to their business and how easily they could replace it in the event of a disaster.

Commercial Auto Insurance

If you have vehicles you use for your business operation or are owned by the business, you will need a commercial auto insurance policy. This policy covers your liability associated with the operation of the vehicle and any damage caused to the vehicle.

If your business owns vehicles, this commercial auto liability is required by state law. At LandesBlosch, we suggest auto liability limits of at least $1,000,000 to protect the business. If your automobiles are larger than pickup trucks, we often recommend an excess policy to increase the auto limits.

Workers Compensation Insurance

If you own a business, you have or might have employees whom you are responsible for. If these employees are injured doing a job you instructed them to do, you are liable for their medical bills and paid time off work. These medical bills can get very expensive, depending on the severity of the accident. Workers compensation insurance takes care of both the medical expenses and payments to the employee for the time they are unable to work.

In most states, this coverage is required if you have employees who aren't family members or owners in the company. Also in most states, you purchase this policy through private insurance carriers. Although, in North Dakota, Ohio, Washington, Wyoming, Puerto Rico, and the U.S. Virgin Islands, you purchase workers' compensation through the state fund.

Keep in mind that you may have to purchase workers comp insurance even if you consider all your employees to be independent contractors. The short story is that regardless of what you call the person working for you, your state has laws in place to determine how to classify employees and whether the organization paying the bills is required to cover them with workers comp insurance. For example, if you dictate when a person starts and ends work, tell them what tools they must use, or specify how they must perform their work, this typically would classify them as an employee, not an independent contractor.

This is a very complicated topic that business owners often find confusing, so it’s important to speak with an insurance expert about your specific situation to determine if you need this coverage.

How Commercial Insurance Pricing Works

Commercial insurance companies need a simple way to understand different business risks and the scale of an insured's operations. Insurance companies must also have the ability to quantify and adjust their rates in a way that allows them to accurately determine risk.

As always in the insurance industry, there are many different methods and circumstances to achieve the same thing, but here are two primary ways commercial insurance ratings work.

Rating For Liability Coverage

Insurance companies need to understand the liability risk of a company since they will be paying for the associated liability judgments.

Generally, insurance companies will take the loss data from thousands of companies similar to yours and develop a rate that will allow a pool of customers with similar operations to pay for each other’s losses.

Most of the time, this rating figure is based on the  revenue of your company multiplied by the loss rate of the risk pool .

Revenue x Loss Rate = Liability Premium

Although revenue is a good way to determine the size and risk of most companies, such as manufacturing and retail, it is a poor way to determine risk for other businesses.

For companies such as construction, the rate will be based on payroll instead of revenue. Regardless of your business type, find out what your liability premium is based on and make sure to keep that figure updated throughout the year to avoid an audit.

Rating For Property Coverage

Although similar to liability coverage, property coverage can be a little more complex to price. There are many different types of property and ways to price them. Most commonly, the figures are rated on the industry type that occupies the building or owns the contents, since that is how the property will be utilized.

The second rating factor is based on the construction of the building. This will determine the risk of damage for common threats, such as fire or wind. For example, a wooden-frame building will have a higher risk for fire than a metal building (especially if the wooden-frame building does not have a sprinkler system).

Finally, one of the most important,  if not the most importantrating factor,  is the location of your property. This will determine your exposure to catastrophic loss such as hurricanes, wildfires, tornadoes, earthquakes, and floods.

Insurance underwriters will condense all these variables into a local property rate that is the  total insured value multiplied by the property exposure rate .

Total Insured Value x Property Rate = Property Premium

What to expect when working with us

Each insurance broker has different values and processes. At LandesBlosch, we know you are busy. That’s why we try to learn about your business and offer a competitive quote as quickly as possible. If your business is incredibly unique, large, or complex, this process might look a little different. But for most businesses, we can turn around quotes instantly or within 2 business hours.

Here is our process for getting an insurance quote:

1. You fill out our online quote application.

Get started by telling us a little bit about your business in our online quote form here . These basic questions help us understand your business, unique operations, size, and risk.

2. We follow up with any additional questions.

We will follow up, usually within the same business day, to get any additional information needed to complete your quote.

3. We quote 5-10 insurance companies on your behalf.

Once we have all the information we need to begin, we seek quotes from 5-10 insurance companies on your behalf.

4. We present you with the quotes and answer any questions you have.

Once we’ve gathered all the quotes, we show you your options and help you choose the best policy for your business. This includes reviewing deductibles, coinsurance options, exclusions, and costs.

To help you choose which insurance policy to purchase for your business, we recommend reading our article, “ How Do You Compare Different Business Insurance Quotes? ”

Protecting your investment in your company is an important part of creating an organization that lasts. Take the time to learn how commercial insurance works, know your exposures, and talk to an insurance professional about common claims in your industry. You can get protection from vulnerabilities with a tailor-made insurance policy designed specifically for you.

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.

THE INFORMATION ON THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. Nothing on this website should be construed as a solicitation, proposal, offer, recommendation, endorsement, or advice regarding any insurance product. The information on this website is of a general nature and is not intended as a substitute for individual consultation with a licensed insurance professional. In no event will we undertake to advise you regarding your need for any insurance product. YOU ARE RESPONSIBLE FOR DETERMINING WHAT INSURANCE PRODUCTS YOU NEED AND IN WHAT AMOUNTS, BASED ON YOUR UNIQUE EXPOSURE TO RISKS AND ABILITY TO BEAR LOSSES. We are licensed insurance brokers in the following states: WA, OR, ID, MT, WY, CA, NV, UT, AZ, CO, MN, SD, NE, KS, OK, TX, IA, MO, AR, LA, WI, IL, KY, TN, MS, IN, GA, FL, OK, VA, NC, SC, DE, MD, DC, NJ, CT, RI, VT, NH, PA, and ME. Insurance products and features are subject to underwriting criteria and may not be available in all states.

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A Basic Guide to Commercial Insurance

If you own or operate a business, insurance provides the peace of mind knowing that your business is safe without having to worry about certain unforeseen events. In many cases it’s also contractually obligated by your landlord and clients.

The primary job of insurance is to provide financial protection against certain risks. It enables you to focus on running your business without having to worry about the financial burden of an accident or injury occurring.

Any lawsuit or insurable disaster could cause significant problems. Everything a business does carries some degree of risk, whether its ordering professional services or setting up a photo shoot. You might also have an office full of computers or other equipment that could get damaged. These risks can reveal themselves in lawsuits, accusations of wrongdoing, slips and falls on your premises, or the one most people think of — an inch of water on the floor.

There are several kinds of insurance every business should consider:

General liability insurance

Professional liability insurance

Contents insurance

Need insurance for your small business.

A Commercial General Liability (CGL) policy will respond when a business or its owner is sued because someone was injured or somebody’s property was damaged . It doesn’t matter if the claim is true, the policy will cover legal expenses and any award granted.

An example of this policy activating is if someone slips and falls on your businesses’ premises, and decides to sue. A CGL policy would cover legal expenses as well as any award or settlement that resulted.

Professional Liability insurance

Professional Liability insurance — also known as Errors & Omissions insurance (E&O) — is usually triggered when a business is accused of failing to properly render professional services, or that they were acting negligently.

Contents insurance covers the physical things your business owns, like computers, tools, improvements you make to your space as a tenant, or costs associated with relocating in the event of fire, water damage, flood, theft, or other perils included in the policy.

These physical items are typically covered on a replacement cost basis, meaning if they are totally destroyed the insurance policy pays for a similar item new. It is important to have a high enough contents limit to replace everything in your business.

Related : What is professional liability insurance ?

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Originally published September 13, 2019, updated August 25, 2023

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Small Business Insurance Basics

In this article.

• Major Coverages "> Major Coverages

Other Types of Business Coverages 

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Insurers often combine a number of insurance coverages into a package that is sold as a single contract. The most common policy for small businesses is the Businessowners Policy (BOP).

The BOP combines coverage for all major property and liability insurance risks as well as many additional coverages into one package policy suitable for most small businesses. The term “BOP” specifically refers to insurance policy language developed (and revised as needed) by experts at ISO. ISO provides sample insurance policy language, research and a variety of other products to insurance companies.

The BOP includes business income insurance, sometimes called business interruption insurance. This compensates a business owner for income lost following a disaster. Disasters typically disrupt operations and may force a business to vacate its premises. Business income insurance also covers the extra expense that may be incurred if a business must operate out of a temporary location.

To cover specific risks associated with a business, a variety of additional coverages may be added to the basic BOP. For example, if a business has an outdoor sign, the BOP doesn’t cover it unless coverage is specifically added for an additional premium. If a business relies on electronic commerce, the owner can add coverage for lost income and extra expenses in the event the ability of the business to conduct e-commerce is slowed down or stopped due to a computer virus or hacker.

Only small- to medium-sized businesses that meet certain criteria are eligible for a BOP. Factors insurers consider include the size of the premises, the required limits of liability, the type of business and the extent of offsite activity. Premiums for BOP policies are based on those factors plus business location, financial stability, building construction, security features and fire hazards.

Major Coverages

Most small businesses need to purchase at least the following four types of insurance.

1. Property Insurance

Property insurance compensates a business if the property used in the business is lost or damaged as the result of various types of common perils, such as fire or theft. Property insurance covers not just a building or structure but also what insurers refer to as personal property, meaning office furnishings, inventory, raw materials, machinery, computers and other items vital to a business’s operations. Depending on the type of policy, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses.

2. Liability Insurance

Any enterprise can be sued. Customers may claim that the business caused them harm as the result of, for example, a defective product, an error in a service or disregard for another person’s property. Or a claimant may allege that the business created a hazardous environment. Liability insurance pays damages for which the business is found liable, up to the policy limits, as well as attorneys’ fees and other legal defense expenses. It also pays the medical bills of any people injured by, or on the premises of, the business.

3. Business Auto Insurance

A business auto policy provides coverage for autos owned by a business. The insurance pays any costs to third parties resulting from bodily injury or property damage for which the business is legally liable, up to the policy limits.

4. Workers Compensation Insurance

In all states but Texas an employer must have workers compensation insurance when there are more than a certain number of employees, varying from three to five, depending on the state. Workers comp insurance, as this coverage is generally called, pays for medical care and replaces a portion of lost wages for an employee who is injured in the course of employment, regardless of who was at fault for the injury. When a worker dies as a result of injuries sustained while working, the insurance provides compensation to the employee’s family. An extremely small business, such as one operated by one or two people out of a home, may not need workers compensation insurance. But it often needs more property and liability insurance than is provided in a typical homeowners policy. 

1. Errors and Omissions Insurance/Professional Liability

Some businesses involve services such as giving advice, making recommendations, designing things, providing physical care or representing the needs of others, which can lead to being sued by customers, clients or patients claiming that the business’s failure to perform a job properly has injured them. Errors and omissions or professional liability insurance covers these situations. The policy will pay any judgment for which the insured is legally liable, up to the policy limit. It also provides legal defense costs, even when there has been no wrongdoing.

2. Employment Practices Liability Insurance

Employment practices liability insurance covers (up to the policy limits) damages for which an employer is legally liable such as violating an employee’s civil or other legal rights. In addition to paying a judgment for which the insured is liable, it also provides legal defense costs, which can be substantial even when there has been no wrongdoing.

3. Directors and Officers Liability Insurance

Directors and officers liability insurance protects directors and officers of corporations or not-for-profit organizations if there is a lawsuit claiming they managed the business or organization without proper regard for the rights of others. The policy will pay any judgment for which the insured is legally liable, up to the policy limit. It also provides for legal defense costs, even where there has been no wrongdoing.

4. Key Employee Insurance

Life or disability income insurance can compensate a business when certain key employees die or become disabled. These coverages cushion some of the adverse financial impact that results from losing a key employee’s participation.

5. Umbrella Policies

As the name implies, an umbrella liability policy provides coverage over and above a business’s other liability coverages. It is designed to protect against unusually high losses. It provides protection when the policy limits of one of the underlying policies have been used up. For a typical business, the umbrella policy would provide protection beyond the general liability and auto liability policies. If a company has employment practices liability insurance, directors and officers liability, or other types of liability insurance, the umbrella could provide protection beyond those policy limits as well.

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Types of Business Insurance: What Coverage Do You Need?

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There are many types of business insurance, each designed to protect your business against a different financial risk. From lawsuits to car crashes to natural disasters, business insurance can help keep your company afloat when accidents happen.

Most businesses need general liability insurance, and your state’s laws may require workers’ compensation insurance and commercial auto insurance. But you may need other types of coverage depending on what your business does, where it operates, what kinds of assets you have and other factors.

Here are the most common types of business insurance and what each covers so you can determine which is right for you.

» MORE: How to get business insurance in 4 steps

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What are the types of business insurance?

You may see business insurance policies organized into packages based on your industry, like cleaning business insurance or independent contractor insurance . In general, those packages include some combination of the following coverage types.

General liability insurance

General liability insurance is a core component of business insurance. It protects you from lawsuits filed by people outside your company alleging that your business caused bodily injury, property damage or harm to a reputation. All businesses should have general liability insurance.

Risks it protects against: Lawsuits filed by people outside your company, like customers.

Costs it covers: In case of a lawsuit, legal defense and settlement costs, if any. In case of injuries on your property, medical bills.

Commercial property insurance

Commercial property insurance pays out for damage or loss to physical property such as an office building or inventory because of things like fire or lightning. Some causes are usually excluded — for instance, damage caused by flood or water — but you may be able to add endorsements that extend your coverage if you face particular risks.

Risks it protects against: Damage to your building, inventory, equipment or other property caused by natural disasters or other covered accidents.

Costs it covers: Repairing or replacing your damaged property.

Business income insurance

Business income insurance , also called business interruption insurance, financially protects you in the event of a covered disaster or situation that prevents you from operating your business. This insurance can reimburse you for lost business income, rent, payroll and taxes.

Risks it protects against: Loss of revenue when your business is forced to close, like in the weeks after a natural disaster.

Costs it covers: Lost business income. If extra expense coverage is included, it may also cover the cost of renting temporary space or hiring temporary staff.

Need several basic types of business insurance and want to save money? Because it’s often cheaper to package coverage, consider a business owner’s policy , which includes general liability, commercial property and, usually, business interruption insurance.

Workers’ compensation insurance

Workers’ compensation insurance protects you from lawsuits or claims resulting from employee injuries that occur at work or as a result of the nature of their work. The coverage is required by law for most businesses, though workers’ comp requirements vary by state .

Risks it protects against: On-the-job injuries.

Costs it covers: The injured employee’s medical expenses, plus their income during the time they can’t work.

Professional liability insurance

Professional liability insurance protects you from customers or patients who may seek to sue you for real or perceived damages resulting from mistakes you made in doing your job. This type of liability insurance complements your general liability coverage by insuring events or incidents that are not covered under that policy.

Risks it protects against: Lawsuits from dissatisfied clients.

Costs it covers: Legal representation and settlement costs, if any.

Cybersecurity liability insurance

Cyber liability insurance is designed to protect you and your company if your digital data is compromised. This insurance — which is sometimes available as an add-on to a business owner’s policy or general liability insurance — typically covers your operational expenses as well as expenses incurred by customers whose online security was affected.

Risks it protects against: Data and other cybersecurity breaches.

Costs it covers: Varies depending on the policy. Cyber insurance can cover the cost of recovering your data, improving your digital security and even public relations expenses for restoring your company’s reputation.

Commercial auto insurance

Commercial auto insurance is similar to personal auto insurance, except it covers your company vehicles or your personal vehicle while you’re doing business. In the event of an accident in which your company is at fault, commercial auto insurance can pay for:

The medical bills of injured drivers and passengers.

Repairs to your car or the other driver’s car, depending on who is at fault.

Vehicle damage resulting from other causes, like theft, vandalism, flood and fire.

Risks it protects against: Auto accidents and other damage to company vehicles.

Costs it covers: Medical payments and the repair or replacement of your vehicle.

Commercial umbrella insurance

Business umbrella insurance kicks in after you’ve maxed out your liability coverage for a particular incident. It’s a good idea for large businesses that could be sued for significant sums.

Risks it protects against: Large lawsuits in which settlements can’t be covered in full by general liability insurance.

Costs it covers: Settlement costs.

Key person insurance

If you or another core employee dies or becomes unable to work, key person insurance can be used to pay for lost business income, hire a replacement or cover similar expenses related to the loss of an executive.

Risks it protects against: Operational difficulties if a key member of the business leadership dies or can no longer work.

Costs it covers: Varies depending on the policy. Key person insurance can make up for lost income, pay for finding and hiring a replacement or cover other related costs.

Directors and officers insurance

D&O insurance protects members of your board of directors and executive leadership team if they’re named in lawsuits against the company.

Risks it protects against: Lawsuits that threaten the personal finances of executives and board members.

Costs it covers: Reimburses directors and officers for legal settlement costs.

How to get the types of business insurance you need

Once you know what types of business insurance you need, you can seek out providers or an insurance agent to help you.

If you need only general liability insurance, a business owner’s policy or other basic types of coverage: Get quotes from online business insurance companies. These providers can give you a cost estimate in minutes. You can often buy the insurance you need online, getting the protection your business needs right away.

If you need umbrella insurance, key person insurance or directors and officers insurance: These more specialized types of coverage tend to be more expensive. A business insurance agent near you can help you get multiple quotes and choose the provider that offers you the best coverage at the best price.

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Business Insurance FAQ

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More than seven million people visit our site every year looking for unbiased information about insurance and other related topics. And with great readership comes great responsibility, which means we’re dedicated to providing honest and accurate information.

Jeff Green has held a variety of sales and management roles at life insurance companies, Wall street firms, and distribution organizations over his 40-year career.  He was previously Finra 7,24,66 registered and held life insurance licenses in multiple states. He is a graduate of Stony Brook University.

Q. What is business insurance? Q . What does business insurance cover? Q . How does business insurance work? Q. How much does business insurance cost? Q. Is business insurance tax-deductible? Q. Is business insurance required by law? Q . What business insurance do I need? Q. Does business insurance cover embezzlement? Q. Does business insurance cover flood damage? Q. Does business insurance cover lawsuits? Q. What does general liability insurance cover? Q. What is errors and omissions insurance? Q. What is a business owners policy? Q. How do I get business insurance?

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What is business insurance?

Business insurance includes a broad range of policy options designed to protect businesses from financial loss. Every commercial operation has its own unique set of risks, which means a commercial insurance policy must be tailored to the business. 

Many factors, from the size of your company, to the number of workers you employ, the materials they handle, and whether you have business vehicles, will determine the specific coverage you need to mitigate risk and protect your company’s financials.

Many business owners find that they must turn to a number of different insurance companies to get all of the coverage needed to cover their risks. If you work with an independent agent , you can get all of your business insurance policies from one office.

What does business insurance cover?

Business insurance coverage for a commercial operation can include the following and more:

• General liability insurance: Covers third-party liability claims for injuries to other people.
• Professional liability and malpractice insurance: Covers professionals against loss due to negligent professional duty, wrongful acts, and advice and services that lead to another person’s loss or injury.
• Product liability insurance: Covers against faulty products and damage, illness, injury or death that may occur from using a faulty product.
• Property insurance: Covers loss and damage to your commercial business property due to fires, storms and other causes.
• Commercial vehicle insurance: Covers commercial vehicles and drivers for collision, liability, property damage, personal injury and comprehensive coverage (also known as "other than collision").
• Workers' compensation: Covers your employees if they get ill or are injured while working on the job.
• Loss of income: Covers your business expenses, such as rent and employee wages, if you can’t operate your business.
• Key person insurance: Covers loss of income that may result from the head of the business or other key personnel becoming incapacitated or passing away (also known as key man insurance).
• Cybercrime insurance: Provides protection for risks due to Internet use and online communications.
• Records retention policies: Covers loss of important data and financial records.
• Specialty coverage: Insurance that covers various specific business risks, such as those of  landlords, farmers, and commercial operations that put on one-day events, such as seminars or concerts.

How does business insurance work?

Business insurance is a contract between the insurance company and the business. The insurance company agrees to provide financial protection in the event of a specified loss in exchange for premium payments. 

At the time of a loss, the business will  file a claim. If a fire destroys a portion of the business premises, the company will file a claim against the property insurance policy. 

An adjuster will assess the damage and process the claim. The company will then receive the appropriate amount of compensation for the loss, less any deductible. 

There are many different scenarios with regard to business risk and how insurance claims are filed. If the incident is a loss suffered by a customer of the company, the injured party is likely to file a claim against the business's liability policy. 

How the claim is processed depends upon the size of the claim, whether the matter can be settled with an insurance payment, and if the claim results in a lawsuit.

How much does business insurance cost?

The cost of business insurance varies. A number of factors affect the cost, because it depends on the type of business and the types of coverage appropriate for that commercial operation. 

A typical cost for  business insurance coverage is $200 per month. Cost also depends on the size of the business. A small, home-based business can often be adequately insured for less, while insurance for a large company with many employees and a wide range of business risks will cost substantially more. 

The costs of business insurance can be reduced with effective risk management practices, and by comparing costs from several different insurance carriers. 

An independent insurance agent who specializes in commercial insurance can help with this process, and can manage a company’s complete business insurance portfolio through one office.

Is business insurance tax-deductible?

Business insurance is tax-deductible, as long as the coverage is for the purpose of operating a business, profession, or a trade. Businesses may not deduct their business insurance premiums if the coverage is for the purpose of a self-insurance reserve fund or a loss of earning insurance policy. Consult your tax professional for advice.

Is business insurance required by law?

Business insurance is required by law, but only under certain conditions. The following business insurance is required by law if it is applicable to your situation:

• Unemployment insurance: Applies to a business that has employees and may be obligated to pay unemployment insurance taxes under prescribed conditions. If these conditions are applicable to your business, then you must register your business with the state work force’s agency.
• Workers' compensation insurance: If your business has employees, you are most likely legally obligated to carry workers’ compensation insurance, either on a self-insured basis or through a commercial insurance carrier or a state workers' compensation program. Workers' compensation laws vary by state.
• Professional liability insurance: Some states require specified professionals to carry insurance against professional liability.
• Disability insurance: Several states require that a business have partial wage replacement insurance coverage for eligible employees for non-work related injury or illness. These states are California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

What business insurance do I need?

Depending on the nature of your business and any insurance that you are legally obligated to carry, the following types of business insurance should be considered essential:

• General liability insurance: Coverage against accidents, injuries and negligence claims.
• Product liability insurance: Coverage against product defects.
• Professional liability insurance: Covers professionals against malpractice, negligence or errors.
• Commercial property insurance: Covers against damage to your business property, such as from a fire or a severe storm.
• Business interruption insurance: Protects your business if you are no longer able to conduct your business because of a loss.

Some businesses need specialty coverage for equipment, shipping and other risks. Because commercial insurance needs to be tailored to each business based on risks, it is critical to work with an agent, who will get to know your company and ensure that your coverage adequately protects your business investment.

Does business insurance cover embezzlement?

If your business carries commercial crime/theft coverage, your business insurance will cover employee fraud and embezzlement.

There are several different forms of employee dishonesty coverage. You can purchase several types of fidelity bonds to protect the business in the event of dishonest acts by all employees, or by named employees.

Does business insurance cover flood damage?

In order for your business insurance to cover flood damage, your company must carry a separate flood insurance policy or endorsement. A typical commercial property insurance policy covers specific water damage situations but excludes flooding. 

The wording and water damage exclusions vary from one insurance company to another. Be sure to review your policy carefully and discuss your specific risks and concerns with an independent insurance agent who can help you get the coverage you need.

Does business insurance cover lawsuits?

Business insurance covers lawsuits, as long as you have the appropriate business liability insurance for your situation and enough liability coverage to pay your legal costs. 

To ensure that enough liability coverage is in place for extreme circumstances like a lawsuit that exceeds $1 million in damages, many businesses buy a commercial umbrella liability policy.

Certain liability exclusions also apply, such as if an injury or damage was expected, or was caused intentionally. Some policies also have something called a “workmanship” exclusion, and some exclude coverage of punitive damages.  

Liability insurance is available in many different forms, including:

• General liability
• Professional liability, errors and omissions and malpractice
• Directors and officers liability
• Product liability
• Premises or property liability
• Employers' liability
• Employment practices liability
• Environmental and pollution liability

What does general liability insurance cover?

General liability insurance provides insurance protection for a company’s assets, financial obligations, legal defense, and any settlements or judgments awarded to an injured party. 

It may also include claims for copyright infringement, false or misleading advertising, or libel and slander. If a patron is injured in some way in the course of doing business with your company, your general liability insurance will provide coverage.

What is errors and omissions insurance?

Errors and omissions insurance (or E&O) is a form of professional liability insurance. It covers a business for services rendered that did not have the expected or promised results, or that result in a loss or personal injury suffered by the person receiving those services. It also covers situations where the individual or company failed to render services at all. Engineers, stockbrokers, accountants, insurance agents, and lawyers may be covered by E&O.

Malpractice insurance is also a form of professional liability insurance. Malpractice insurance covers healthcare professionals, physicians, dentists, pharmacists, and others.

What is a business owners policy?

A business owners policy, or BOP, is insurance coverage designed specifically for small or mid-sized businesses. Depending upon the insurance company, the size of a business that qualifies for a business owners policy may be based on revenue or the number of employees. 

A BOP combines several types of insurance coverage in a packaged format, and can be customized to suit a particular business. Generally, this type of policy includes both property and liability coverage.

Policies may also provide coverage that includes the following:

• Property claims
• Breakdown of equipment
• Loss of income/business interruption
• Copyright infringement
• Products and completed operations
• Premises liability

How do I get business insurance?

There are a variety of ways to purchase business insurance. You can shop online, or call an insurance company representative. However, business insurance policies vary a great deal between companies, as does the cost of premiums. 

Therefore, your best course of action is to talk with an independent insurance agent who can check rates from several different insurance companies to find you the best quote available.

An independent agent who specializes in commercial insurance can design a policy specifically for your business. 

Independent agents have access to numerous insurance companies, which means they can customize your commercial insurance policy and meet all of your business insurance needs out of one office.

Find a local independent agent in your area, and get the business insurance you need to protect your company’s bottom line.

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Discovering the Basics of Insurance

An overview of insurance fundamentals, how risk is defined, and how premium dollars are leveraged.

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Commercial Lines Insurance: Definition, Types, vs. Personal Lines

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is Commercial Lines Insurance?

Commercial lines insurance includes property and casualty insurance products for businesses . Commercial lines Insurance protects businesses from potential losses they can't afford to cover and allows companies to operate when it might otherwise be too risky. Commercial policies may be contrasted with personal lines insurance .

Key Takeaways

• Property-casualty insurance includes two major categories: commercial lines and personal lines.
• Commercial lines include insurance products designed for businesses.
• Risks and hazards covered under commercial lines include malpractice insurance, professional liability, and builder's risk.

Investopedia / Yurle Villegas

Understanding Commercial Lines Insurance

Commercial lines insurance includes commercial auto insurance, workers' compensation insurance, federal flood insurance , aircraft insurance, ocean marine insurance , and medical malpractice insurance . Commercial lines protect businesses against financial losses caused by accidents, lawsuits, and natural disasters .

Available coverages and premium costs vary by business type, size, and location. In 2022, the monthly cost of a business insurance policy ranged from $42 for professional liability to $70 for workers’ compensation.

Each policy is tailored to the type of business covered and the client’s unique needs. A structural engineering firm may need professional liability insurance that protects the company against claims of negligence in creating a building’s plans, performing inspections, and supervising construction. The firm might also purchase general coverage for each project, plus coverage for punitive damages .

Small Business Insurance

A small, home-based business might need one or more commercial lines because homeowners insurance provides limited or no insurance for business activities. A home business might need commercial auto insurance for a company-owned delivery vehicle, worker's compensation insurance for the employee who drives the vehicle, property insurance to cover business goods stolen from the home or vehicle, and liability insurance to protect against claims by any client who claims the company's product harmed them.

Types of Commercial Lines Insurance

Workers' compensation insurance.

Workers’ compensation is a form of employer insurance coverage that pays benefits to workers who are injured or become disabled as a result of their job. 

Debris Removal Insurance

Debris Removal Insurance covers the cost of removing debris after a catastrophic event, such as a fire burning a building down. Before rebuilding, the remains of the old building must be removed. Property insurance alone typically won't cover the costs of removing the debris.

Builder's Risk Insurance

Builder's Risk Insurance insures buildings while under construction.

Glass Insurance

Glass insurance covers broken windows in a commercial establishment.

Inland Marine Insurance

Inland Marine Insurance covers property in transit and other people's property on the business premises. This insurance would cover fire damage to a customer's clothing from a fire at a dry cleaning business.

Business Interruption Insurance

Business Interruption Insurance covers lost income and expenses from property damage or loss. If a fire forces a business to close for two months, this insurance would reimburse for salaries , taxes, rents, and net profits that would have been earned during the two months.

Demolition Insurance

Demolition Insurance covers the costs of demolishing a building damaged by a  peril,  such as a fire or storm. Zoning requirements or building codes may require that a damaged building be demolished rather than repaired. Demolition insurance covers the cost of tearing down undamaged portions of a damaged structure.

Crop-Hail Insurance

Crop-Hail Insurance provides coverage for damage and destruction by hail and fire. Purchased by farmers, it is designed to protect agricultural products while they are still in the field and have yet to be harvested. Crop-hail insurance protects the livelihood of farmers, who are often at the mercy of sudden weather events.

What Factors Determine the Cost of Commercial Lines Insurance?

Factors include the type of business or profession, the number of employees, and the coverage needed for each potential event.

What Is General Liability Insurance?

General liability coverage is a commercial general liability (CGL) insurance that protects businesses from claims of bodily injury, property damage, or personal injury.

What Is Workers' Compensation?

Workers' compensation, or "workers' comp," is a government-mandated program and type of employer insurance that provides benefits to workers who become injured or ill on the job or as a result of the job. 

The Bottom Line

Commercial lines insurance includes products designed for businesses. Losses covered under commercial lines insurance include malpractice, professional liability, and builder's risk. Home-based businesses may require a commercial line because homeowners insurance commonly provides limited or no insurance for business activities.

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Get the Basics to Learn How Insurance Works

What is personal insurance, how does insurance work.

• Bank Requirements

Getting a Good Price on Insurance

When should you buy insurance.

• 5 Types of Personal Insurance
• Residential Policy Coverage
• Car, Boat, & Vehicle Insurance
• Health, Life, & Disability Insurance
• Small Print in Insurance Policies

7 Insurance Policy Terms to Know

• Payments for Claims
• Getting a Refund With No Claim

Premium vs. Claims Payments

• Insurance Rates Going up or Down
• Agents, Captive Agents, & Brokers
• Deciding What Coverage You Need
• Choosing a Policy

Frequently Asked Questions (FAQs)

The Balance / Laura Porter

Learning how insurance works takes some effort, but it's vital to know the basic concepts of coverage to get what you need. Being aware of what's available and how it works can have a major impact on the price you will pay to be covered. Armed with this knowledge, you'll be able to choose the right policies that will protect your lifestyle, assets, and property.

At its core, the concept of insurance is very basic. When you have something to lose, and you can't afford to pay for a loss yourself, you pay for insurance. By paying money every month for it, you receive the peace of mind that if something goes wrong, the insurance company will pay for the things you need to make life like it was before your loss.

Key Takeaways

• When you buy insurance, you make payments to the insurance company. These payments are called "premiums."
• In exchange for paying your premiums, you are covered from certain risks. The insurance company agrees to pay you for losses if they occur.
• You can buy many types of insurance, including auto, home, life, health, and disability insurance.

Personal insurance is any type of policy that isn't commercial. You buy it to protect yourself from financial losses that you would not be able to afford to cover on your own. It relates to risks that you may face due to mishaps, illnesses, death, or damage to property you own.

When you buy insurance, you make payments to the company. These payments are called "premiums." In exchange, you are covered from certain risks. The company agrees to pay you for losses if they occur. Insurance is based on the idea that spreading the risk of a loss, such as a fire or theft, among many people makes the risk lower for all.

The insurance company has many clients. They all pay premiums. Not every client will have a loss at the same time. When a loss happens, they may get insurance money to pay for the loss.

Everyone does not have to buy it, but it is a good idea to buy insurance when you have a lot of financial risk or investments on the line. However, when third parties have a financial interest in the property, as is the case when a bank holds a mortgage, having insurance is typically required as a condition for approving the loan.

Some insurance is extra, while other insurance, like auto, may have minimum requirements set out by law.

Why Does the Bank Require You to Be Insured?

Some insurance is not required by law. Lenders, banks, and mortgage companies will require it if you have borrowed money from them to make a purchase worth a lot of money, such as a house or a car.

To buy a car or house with a loan, you will need to have insurance on it. You will need car insurance if you have a car loan and home insurance if you have a home loan. It is often needed to qualify for a loan for  large purchases like homes . Lenders want to make sure that you are covered against risks that may cause the value of the car or home to decline if you were to suffer a loss before you have paid it off.

The premium is the amount of money you will be charged by an insurance company in exchange for the financial protection provided to you by your policy. You may pay by the month, every six months, or once a year.

To lower your premium, shop around with a few companies or use a broker who can do the shopping for you. Find which company can give you the best rate by getting at least three quotes. Based on how claims are handled and the underwriting of the insurance company, the rates will vary.

If you let your car or home insurance lapse, your lender will put their own insurance on it and charge you for it. This is not a good idea. Lender insurance is more expensive than the policy you would buy on your own.

Some companies may have discounts geared at bringing in certain types of clients. How well your profile fits the insurer's profile will factor into how good your rate will be.

For example, if an insurer wants to attract younger clients, it may create programs that offer discounts for recent graduates or young families. Other insurers may create programs that give bigger discounts to seniors or members of the military. There is no way to know without shopping around, comparing policies, and getting quotes.

There are three main reasons why you should buy it:

• It is required by law, such as liability insurance for your car.
• It is required by a lender, such as buying a home and getting a home policy.
• A financial loss could be beyond what you could afford to pay or recover from easily. For instance, if you have costly computer equipment in your apartment, you will want to buy renters insurance.

The 5 Basic Types of Personal Insurance

When most people think about personal insurance, they are likely thinking about one of these five major types, among others:

• Residential, such as home, condo or co-op, or renters insurance.
• Car insurance and coverage for other vehicles such as motorcycles.
• Boat insurance, which can be covered under home insurance in some circumstances, and stand-alone boat insurance for vessels of a certain speed or length that are not covered under home insurance.
• Health insurance and life and disability insurance.
• Liability insurance , which can fall into any of these groups. It covers you from being sued if another person has a loss that is your fault.

While you may be able to get some of your policies from one company, it's not a guarantee. Insurance requires licensing and is divided into groups. This means that before someone is legally allowed to sell it or provide you with advice, they must be licensed by the state to sell and give advice on the type you are buying.

For instance, your home insurance broker or agent may tell you that they don't offer life or disability insurance. They may be able to refer you to an agent in their circle with the proper licensing to sell you a policy.

If you're able to purchase more than one kind of policy from the same person, you may be able to "bundle" your insurance and get a discount for doing so.

What Does a Residential Policy Cover?

Homeowners insurance  covers the buildings on your property. This includes your main dwelling along with any other structures in the space. It also covers the contents of your dwelling, movable property kept at your home, living expenses if you need to vacate your home after a loss, and liability protection.

Renters insurance  covers your property kept in your rental unit as well as living expenses for vacating your home in the event of a loss. It also covers personal liability in your home and worldwide.

Condo or co-op Insurance   is similar to renters insurance. In addition to your personal property, living expenses, and liability, it also covers some things that are very specific to owning a unit or shares in a building.

Note: It is always important to check the fine print of your insurance policy, as not all policies are created equal.

Car, Boat, and Other Vehicle Insurance

Car, boat, and other vehicle insurance offer many options in what is covered. The most basic is liability insurance. This covers your liability for your ownership or operation of the vehicle or vessel. There are also extra coverages you may purchase, such as ones for damage to the vehicle or vessel itself, and its parts. Options for medical payments to others, and death benefits due to death or injury resulting from the operation of the vehicle, may also be included as extra or mandatory, depending on state financial-responsibility laws or  minimum car insurance requirements .

Health, Life, and Disability Insurance

Health, life, and disability insurance and other less-common types, such as long-term care, all provide coverage that will pay you for health-, illness-, or death-related events.

Health insurance includes many types of policies. You can find basic health benefits along with other health policies like dental or long-term care. There is a vast range of insurance types you can find to suit your needs.

How to Read the Small Print in Insurance Policies

Your insurance declaration page  lists and describes the basic limits of what coverages you have paid for in the policy. The policy wording is the final word on how your insurance works in a claim. Most people do not read the small print in their policy. That is why some people end up confused and upset when they have a claim that doesn't seem to be going their way.

These are some key phrases that you will find in the small print of your policy. It pays to know what they mean.

• The deductible   is the amount of money you will pay in a claim. The higher your deductible, the more risk you take on, but your payments will be less. Some people choose a high deductible as a way to save money.
• Exclusions  are not covered as part of your policy. It is vital to ask about the exclusions on any policy you purchase so that the small print doesn’t surprise you in a claim.
• Type of Policy:  Companies offer various levels of coverage. If you get a really low price on a quote, you should ask what type of policy you have or what the limits of it are. Compare these details to those in other quotes you have.
• Special Limits:  Policies all contain certain sections that list limits of amounts payable. This applies to all kinds of policies from health to car. This becomes urgent when you are making a claim. Ask about what coverages are limited and what the limits are. You can often ask for the type of policy that will offer you higher limits if the limits shown in the policy concern you.
• Waiting Periods and Special Clauses:  Some types of insurance have waiting periods before you will be covered. For instance, with dental, you may have a waiting period. With life, you may be subject to a contestability period. These are just two examples. You always want to ask when you will start being covered. You should also ask if there are any waiting periods or special clauses that could affect what you're covered for when you buy a new policy.
• Endorsements  are add-ons to a policy to get more coverage . In some cases, they may amend a policy to reduce or limit what is covered.
• Basis of Claims Settlement  represents the terms under which the claim will be paid. With home insurance, for instance, you could have a replacement cost or actual cash value policy. The basis of how claims are settled makes a big impact on how much you get paid. You should always ask how claims are paid and what the claims process will be.

How Do Insurance Companies Pay Claims?

When you have a loss such as a car crash or house fire, you will call your insurance company right away and let them know. They will record your claim and look into it to find out what happened and how you are covered. Once they decide you have a covered loss, they may send a check for your loss to you or perhaps to the repair shop if you had a car crash. The check will be for your loss, minus your deductible. You will pay that out of your own pocket.

Do You Get a Refund if You Don’t Make a Claim?

When you pay for insurance for many years, you may start to wonder why you’ve been paying so much when you have never had a claim. Some people may even feel like they should get their money back when they haven’t had a claim. That’s not how it works. Insurance companies collect your money and put it aside for payouts when there are claims.

This is the concept of "shared risk". The thought is that the money paid out in claims over time will be less than the total premiums collected. You may feel like you're throwing money out the window if you never file a claim, but having piece of mind that you're covered in the event that you do suffer a significant loss, can be worth its weight in gold.

Consider this example to help you see how premium and claims payments differ.

Imagine you pay $500 a year to insure your $200,000 home. You have 10 years of making payments, and you’ve made no claims. That comes out to $500 times 10 years. This means you've paid $5,000 for home insurance. You start to wonder why you are paying so much for nothing. In the 11th year, you have a fire in your kitchen, which must be replaced. The company pays you $50,000 to get your kitchen fixed.

If the insurance company gave everyone back their money when there was no claim, they would never build up enough assets to pay out on claims. Even the $5,000 you paid them over 10 years doesn’t cover your $50,000 loss. If you have even one loss, you become unprofitable to the company. Because insurance is based on spreading the risk among many people, it is the pooled money of all people paying for it that allows the company to build assets and cover claims when they happen.

What Makes Insurance Rates Go up or Down?

Insurance is a business. Although it would be nice for the companies to just leave rates at the same level all the time, the reality is that they have to make enough money to cover all the potential claims their policyholders may make.

When a company tallies up how much they paid in claims at the end of the year vs. how much they got in premiums, they must revise their rates to make money. Underwriting changes and rate increases or decreases are based on results the insurance company had in past years.

Depending on what company you purchase it from, you may be dealing with a captive agent. They sell insurance from only one company. A broker offers insurance from many companies.

What Are Agents, Captive Agents, and Insurance Brokers?

The frontline people you deal with when you purchase your insurance are the agents and brokers who represent the insurance company. They will explain the type of products they have.

The  captive agent  is a representative of only one insurance company. They a familiar with that company’s products or offerings, but can not speak towards other companies' policies, pricing, or product offerings.

An insurance broker or independent agent may deal with more than one company on your behalf. They will have access to more than one company and must know about the range of products offered by all the companies they represent.

How to Decide What Coverage You Need

There are a few key questions you can ask yourself that might help you decide what kind of coverage you need.

• How much risk or loss of money can you assume on your own?
• Do you have the money to cover your costs or debts if you have an accident? What about if your home or car is ruined?
• Do you have the savings to cover you if you can’t work due to an accident or illness?
• Can you afford higher deductibles in order to reduce your costs?
• Do you have special needs in your life that require extra coverage?
• What concerns you most? Policies can be tailored to your needs and identify what you are most worried about protecting. This may help you narrow down the kind of policy you need and reduce your costs.

Choosing a Policy Based on Your Current Lifestyle and Life Stage

The insurance you need varies based on where you are at in your life, what kind of assets you have, and what your long term goals and duties are. That’s why it is vital to take the time to discuss what you want out of your policy with your agent. Finding the right insurance products is a strong way to manage your money. It will help you remain financially safe even when you have a covered loss.

How does FDIC insurance work?

The federal government created the Federal Deposit Insurance Corporation ( FDIC ) in 1933 to help strengthen the financial system. FDIC insurance will reimburse deposits in case of bank failure. If you bank with an FDIC-insured institution, your money is safe (up to $250,000 per depositor per institution), regardless of what happens to the bank.

What is gap insurance?

Guaranteed auto protection (" gap ") insurance is a type of auto insurance for those who finance their purchase. If you take out a loan to buy a car, and then something happens to the car, gap insurance will pay off any portion of your loan that standard auto insurance doesn't cover. Some lenders require their borrowers to carry gap insurance.

Consumer Financial Protection Bureau. " What Is Homeowner's Insurance? Why Is Homeowner's Insurance Required? "

Michigan Department of Insurance and Financial Services. " Licensing - Insurance ."

Federal Deposit Insurance Corporation. " What We Do ."

Consumer Financial Protection Bureau. " What Is Guaranteed Auto Protection (GAP) Insurance? "

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General Liability Insurance

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What is general liability insurance coverage?

A general liability insurance policy — also known as business liability insurance — protects businesses from claims that result from normal business operations. Get a business liability insurance policy for protection from bodily injuries, medical payments, advertising injuries, and more.

GEICO can help small business owners and contractors get the coverage they need with a general liability insurance quote.

What does general liability insurance cover?

This liability insurance protects your small business from claims that occur during your normal business operations, such as:

• Property damage
• Physical injury
• Defense costs
• Personal and advertising injury

How much is general liability insurance?

The cost of general liability insurance is based on your specific business needs. Your business is unique, and so are the risks. Factors that influence the cost include:

• Type of work
• Number of employees

GEICO can help you get an insurance policy with the right coverage at a great price. Start your general liability insurance quote now .

Common terms to know when shopping for general liability insurance coverage.

Property Damage

Protects you from claims costs if you damage someone else's property.

Medical Payments

Payments for accidents that occur on your premises or because of your operations, such as a customer slipping on a wet floor. This is regardless of who is at fault.

Personal & Advertising Injury

If you're sued for libel and slander, this could provide coverage for those claims.

Who needs general liability insurance coverage?

Each business is different, so make sure you're covered with liability insurance for your needs. Examples of businesses that use general liability insurance are:

• Artisan contractors
• Small business owners
• Landscaping companies
• IT contractors
• Real estate agents
• Janitorial services

Check out our insurance for small business page to learn about small business coverages . If you still need guidance on whether general liability insurance is right for you, we're here to help. Contact our licensed agents with any of your concerns or questions.

General Liability Insurance for Contractors

Many contractors have business owners policies (BOP), but your business may not need all of the coverages that come with a BOP. If you don't require property insurance and aren't responsible for covering payroll or operating expenses, for instance, general liability insurance could be a better solution. These policies save you money by providing the risk protection you need without overwhelming you with the coverages you don't.

Does your company need a different type of liability insurance coverage?

Being properly insured with business liability insurance is the best way to protect your company. We're here to help. Here are a few examples of companies that may be better suited to our other business insurance products

• Your company provides professional services (e.g., education and training)
• You rent or own a storefront
• You use vehicles to transport goods, yourself, or employees

Additional Coverages to consider with your BOP Insurance? GEICO can help.

This 2-in-1 policy includes general liability plus protection for your property. It can cover:

• Business location, merchandise, store contents, and equipment
• Business interruption expenses and loss of income
• Cases where someone is hurt on your premises

Example: A fire damages your office. A BOP could cover repairs to your office and help pay your employees' wages while business is interrupted.

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We often recommend professional liability coverage to go with general liability or a BOP.

• This covers certain professional and personal services, in case you're sued for negligence or for the advice you give clients
• It's often known as Errors and Omissions Insurance

Example: A client sues a hair stylist for allegedly giving them the wrong cut and color. Professional liability insurance could cover legal defense costs.

A personal auto policy is not enough to cover vehicles used for business. Commercial auto insurance can:

• Cover business uses that personal auto policies don't include
• Offer more liability coverage to protect you
• Includes cars, pickup trucks, box trucks, and more

Example: On a job site, a carpenter accidentally backs into the homeowner's car. Commercial auto insurance could cover the damage.

Protects businesses from losses from computer-related attacks, such as malware, phishing, ransomware, or stolen personal data.

This helps provide financial protection for job-related:

Protection against claims of negligence of mistakes which cause bodily harm to another and is usually carried by:

• Physical Therapists
• Other medical professional

Protects healthcare professionals against claims of injury and medical negligence.

Need to speak with us about general liability insurance coverage?

You can reach us at (800) 841-1621 .

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General Liability Insurance: Frequently Asked Questions

• How can I manage my liability insurance policy? The Geico Insurance Agency makes it easy to talk directly with an insurance professional who can help you manage your general liability insurance policy.
• Do you sell other business insurance products? Yes! Whether you're a small business just getting started or looking for better insurance rates, GEICO can help. Answer a few short questions about your business so we can help narrow down the search with you.
• Do you have any information about starting a new business? Sure, we do! Here are 6 smart tips about starting a new business.
• Is my small business properly covered? For most small businesses, general liability insurance is recommended. Beyond that, it depends on your unique situation. Common types of business insurance include workers' compensation, commercial auto, and/or professional liability insurance as well. Learn more about what insurance your business needs .
• Who is insured on a general liability policy? Those insured on a general liability policy typically includes the policyholder (usually a business or individual), employees of the policyholder while acting within their job duties, and sometimes even volunteers or subcontractors named in the policy. The specifics can vary depending on the policy's terms and conditions, but it generally covers those directly associated with the insured entity.
• Is general liability insurance tax deductible? Yes, in many cases, general liability insurance premiums can be tax-deductible as they are considered a legitimate business expense. However, tax regulations can vary, so it's best to speak with a tax professional to be sure you're eligible.

Please note:

The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.

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When you click on "START QUOTE" and "Start your quote now", we gather some pieces of information and you may be taken to the website of one of the insurance companies with which GEICO Insurance Agency, LLC works, which website is not owned or controlled by GEICO. Each insurer has sole financial responsibility for its own products.

GEICO has no control over the privacy practices of these insurance companies and assumes no responsibility in connection with your use of their websites. Any information that you directly provide to one of these insurance companies is subject to the privacy policy posted on that insurer’s website. All business products offered are written on an admitted basis.

General Liability coverages are written through non-GEICO insurance companies and are secured through the GEICO Insurance Agency, LLC . The information you provide will be shared with our business partners so that they can return a quote. We can help you secure business insurance in all states except Hawaii.

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Commercial Property Insurance

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One of the most common types of business insurance is commercial property insurance, which provides a wide range of coverage for buildings, inventory, equipment, tools and more. Losses from fire, break-in, vandalism, wind and other natural or manmade disasters are examples of what is typically covered.

A basic commercial property insurance policy may be all you need, although the types of coverage can vary between different insurance companies. As an independent insurance agent , American Insurance NW Inc. can help you determine the type of insurance policy and range of coverage that is best for your business.

About Commercial Property Insurance

Do you own a commercial building? If so, do you have enough commercial property insurance to cover replacement costs? Although cost estimators are available, we recommend that you secure an appraisal from a third party to accurately determine the current replacement cost of your building. Give us a call today , and we’ll help you determine if you have enough commercial property insurance for your business.

Most commercial property policies exclude flood as a covered cause of loss. A separate policy must be purchased to protect you from resulting damage. Check your current property insurance policy to be sure you are covered. If you’re unsure, just ask us to review your insurance policy , and we’ll help you find the best solution.

Business personal property insurance covers property at a specified location such as furniture, fixtures, equipment and inventory. Be aware that most commercial property policies have very limited coverage for property taken off the specified location. If you have equipment that is frequently taken off-site to various locations, it is important that you have an inland marine policy (equipment or installation floater).

This coverage reimburses a business owner for lost profits and fixed expenses during the time that a business is closed. It applies while the premises are being restored because of damage from an event such as a fire. Business income insurance may also cover financial losses that occur if civil authorities limit customer access to your neighborhood or business after a disaster. We strongly recommend that all businesses acquire this coverage.

This coverage is separate property coverage specifically designed to protect your computer related equipment. Most commercial property policies have limited coverage for computer networks. EDP broadens the causes of loss to include things like power surges and in some cases virus attacks.

American Insurance NW Inc. understands the business insurance needs of our customers. The right coverage for you is unique – call us today to find out how to protect your business and your future with the right insurance.

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American Insurance NW Inc. is an independent insurance agency with offices in Lewiston and Moscow, Idaho.

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Recent Articles

• Top 10 Most Stolen Vehicles in 2023 May 10, 2024
• Homeowners Insurance Crisis Spills Over to Northwest March 18, 2024
• Finding Calm in a Storm of Change December 11, 2023

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Insurance, Risk Management, & Employee Benefits

Leavitt Inland Pacific Ins. Services

We are local, independent Agents.

Our experienced team understands your business and works hard to manage your total cost of risk.

Office locations Moscow, Spokane

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