Businesses have two general types of risks they need to consider insuring:
1) Risk that something goes wrong at the business resulting in loss
2) Risk of others making claims against the business
Certain types of business insurance are required by law. They include:
- Unemployment insurance: In Illinois, most for-profit employers are liable for state unemployment insurance taxes as soon as they have either $1,500 in wages in a single calendar quarter, or employ one or more persons for 20 weeks in a given calendar year. As an Illinois employer subject to this tax, your small business must establish an Illinois unemployment insurance tax account with the Illinois Department of Employment Security. These are effectively the same rules that apply for liability under the Federal Unemployment Tax Act.
- Workers compensation insurance: If your business has employees, you are likely legally obligated to carry workers’ compensation insurance. This can be on a self-insured basis, through a commercial insurance carrier, or a state worker’s compensation program. Workers compensation laws vary by state.
- Professional liability insurance: Some states require specified professionals (attorneys, doctors, accountants, etc.) to carry insurance against professional liability. Even if your state does not require it, the liability for malpractice can be substantial. You would be well advised to get professional liability insurance.
- Disability insurance: Several states require that a business have partial wage replacement insurance coverage for eligible employees for non-work-related injury or illness.
- Commercial vehicle insurance: Many states require auto insurance for vehicles owned by a business, just as they require this coverage for your personal vehicles. This insurance covers commercial vehicles and drivers for collision, liability, property damage, personal injury and other damages.
Recommended (Not Required by Law)
- General Commercial Liability Insurance: This is the basic coverage most businesses have. It covers the business for claims brought against it. It is similar to collision coverage in an auto insurance policy. It includes three types of coverage:
Coverage A provides protection in the event of bodily injury or property damage liability, such as to customers or vendors;
Coverage B covers the business in the event of personal or advertising injury liability to others; and
Coverage C covers the medical payments of those injured on the premises of the insured or by the insured’s business operations, regardless of fault.
- Property Insurance: If you own the building your business is in or you have valuable personal property on the premises, you will want property insurance in addition to your general liability policy. This is similar to getting full coverage in your auto policy. This policy will protect the business for losses from fire, vandalism, theft, smoke damage, etc. You can also include coverage for business interruption/loss of earnings that covers your lost earnings if the business cannot operate because of a covered event. If you lease your building, you should check your lease to determine whose responsibility it is to obtain this insurance. If it is the property owner’s responsibility, you may want renter’s insurance as an owner’s policy is unlikely to cover your personal property in the building.
- Professional Liability and Malpractice Insurance: This insurance covers professionals against loss due to negligence in performing their professional duties, wrongful acts, and advice and services that lead to another person’s loss or injury.
- Product Liability Insurance: If you manufacture, assemble, or distribute a product, you will want to consider product liability insurance. It covers against faulty products and damage, illness, injury or death that may occur from using a faulty product.
- Loss of Income: This insurance covers your business expenses such as rent and employee wages if you cannot operate your business. General liability and property damage policies often do not cover loss of income.
- Key Person/ Key Man Insurance: This is a type of life insurance designed to cover loss of income that may result from the head of the business or other key personnel becoming incapacitated or passing away.
- Cyber-Crime/Data Breach Insurance: This coverage is often excluded from general liability policies and is becoming of greater concern as our world becomes more digital. It provides protection for risks due to theft of files, internet use and online communications. If part of your business involves storing data for others, this coverage is particularly important. This is another type of coverage that is often excluded from general liability policies.
- Errors and Omissions Insurance: Errors and omissions insurance covers a business for a service rendered which did not have the expected or promised results, or which results 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 service at all. Think of it as product liability insurance for a service business. As an example, if a financial advisor provided investment advice that resulted in a client’s financial loss, those circumstances could result in an errors and omissions liability claim.
- Directors and Officers Insurance: This insurance protects directors and officers of a company against claims that their actions or omissions harmed the profitability or operations of the company. This insurance typically comes into play when an officer or director is sued by the company’s investors or lenders.
- Specialty coverage: Specialized businesses may require coverage above and beyond what other businesses require. This insurance can cover various specific business risks, such as those of landlords, farmers, and commercial operations that put on one-day events, such as seminars or concerts.
Many of the types of insurance listed above can be bundled into a single Business Owner’s policy. This is insurance coverage designed specifically for small or medium-sized businesses. It can be customized to suit a particular business. Generally, this type of policy includes both property and liability coverage and may also provide coverage for breakdown of equipment, loss of income/business interruption, copyright infringement, libel, and premises liability.
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