What happens when your business is faced with a lawsuit that comes out of nowhere? The key to protecting your business is to always have a plan in place should the unthinkable happen. This will be your business insurance. 

There are plenty of business insurance plans out there, and your business will need a variety of them to remain protected. This guide will tell you all you need to know about insurance coverage for your business. 

What Is Business Insurance?

Business insurance refers to a contract between your business and the insurance company. This agreement ensures that you are financially protected when unfortunate circumstances occur. The exact level of coverage will depend on the type of insurance you need and the terms of your policy. 

Why Do You Need Business Insurance?

Business insurance can sometimes seem like an unnecessary expense. It may not be used very often and adds overhead expense, but the following reasons will show you why the costs are necessary.

They Protect Your Finances

It’s impossible for your business to be fully aware of the financial hit that can be caused by an unexpected event. How can you anticipate a slip and fall incident, or its’ costs, for example?

A lawsuit can come out of nowhere, and you may not have the financial wherewithal to deal with legal defense and investigative costs. If found liable, you may also have to bear the cost of compensating the affected party. These costs can add up and become quite damaging to your company.

A business can only function when it has consistent and full access to its’ financial resources. This enables the business entity to grow and pay the day-to-day operating expenses. If a loss were to occur without insurance coverage, you may end up having to shut your doors.

Proper insurance coverage prevents this from happening. The insurance company will bear most, if not all of the costs arising from these unfortunate events. This protection allows your company to continue operating and growing not if, but when, an unforeseen event occurs.

Protect Your Reputation

Lawsuits damage your company’s credibility, no matter what caused the legal dispute in the first place. If you don’t have insurance carrier legal defense to investigate, you will have to bear the brunt of a tarnished reputation with no way to recover from it. Even for those that might consider self insuring, do you really want to foot the bill for something out of your control, or would you prefer to mitigate the loss with proper coverage? With proper coverage, your clients’ interests will be protected as well.

With an insurance plan, you can rest well knowing that if legal claims arise, you will be defended in court and reach a suitable settlement. In cases of data breaches and lost client data, the insurance company can also provide the necessary financial compensation to provide data recovery help along with providing monitoring services for those affected.

Types of Business Insurance

There are plenty of business insurance plans out there that provide coverage for different aspects of business risk. These are some of the plans you should consider getting when running a business. 

Public Liability Insurance

What happens if a customer visits your premises, slips on a wet area, and gets injured? Worst-case scenario, they can file a lawsuit against you. 

Public liability insurance financially protects against property damage or physical injury caused by your products or services. This coverage extends to your employees as well. 

This insurance policy will not just cover the financial compensation for damaged property or medical bills. It will also provide financial protection for your legal defense costs. 

Professional Indemnity Insurance

Mistakes are part of everyday life. However, what happens if your mistake occurs in a professional setting and results in your clients losing money?

If your job or business involves providing professional advice to clients, these professional mistakes can cost a lot. As a result, your clients may pursue legal claims against you.

Professional indemnity insurance is a type of business insurance that covers professional services. This can include professions such as consultants, accountants, chiropractors, lawyers, and more. 

The insurance compensates for cases where you have to defend yourself against claims regarding your professional service. This insurance, however, will exclude cases where your actions were a breach of your professional duties. 

Holding this type of business insurance will be essential in reducing your firm’s vulnerability to legal disputes. It can also win you more clients because it shows that your firm takes the work that you do seriously and will attempt to prevent any damaging mistakes. 

Cyber Liability Insurance

We live in an age where most business activities can take place online. While this arrangement is highly beneficial, it can also expose your business to different types of risks. One of them is cyber attacks. 

Whether you are a large corporation or a small business, a cyber attack will be heavily damaging to your company. A data breach can result in ineffective computer systems and lost information.

This will interrupt your business proceedings. Even worse, they can result in the leakage of your customers’ sensitive information. 

Protecting your business with cyber liability insurance has never been more important. This coverage provides financial support for costs arising from the following scenarios:

• Loss or theft of important client information
• Interrupted business proceedings
• The investigation process
• Recovery of data lost during the breach
• Extortion compensation
• Any fines and penalties 
• Costs incurred when trying to restore your business reputation
• Legal costs because of any legal claims from your clients against you or your company

The costs of a cyber breach are high. Having an insurance policy that protects you can go a long way in ensuring your business can continue to run after this unfortunate event. 

Management Liability Insurance

Business management is a difficult position to hold, and the decisions you make can expose you to a lot of risks. This is where management liability insurance can be helpful. This coverage is also known as Professional Liability, E & O or D & O for directors and officers coverage. This insurance coverage protects the leaders of your company, such as your managers, directors, and more. Mismanagement liability usually arises because of the following scenarios:

• Defamation
• Breach of professional duties
• Claims regarding unfair dismissal
• Sexual harassment claims
• Employee theft and fraud

The insurance plan will typically cover costs regarding investigating, defending, and settling any claims with the opposing party. 

Commercial Vehicle Insurance

What happens if an employee of yours is driving the company’s car and got into an accident? The legal claim can impact not just the employee but your company, which is why you should have a commercial vehicle insurance plan. 

This insurance protects any liabilities that arise from accidents involving your business vehicles. This can include delivery trucks, forklifts, company cars, work vans, and more. It also includes personal vehicles if you were using them for a business purpose. 

Your commercial vehicle insurance offers coverage for the damages to the vehicle and the drivers. This includes repairs, medical costs, lost wages, and personal injury legal claims against your company because of the accident. If the driver is uninsured, your insurance company can also provide financial compensation for them.

Business Interruption Insurance

What happens if your business is suddenly interrupted because of events that are out of control? For instance, your headquarters may be damaged in a natural disaster. Or, you are unable to provide your business services because of the COVID-19 pandemic. 

This period of time shows how important it is to have business interruption insurance. This policy will provide financial coverage for the ongoing costs of your business.

These costs include the following:

• Ongoing expenses such as electricity and rent
• Expenses arising from the need to temporarily relocate to another location in order to operate your business
• Having new training sessions because of business transitions or to operate replacement machinery
• Closing your business under short notice
• Damage to a supplier’s premises

The main purpose of the business interruption insurance plan is to maintain a business’s profit margins. Even when they cannot operate because of circumstances that are beyond their control, they won’t go bankrupt.

This is especially important in cases of prolonged business interruption. This is what is happening because of pandemic lockdowns. Without this insurance protection, a small business may find the ongoing costs too overwhelming and may have to close its doors permanently. 

Business Insurance Is Essential to Run a Company Well

Some business leaders may consider business insurance as an optional thing, but it shouldn’t be. Different types of business insurance are essential in protecting your finances, your professional reputation, and the survival of your company. 

It’s not enough to have one type of insurance plan. To be adequately protected, you have to consider the different risks your company is always exposed to and prepare for them.

Contact us today to find a suitable insurance policy.

The need for a business to file a commercial insurance claim always happens to the other guy. You’ve got your ducks in a row, so you won’t encounter any problems—until you do.

When The Hartford conducted a survey of business owner insurance claims over a five-year period, they found claims on more than one million liability and property policies. They predict that 40% of small businesses will experience a liability or property loss within the next ten years.

If you have insufficient insurance coverage, you risk suffering economic losses your business may not recover from. According to the Insurance Journal, 75% of U.S. businesses are underinsured by at least 40%. Labor and material shortages brought on by the pandemic have further widened this gap.

More than 15 million Americans reside in counties averaging one or more weather-related disasters per year since 2006. Following a weather-related disaster, 40% of businesses never reopen.

Bad weather is just one of the things that can destroy your business if you have insufficient coverage. Keep reading to learn more. 

Frequent Claims Against Commercial Insurance Policies

During the five-year study noted above, a determination was made regarding claims happening with the highest level of frequency. Those are:

• 20% Burglary and Theft—third parties, dishonest employees, or company principles
• 15% Water and Freezing Damage—often due to snow and ice on the roof or low inside temperatures causing pipes to freeze
• 10% Fire—failure to test the fire detection and suppression equipment regularly
• 5% or less Consumer Injury and Damage—injuries clients sustain on the property
• 5% or less Product Liability—for claims against products the company manufactures
• 5% or less Struck by Object—items such as grocery carts, vehicles, or falling objects
• 5% or less Reputational Harm—lawsuits for libel and/or slander
• 5% or less Vehicular Accident—accidents using a business vehicle

A determination of the need for insurance can not be based solely on the frequency of claims. You must also consider the average dollar amount of each claim. For instance, even though reputational harm claims are under 5%, the average claim is $50,000.

Understanding business insurance and the specific needs of your company is what your commercial insurance agent helps with.

Risks of Having Insufficient Commercial Insurance

One risk your business might suffer is having insurance, but not enough to cover the necessary payout following a claim and/or lawsuit. Consider your company’s financial holdings and whether it can handle the following:

Financial Impact

If your business suffers damage from flooding, fire, hurricane, tornado, or any other natural disaster, can you handle the cost of repairs or replacement? Consider all possible losses, including the building, equipment, furniture, decorative items, and more.

In addition to the cost of restoring your property, you need to cover your employee’s wages, building rent or mortgage payments, and more while the business is closed.

Beyond natural disasters, things such as vandalism, cyber-attacks, fraud, and embezzlement financially impact the business. These acts may be from third parties, an employee, or a chief officer. The insurance necessary to cover an employee who embezzles funds vs an outside party stealing is different.

For any of these losses, an underinsured business may need to pay funds beyond what its insurance covers. This can put the business into bankruptcy, and may even force the owner to file personal bankruptcy.

Legal Action

If a client believes you have not fulfilled your portion of a contract, they have injuries because of a defective product, are in an accident with a commercial vehicle, or suffer personal injuries on your property, they may file a lawsuit against the business.

You may also have a disgruntled employee file action against you or an employee. This may be for sexual harassment, discrimination, failure to comply with ADA, or non-compliance with workers’ compensation regulations.

Litigation is costly and can last for years. According to a survey conducted by the Small Business Association (SBA), the cost of litigation ranges from $3,000 to $150,000.

Most companies use business assets to pay the damages. Many owners state paying damages has almost put them out of business.  

Non-Compliance

This can happen if you fail to follow a local, state, or federal law. This can be anything from licensing, signage, or mandatory insurance coverage.

If your business is found to lack proper insurance coverage you may suffer fines, penalties, and revocation of any licensing.

One type of mandatory insurance is workers’ compensation. This policy lowers the risk of an employee who suffers injuries from suing the company.

Reputation Damage

As a small business, you are vulnerable to word-of-mouth complaints or cyberattacks undermining your company’s reputation. With the correct type of insurance coverage, you will have the funds necessary to assist with this type of damage.

Economic Disasters

Everyone knows about The Great Depression which ran from 1929 to 1938 and was the largest economic crisis in the United States. In addition to that, there have been 19 recessions in the U.S. The first is one due to the failure of the Reading Railroad in 1893.

A few other notable ones include the recession between 1973 and 1975, which quadrupled oil prices because of the OPEC oil embargo. Between 1980 to 1982 there were two recessions because the federal government raised interest rates to combat inflation.

Move up to the 21st century, where we have three recessions already under our belt. The first was in 2001 which began with a boom and burst in the dot-com businesses. The 9/11 attack made the recession worse.  

The Great Recession took place from 2008 to 2009 and was the longest economic contraction since The Great Depression. Unemployment rose to 10% and a mortgage crisis triggered a bank credit crisis.

The 2020 recession is the worst economic disaster in the country since the Great Depression. The economy lost 20.5 million jobs, unemployment went to 14.7%, and the pandemic caused a stock market crash. Businesses are still trying to recover. 

As a business, you cannot plan for economic disasters. What you can do is speak with your business insurance company about the best way to provide coverage for you and your business during recessions.

Is Your Business Underinsured?

Small businesses usually claim the cost of insurance, being unsure of what coverage they need, or believing they don’t need insurance as a reason for lacking coverage. Purchasing a minimum amount of insurance is one of the ways businesses try to save money. This may cost them the entire business if a problem arises.

Gessel & Associates Insurance Agency specializes in commercial insurance. Check out our clickable coverage page. Click the image that represents your industry. On the next page, tap the dots you see on a business photo to learn about areas of risk your company faces.

Your next step is to contact Gessel & Associates Insurance Agency at 740-852-7725 to request a consultation today.