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 insurance 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 and encompasses many insurance policies available to businesses. Keep reading for a breakdown of common 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. There are different policies that come into play depending on the circumstances of the loss.

Overall, commercial insurance protects businesses from liabilities such as lawsuits from third-parties, like 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 leave customer information exposed.

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 have many commonalities with personal policies. You will find similar language and conditions for coverage in both types of policies.

Let’s look at some examples:

Policy Limits

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

There is usually a limit per claim as well as 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, that means you must pay your deductible amount 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

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

After your coverages, come the exclusions. These are things the policy won’t pay for 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 simply 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 common policies.

General Liability Insurance

Although sometimes used interchangeably with commercial insurance, general liability insurance is not the same thing.

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

If you are sued by a third party for any of these reasons, your policy will pay for all legal and court fees incurred. The insurance company will either 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.

Not only will it cover their medical expenses, but it will also help them with lost wages if they miss time from work because of their injury. In exchange for these benefits, your employees lose the right to sue you.

Errors and Omissions

This coverage is especially important for those in the tech industry but it’s also common for professionals like lawyers and insurance agents.

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

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

Cyber Liability Insurance

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

This is a newer type of insurance that 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.