Commercial space insurance is a sizable and necessary business expense. Unlike most company investments, where some kind of return on investment is expected, commercial insurance checks go out with the hope never to see any of that money again. There are many things that can go wrong and devastate a business, including natural disasters, accidents, fire, water damage, litigation, and theft, to name a few. Businesses that choose not to protect themselves with insurance leave themselves vulnerable to the sometimes very expensive vicissitudes of life.
The sheer variety of insurance types, from flood or wind damage insurance to data or records insurance, can be intimidating to businesses in the market for insurance. Most new businesses will need just three or four basic types of insurance: commercial property insurance, general liability insurance, worker's compensation, and auto liability insurance.
Most states require worker's compensation in some form, so it will not be discussed here in great detail. Worker's compensation insures workers against injuries and accidents sustained while on the job, paying for medical care and partially replacing lost wages.
Commercial Property Insurance
Commercial property insurance covers the business for damage or loss to business property. A good policy should cover property fixtures (lighting, carpeting), equipment and machinery, office furniture, computers and accessories, inventory and supplies, and any personal property kept at the business site.
Policies vary in what they cover, with three basic categories--basic coverage, broad coverage, and all-perils or all-risk coverage.
- Basic. A basic policy insures the business against fire, explosions, storms, smoke, riots, vandalism, and sprinkler leaks.
- Broad. Broad coverage is basic coverage plus broken window/structural glass damage, falling objects, and water damage.
- All-perils or all-risk coverage. This includes basic coverage, plus broad coverage, plus theft and all other direct physical losses (except exclusions specifically listed in the policy).
Companies may be surprised to note that risks for theft are not covered except for under the more expensive all-risk coverage.
Many landlords and banks require both commercial property and general liability insurance in order to lease space or gain access to financing.
Accidents happen, and when they do, the victim of the accident will often want compensation for damages and/or pain and suffering. There is no cap on potential damages in many cases, and just one suit has the potential to completely wipe out a company, small or large. Liability insurance protects businesses against this kind of disaster.
General Liability Insurance. General liability insures businesses against legal claims for bodily injuries, accidents, personal injury including libel or slander, damage to others' property, false or misleading advertising, costs of defending lawsuits, and settlement bonds or judgments. A simple slip or fall by a customer, client, visitor, or even a trespasser can result in a suit for damages. Standard general liability policies cover up to $1 million per claim.
Product Liability Insurance. If a company manufactures, distributes or retails any kind of product, they may consider product liability insurance in addition to general liability insurance. Product liability protects against financial loss resulting from a defect in a product that causes injury or bodily harm. A manufacturer of pocketknives would therefore have a more expensive product liability insurance policy than a men's clothing store, for example.
Professional Liability Insurance. Also called Errors and Omissions insurance, this coverage protects businesses against malpractice, errors, or negligence in provision of services. It is primarily for such professionals as lawyers, accountants, consultants, notaries, real estate agents, insurance agents, hair salons, tech providers, etc. Medical malpractice insurance is an example of professional liability insurance.
Auto Liability Insurance. This insurance covers claims from business-related accidents of company cars, trucks, or other vehicles. It can also cover personal vehicles used extensively for work.
Business Owner's Policy (BOP)
A business owner's policy (BOP) is a package policy with all the required coverage for most small businesses. It includes property insurance (including protection against theft) and general liability. It also contains business interruption insurance, which is intended to pay normal expenses and replace lost income due to a loss claimed under property insurance.
BOP's are usually cheaper than purchasing each policy separately, but not all businesses qualify. Some are too specialized, others are too big, and they require more specialized policy packages. A smaller business might start out with a BOP and expand coverage as it grows.
How do I shop commercial space insurance?
There are two types of insurance middlemen: brokers and agents. Traditionally, agents represent specific insurance companies and brokers represent businesses, although these lines are blurry in today's business world. Both are paid commission by the insurance companies, and either can effectively represent a company's interests.
The trick to finding a good insurance advocate is to do a little research. Company owners should ask friends, colleagues, and even relatives to refer a good insurance broker or agent. Trade organization websites often have good information on insurance needed for a certain industry, as well as brokers that specialize in that industry. A specialist broker can quickly zero in on what kind of policies are needed for a company in a particular industry, and will have a good sense of current litigation trends.
Company owners should work closely with their broker or agent. The more insurance advocates know about a business's specific needs, the better they can customize insurance policies and keep premiums down.
Be sure to insure
New companies often feel the bite of painful expenses before revenues kick in, and owners are sometimes tempted to save money by cutting corners. Commercial space insurance is not the indicated corner to cut, however. Without it, one unlucky lawsuit could result in financial catastrophe. Water damage could lead to insolvency. Destructive riots due to political factors well outside a company's control could become that company's downfall. Commercial property insurance is a necessary expense to protect businesses from financial losses resulting from unexpected disasters.