9 insurance terms and what they mean (small business edition)

Starting a business involves risk. But when something unexpected happens, having business insurance can be the difference between your business surviving or going under.

Having business insurance safeguards your business against a variety of risks like property damage and legal claims. Most small business owners do not have the money to deal with such issues on their own, so the expense of not having adequate or appropriate insurance is often much higher than the cost of buying coverage.

Of course, most states mandate certain kinds of insurance by law. This may include coverage like worker’s compensation insurance and unemployment insurance. In some states, disability insurance is required, as well.

Given the complex array of options available, how about we lay out what each of these terms means? This can be a little primer -a guide that can inform your deeper research.

So, here are 9 insurance terms and what they mean.

  1. General Liability Insurance: Every business needs liability insurance.  General liability insurance protects your business and provides for damages you, your employees or your products or services cause or may have caused. Usually, the following specific types of damages are covered:
    1. Bodily injury caused to others
    1. Property damage to a third party or business while carrying out a particular work

This is a necessary coverage, especially if you’re in an industry where mishaps happen.

  • Property Insurance:  Property insurance protects your building or business personal property, including office equipment, computers, stock or tools from various risks like fire, vandalism, robbery, smoke damage, and other accidental damages.
  • Business owner’s policy (BOP): A business owner policy package is a type of coverage that a business owner would often need. It may include a bundle of options including business interruption insurance, property insurance, liability insurance, and crime insurance. Based on the company’s particular needs, changse can be incorporated in a BOP. 
  • Commercial auto insurance: Commercial auto insurance protects an organization’s vehicles.  Vehicles that carry employees, products or equipment are insured under this policy. Commercial auto insurance can also protect your work vehicles, vans and trucks in case of damage and collisions.
  • Workers Compensation Insurance:  Worker’s compensation gives protection to employees who are injured at work. This kind of insurance provides wage substitution and medical benefits to the individuals injured while working. As a small business owner, it is very necessary to have worker’s compensation insurance as it protects the owner and the company from legal complications should you get sued.
  • Life Insurance: Life insurance protects an individual against death. In life insurance, the insurer pays a specific amount of money to a beneficiary upon his death. This type of insurance is significant because it accounts for peace of mind. Having life insurance enables the owner to know that their loved ones will not have financial troubles upon their death. While this is a cover specific to a small business, we’re including it here since most small businesses rely on the owner, as indeed, will the family of the owner. This protects the family of the owner should the unfortunate happen.
  • Professional Liability Insurance: The professional Liability Insurance is otherwise called Errors and Omissions Insurance. The policy provides for the damages that may become payable for failure to provide or improperly provided professional services. General liability insurance does not provide this protection, so it is necessary to understand the difference.   The professional liability insurance is applicable for various professions, including legal advisors, accountants, consultants, realtors, insurance agents, and technology providers.
  • Disability Insurance: Disability insurance gives guaranteed installments to employees at a percentage of their pay if they are not able to work due to an illness or injury. The illness or injury does not have to be work-related, unlike worker’s compensation. This is usually a discretionary cover and is often procured by individuals for themselves. It is not generally the responsibility of the business to procure this cover for its employees.
  • Product Liability Insurance: Any small business owner who sells a product should consider buying product liability insurance. This covers the business should a user of the product suffer some damage that leads to the business being sued. Product liability insurance can be purchased as a stand-alone policy or an add-on to your general liability policy. It is best to purchase product liability insurance as it covers the full product lifecycle.

As a small business owner, you may be able to save money by bundling different types of insurance together into a single business owner’s policy. But do ensure that your business is insured 100% of the time. And this note may help you determine what insurance cover is appropriate for your business circumstances. And if it gets too overwhelming reach out to an insurance agency for advice.