What Does Business Insurance Cover? Six Tips for Selecting the Right Policy

Samir Sampat

Business insurance is a necessary investment-- which is also an important distinction. Some people talk about insurance as an “expense”. It’s not an expense when it’s protecting your business from all kinds of potential damage, losses, and risks. So, now that you’ve scrapped that idea, let’s talk about what business insurance is, what it covers, and tips to help you choose the best policy. 

In this guide, we’ll cover everything, including:

  • Types of Business Insurance Policies
  • Deductibles and Premiums
  • Exclusions, Limitations, and Riders
  • Specialty Insurance Policies
  • High Risk Considerations
  • Tips for Choosing Your Coverage


As a business owner, it’s up to you to invest in the right coverage for your needs. Of course, what is “right” for your brand will be very different from what is “right” for another business. That’s why you need to understand this insurance product a little bit before you even get started. Let’s dig in. 


What is business insurance?


At its most basic definition, according to Investopedia:

“Business insurance coverage protects businesses from losses due to events that may occur during the normal course of business. There are many types of insurance for businesses including coverage for property damage, legal liability and employee-related risks.”

That’s a pretty vague description, but that is also an intentional thing—there are several different facets of insurance for business and commercial use and that’s what makes it such a great product for the businesses out there today. There are options and coverage solutions for everyone


Types of business insurance


As with all insurance products, there are different types of business coverage that you will be able to purchase to protect your company. The most common types of business insurance that you’ll need, or encounter, are listed below. 

  • General Liability: This is the basic coverage that protects a business from third-party injuries, property damage, defamation or copyright, and related liability issues. 
  • Commercial Property Coverage: Commercial property insurance replaces lost, stolen, or damaged property that belongs to the business. This could include inventory, office furnishings and equipment, buildings, and more. 
  • Professional Liability: This is insurance usually offered to professional services organizations and is also called Errors & Omissions (E&O) insurance. It covers things like oversights, negligence, and mistakes.
  • Business Owner’s Policy: This combines a general liability policy with commercial property coverage and offers a combined policy that’s usually cheaper than buying separate coverage. 
  • Business Interruption Insurance: If your business gets interrupted by a fire, storm, or other disaster, you will need this coverage to cover the lost operating costs. It's sometimes included with commercial property insurance or BOPs (Business Owner’s Policies). 
  • Workers’ Compensation: This is the insurance that pays for lost wages, employee medical expenses, and other costs related to injuries or illnesses that were caused by or related to work. This usually includes liability insurance for employers to protect them from the risk of negligence suits. 
  • Commercial Auto Insurance: Companies that have commercial vehicles will need this coverage to provide protection for medical expenses, property damage, and potential legal bills related to an accident involving your business vehicles. 
  • Cyber Liability Coverage: This insurance covers the costs of data breaches, cyber-attacks, and other related incidents, including the costs associated with lawsuits related to cyber liability. For example, if you partnered with the virtual receptionists at Smith.ai and we experienced a data breach, your cyber liability coverage would protect any resulting damage to your organization and ensure that you can get things back on track. 

These business insurance products may or may not be necessary for your organization. It will be up to you to research your needs and talk to a professional agent who can help you come up with a strategy for total business coverage, no matter what you need. 


Deductibles and premiums


There are two big dollar amounts to pay attention to with insurance. You want to know everything, of course, but in terms of the coverage that you get, you’ll want a good balance between the deductible and the premium. 

Deductibles are the amount that you have to pay before coverage kicks in. For example, you might have a $2,500 deductible on a comprehensive claim. If the claim ends up being $4,000, the insurance would only cover $1,500. You only pay the deductible once per year, so if there is more than one claim in a year, it will be covered in full. 

You have to be careful that you don’t have unattainable deductibles at the sake of a lower premium. The premium is what you pay each month, or term, for the insurance coverage. Too often, people focus so much on getting a low premium that they don’t realize they’ve put their deductibles out of reach. 


Exclusions, limitations, and riders


Of course, insurance is not all-inclusive, nor was it designed to be. In getting business insurance, you’ll want to watch out for three big signs that you might not have all the coverage that you think:

Exclusions

Anything specifically excluded from a policy, such as flood damage, which requires a separate commercial flood insurance policy from the National Flood Insurance Program. 

Limitations

This is simply the high end of your coverage. For example, you may have a commercial property insurance policy that includes a limit of $1 million in property damage. Limitations may also be set on what can constitute that property and how it is replaced or repaired. 

Riders 

In the case of certain high-dollar items or high-risk types of coverage, you may have to purchase what is known as a rider, or a separate, but included, policy for that particular item. In business, this is also used to adjust the terms of the policy to include more coverage without having to replace the policy entirely. 

So, look at what coverage you are getting, but also remember to check out the coverage that is not included to be sure you’re not missing anything critical. 


Specialty business insurance policies


One more area to cover before we get to the tips is specialty insurance products. There are certain business insurance policies that are designed for specific industries or trades, or for certain markets or types of organizations. For example, cyber security or data breach coverage would be considered a specialty policy. 

Some companies even offer specialty products by industry, such as things like powersports insurance, events management insurance, and other high-risk or hard-to-manage fields where there is more likely to be an insurance claim filed. Thus, these products are usually more expensive, but you’ll still want to shop around and compare the options to ensure that you get the best policy available. 

High risk considerations


The insurance industry is based entirely on risk. As such, there are certain high-risk businesses, industries, and factors that could impact what you pay for business insurance, or even what coverage options you have. You may have different criteria for getting approved for a business insurance policy than another company in a less risky field. 

Most high-risk policies require you to produce and be able to explain a business plan that details how you plan to reduce your risks in as many ways as possible and operate professionally so that the insurance company doesn’t have to view your organization as a serious risk. There may be other requirements to getting this type of coverage, as well.


Tips for choosing your coverage


Now that you’ve got a little more insight, you can start your search for the best insurance for your business. Of course, everyone has different needs, so you’ll want to keep the following tips in mind. 


Tip #1: Always buy more coverage than you need


When it comes to insurance, more is always more. Insurance is fractionally more expensive for what is sometimes twice or three times the amount of coverage, so you should always scale up when you can. No one has ever complained about having too much insurance, after all, but how many horror stories have you heard about businesses facing bankruptcy or total shuttering because they didn’t have enough?

Don’t just look at the premium—look at the coverage you’re getting and get more where you can. It’s always better to play it safe, and it’ll probably only cost you a tiny bit more. 


Tip #2: Understand the legal requirements for your business


Insurance is not just a good idea—it's required by law, in most cases. You will need to make sure that you know the requirements from the state, your industry, and any lenders or other professional entities that you work with. For example, renting a commercial office would usually require you to purchase a general liability policy to protect your part of the business in case anything were to happen. Businesses almost always have to have workers’ compensation insurance, too, so make sure that you check out what your state requires. 


Tip #3:  Understand what affects your insurance premiums


There are several factors that impact what you pay for insurance. By knowing what your premiums are based on, you may be able to reduce your risk and lower your rates immediately, or even over time. You should always be an informed business owner, and that includes when it comes to knowing insurance products. You don’t have to be an expert, but you should know the basics and have a reputable agent to help you along the way. 


Tip #4: Choose top-rated insurance providers


For some, this might go without saying. For others, we can’t say it enough. Stop being cheap. Stop getting in a hurry. Stop wasting time trying to find a bargain deal on fly-by-night insurance—it's no good anyway. You absolutely get what you pay for when it comes to business insurance, which is why you need to choose reputable providers with a good claims history, high-quality customer service, and other qualities that you would expect from a leading company in the insurance industry. 


Tip #5: Read the fine print


The biggest problem that businesses see when it comes to insurance is the sudden shock of realizing they don’t actually have the coverage they thought they did, or that they have less coverage than anticipated. Whatever it is, it was an oversight because someone didn’t read the fine print. Policies vary so much and it’s important for you to understand exactly what is covered (and what isn’t). 

If you think you don’t have the time for this, don’t worry. When you work with the right insurance agent, you’ll be able to trust that they provide you with a policy that suits your needs. You’ll still want to read it over, of course, but you won’t have as much concern over whether you’re missing anything. 


Tip #6: Shop around and ask questions


Insurance companies work for you, but they work for themselves first. That's why when you're looking into business insurance, you need to compare multiple policies and feel free to ask insurance providers any questions you may have. Take the time to look at all the coverage that is included. think about what is not included. Be sure to ask why, or if there’s a way you can get the coverage you need differently. Don’t settle for any insurance until you’re satisfied that you’ve gotten the answers that you need. 

Asking questions educates you, which is good for you. However, it also allows you to vet insurance companies by making them prove their expertise while considering them as your choice for business insurance coverage. 


While you’re asking questions, let the team at Smith.ai answer your customers' questions with 24/7 phone answering, live chat, scheduling and lead intake, and more. We’ll protect your reputation while you take care of protecting your brand and can even help you craft the perfect strategy to do so. 

Learn more when you schedule a consultation to discuss our live website chat, after-hours answering, and other solutions. You can also reach us at hello@smith.ai or (650) 727-6484.

Samir Sampat

Samir Sampat is a Marketing and Events Associate with Smith.ai. He has experience working with businesses of all sizes focusing on marketing, communications, and business development.

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