How Much Business Liability Insurance Do You Need Commerce Essay

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The amount that you will need for this type of liability insurance depends on the type of business you are operating. Do you know how much coverage you need to protect your business? One way for you to assess and determine how much liability insurance coverage you need is to look at the gross sales of your company. This will give you a better idea on what you can afford when on the lookout for liability insurance. Of course, the type of business you are running also plays a factor in finding out the cost, but, you should also consult with a trusted insurance agent to help you figure how much liability insurance your company needs.

Give your company the protection it deserves by getting the best liability insurance for businesses available. Shopping around for one is easier now-a-days, thanks to the Internet. With a few clicks of your mouse, not only you will be able to see which insurance companies are highly recommended but also get to compare rates.

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The "BOP" ….a package solution !

The most common policy for small businesses is the Business Owners Policy, sometimes referred to as a 'BOP'. Many insurance companies have bundled property and liability coverage into what's commonly called a business owners package policy (BOP). It typically includes property insurance, business interruption/continuation insurance and liability insurance. Often it is a less costly option for small businesses than buying a set of individual policies. Many insurers customize BOPs for specific types of businesses. However, a BOP does not cover professional liability (liability claims arising from wrongful practice by professionals), auto insurance, workers' compensation, health or disability insurance-all of which need to be purchased separately. Not all businesses qualify for a BOP. For example, a factory or jewelry store would probably not qualify for a BOP. Those businesses - because of their unique risks - usually require more customized coverage than what's included in a standard BOP. A home-based business or a company with only a few employees may start out with a Bop and then expand it coverage as it grows. It allows you to obtain broad coverage with affordable premiums. According to the Insurance Information Institute, BOP policies generally includes :

Property insurance for buildings or "declarations" named in the policy or owned by the company.

Structures are covered as well as permanently installed fixtures, machinery and equipment; outdoor fixtures; items you use to maintain or service the building, such as appliances; and additions under construction. You can choose to insure your buildings at their "actual cash value" or their "replacement cost" depending upon your own personal needs.

To keep up with the increasing cost of the building, the policy's limit of insurance for covered buildings will automatically rise by a set percentage each year. Be sure to discuss with your agent whether you should purchase the standard building coverage or replacement cost coverage.

Building contents, although there are a few exceptions. The policy covers most property on or near the business premises that is used in the business. This would include such things as machinery, computers, raw materials or inventory. You also have coverage for any leased property, which you are contractually obligated to insure.

Property of others that is in your care, custody and control, to the extent you are legally liable for that property. This coverage is particularly important to a business, such as a computer-repair shop, that earns revenue from servicing the property of others.

Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. It can also include the extra expense of operating out of a temporary location.

Liability protection, which covers your company's legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided.

To cover specific risks associated with a business, a variety of additional coverage may be added to the basic business policy. For example, if a business has an outdoor sign, the policy doesn't cover it unless coverage is specifically added for an additional premium. If a business relies on electronic commerce, the owner can add coverage for lost income and extra expenses in the event the ability of the business to conduct e-commerce is slowed down or stopped due to a computer virus or hacker.

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Only small-to medium-sized businesses that meet certain criteria are eligible for a BOP. Factors insurers consider include the size of the premises, the required limits of liability, the type of business and the extent of offsite activity.

Premiums for business owner policies are based on those factors plus business location, financial stability, building construction, security features and fire hazards.

"BOPs" do not cover professional liability, auto insurance, worker's compensation or health and disability insurance. Separate insurance policies are also needed to cover professional services, vehicles and employees.

Necessity of Business/Commercial General Liability Insurance

Business Liability Insurance keeps you in business

CGL insurance protects you if a customer is injured at your place of business.

It would also cover damage or injuries causd by your employees at a client's site.

Even if your company is negligent or liable for damage, injury or loss to another's property, reputation or health, your business can keep its assets if it is adequately insured.

GCL protects against some Business Liabilities

Even as a BOP (Business Owner's Package), where CGL insurance is combined with Property insurance at very reasonable rates, General Liability insurance does not protect your business against every liability. If you or your employees make professional judgments and recommendations in the course of your business ask your agent or broker about a Professional Liability policy in addition to CGL policy.

Professional Liability insurance (also known as Errors and Omissions, or E & O coverage) is a separate type of insurance that protects your business against loss from a claim of alleged negligent acts, errors or omissions in the performance of your professional services. Professional Liability insurance is another important type of coverage to protect your business from potentially catastrophic claims.

General Liability and Property Package

General Liability and Property Package coverage is the most basic type of commercial insurance and is limited to liability claims of bodily injury or property damage. Coverage is provided for accidents on your premises or at your customer's location. Some client contracts also refer to these policies as Comprehensive Commercial Liability.

Typically offered as a general liability and property package policy, coverage is also provided for theft or destruction of your company's computer hardware and software and other assets such as office furnishings and equipment up to a specified amount.

Tips and Considerations concerning Liability Insurance

Liability insurance premiums are typically based on a business' sales and payroll estimates provided prior to policy inception. If the actual amounts turn out to be higher after the policy has been issued, you may need to pay an incremental premium. Conversely, if the amounts are less than estimated, you could get a refund.

Other factors that influence your liability premiums include your type of business and the risks generally associated with it. For example, a toy manufacturer may pay $3 per $1,000 of sales. Thus, on $10 million of sales, the premium would be $30,000. A company that manufactures a less "risky" product or engages in a less risky business, such as a florist, may pay $1.50 per $1,000 of sales, or $ 15,000.

Insurance companies evaluate a business's risk for liability coverage based on numerous factors :

The number of claims filed within an industry.

Probability of a claim for a similar type of company.

The financial stability and longevity of a business.

State laws.

Business products and/or operation; and a business' approach to handling and preventing potential risks.

If you have solid, documented practices and safety procedures in place, you may be considered a lower risk by an insurance company for liability insurance and therefore be charged lower premiums.

Property insurance can be tailored to fit your needs since no two businesses are the same. This is why it's best to speak with an insurance agent who can help you determine the type of coverage that is best for your business.

Business Assets Insurance

Business Assets insurance policies - sometimes called commercial property insurance - protect your property, as well as inventory or assets, against loss or damage caused by theft, an accident or some other means. The cost of insurance depends on both the insurer's assessment of the likelihood of damage and the size of any payment they may have to make in the event of a claim. With property insurance you can buy either actual cash value or replacement cost insurance. whereby;

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Actual cash value insurance reimburses you for the value of lost, damaged or stolen goods after depreciation is taken into consideration.

Replacement cost insurance reimburses you the amount it would take to replace, rebuild or repair damages with materials of similar kind and quality, without deducting for depreciation.

Your business property insurance protects you even if the property is away from your place of business when it is damaged or lost. The policy covers your costs to replace or repair the property and, in some instances, compensates you for items that cannot be replaced. This insurance can be purchased based on the property's actual cash value (the replacement cost minus depreciation), its replacement value (the cost of replacing an item without deducting for depreciation) or an agreed-upon amount (commonly used for art objects and other unique items).

You can insure your property by categories or by events, such as fire, theft or vandalism.

Companies frequently purchase commercial property insurance as a part of a Business Owner's Policy, which offers a way for low-risk companies to purchase two of the most valuable types of insurance - business property insurance and commercial general liability insurance - in a single, affordable package. Basic property insurance will cover your losses in the event of a problem such as a fire or a lightning strike, and will pay the cost of removing property to protect it from further loss. Additionally, a standard small business policy will usually cover losses from windstorm, hail, explosion, theft, and damage caused by aircraft, automobiles or vandalism. Optional coverage can insure against earthquakes, floods, building collapse and glass breakage. Property insurance can be categorized by what is insured and by the events leading to a loss.

Buildings and other structures, leased or owned

Furniture, equipment and supplies

Leased equipment

Inventory

Money and securities

Records of accounts receivable

Improvements and betterments you made to the premises

Machinery

Boilers

Data processing equipment and media, including computers

Valuable papers, books and documents

Computers and other data processing equipment

Television sets, VCRs, DVD players, satellite dishes

Artwork and antiques

Mobile property, such as cars, trucks and construction equipment

Satellite dishes

Signs, fences and other outdoor property not attached to a building

Intangible property (such as goodwill, trademarks, etc.)

There are three types of assets/ property insurance plans :

Basic Form, which includes losses resulting from a fire, lightning, windstorm, hail and explosion, plus the cost of removing property to protect it from further damage.

Broad Form, which includes basic plus extended coverage for other types of perils, such as a roof collapse (e.g., caused by snow or ice), riot and civil commotion, etc.

Special Form, which includes basic and broad, and covers all direct physical losses except conditions specifically excluded as listed in the policy.

How does Assets Insurance protect your business ?

This insurance is one of the first types of insurance you should look into when you launch a new enterprise.

This coverage protects you from some of the risk, that the property your company owns, could be lost, stolen or damaged.

If you don't own the building where you do business, you'll only need to cover the building's contents.

The basic commercial property insurance policy protects your investment in fixtures, furniture, office equipment, inventory and the supplies that you store either at your business location or off-site.

Business property insurance premiums will vary depending on whether they cover replacement cost or actual cash value (ACV).

A replacement-cost policy ensures that your settlement is based on what you will have to spend to replace the items at current market prices, while an actual cash value policy reimburses you for the property's depreciated value.

Replacement-cost small-business property insurance policies have higher premiums, but because they allow you to replace all lost or damaged property with new items, such policies can help your business quickly recover from a loss. Also, if you are leasing any equipment, your leaseholder may insist that the property be insured for its replacement value. That's why most property insurance coverage is written on a replacement-value basis.

However, if your business owns its own equipment and you could easily replace lost equipment with comparable used goods for the depreciated market value, an ACV policy's lower premium may be more cost-effective.

Finding the amount of coverage required

You should take a complete inventory of all your business property, determine its value and decide what's worth insuring. Make sure the items you want to cover are provided for in the basic policy; if not, buy more coverage. If your business rents space, your lease might require you to carry certain types of insurance coverage. However, just because the building owner carries all the necessary insurance on the building doesn't mean it will cover any of your equipment, furniture or other business property.

"Named-peril policies" will cover certain losses resulting only from the perils that the policy names; "all-risk policies" offer coverage for all perils except those specifically named in the policy. A business owner may choose a named-peril policy if his business is located in an area that is frequently hit by natural disasters such as hurricanes. Insurance experts recommend that the average small business purchase an all-risk policy.

Many businesses have difficulty figuring out how much liability they need. There are some guidelines to consider but no standard formula.

Tips and Considerations concerning Property Insurance

It's important to have your property value assessed before, and periodically thereafter, any type of property insurance coverage is purchased. Be sure to keep copies of receipts for equipment, furniture and other valuable items in the event your premises are destroyed. Keep physical photos of your property in another location as well as digital pictures that you store on your computer or with a Web service.

High-value specialty items, like antiques and artwork, should also be assessed by a reputable appraiser before you buy property insurance. These types of items are usually covered for an agreed-upon amount before a policy is written. It is important to specifically tell your agent about these specialty items so that the correct coverage is provided.

If you lease your building or offices, do not rely on your landlord to provide coverage for your business property. The building will typically provide insurance only for the basic structure and common areas. Read your lease carefully - there may be other requirements or penalties in the fine print. Check to see what is and is not covered so that you are fully protected if something happens to your property and equipment or if someone decides to sue you for damages caused by you or one of your employees.

A property insurance policy generally includes a statement specifying the limit of liability. Be sure you understand how it works. The limit of liability is defined as the maximum amount an insurer will pay for a covered loss. Typically, the insurer will bear responsibility up to a certain limit, as stated in the policy, with the policy holder liable for amounts above that limit.

Costs for business interruption coverage are tied to the type of small business you operate. For example, less business interruption coverage would be needed following a fire at a travel agency versus an art gallery, assuming that it would take more time for an art gallery to recover from a fire.

Even if you purchase business interruption coverage, make sure you have sufficient funds to tide you over the first few days. This type of coverage typically doesn't kick in for a specified time period after a disrupting incident occurs. The time period will be listed in your policy.

Business Interruption/ Continuation Insurance

this type of insurance covers lost earnings due to a circumstance covered by one of the property insurance plans you purchased, such as a fire or theft that shuts down your business for an extended period of time.

Business interruption/continuation insurance covers expenses associated with running a business, such as payroll and utility bills, based on the company's financial records.

Business interruption/continuation coverage can be added to a property insurance policy or purchased as part of a package insurance product.

Tips and Considerations for lowering Property and Liability Insurance costs

Review all insurance policies annually and note any changes that may affect your coverage costs. For example your premiums could be impacted by the addition or reduction of employees, clients product offerings or inventory; alterations to your building; or changed state regulations.

Find out how plans differ to make sure you are purchasing the best policy for your particular business and at a competitive price.

Claim a tax deduction for your premiums on fire, casualty and burglary insurance.

Avoid purchasing overlapping policies. Read the terms carefully to make sure you are not covered for the same item in two separate policies. This type of policy examination also helps you ensure that you are not missing crucial coverage in other areas.

Document all your business assets, and keep detailed records of al your insurance policies, as well as copies of premiums you've paid and any documents concerning losses and recoveries.

Tips and Considerations for Reducing Business Risk

As a small business owner, you can take steps to minimize risk in the workplace, thereby helping to lower your insurance premiums. Here are some tips that could benefit your business, employees, customers and clients:

Install fire and security alarms.

Plan and train employees for an emergency on the premises, such as fires and evacuations.

Have employees keep wallets and other personal items in a secure place. Keep the business' cash and other valuables in a safe.

If employees work with machinery, provide goggles, gloves and other recommended safety gear to help prevent injuries.

Keep office space in good physical condition. Maintain carpeting and railing on stairs. Make sure telephone and computer wiring is in good working condition and does not create any hazards.

If your employees operate a company car, make sure they have clean driving records and are trained properly.

Few things in life are riskier than launching and running your own business. You needn't compound that risk by neglecting your business insurance needs. Protecting your business from financial ruin will not only preserve all your hard work and long hours, but it will also help you sleep better at night.

Points to Ponder

Liability Insurance

Liability Insurance premiums are typically based on a business' sales and payroll estimates provided prior to policy inception.

If the actual amounts turn out to be higher after the policy has been issued, you may need to pay an incremental premium.

If the amounts are less than estimated, you could get a refund.

Insurance companies evaluate a business's risk for liability coverage, based on numerous factors:

The number of claims filed within an industry.

probability of a claim for a similar type of Company.

The Financial Stability and Longevity of a Business.

State Laws

Business products and/or operation

Business' approach for handling and preventing potential risks.

If you have solid, documented practices and safety procedures in place, you may be considered a lower risk by an insurance company for liability insurance and therefore be charged lower premiums.

Business Owner's Policy

A BOP typically includes :

Property Insurance

Business Interruption / Continuation Insurance And

Liability Insurance

However, a BOP does not cover :

Professional Liability

Auto Insurance

Workers' Compensation

Health Or Disability Insurance

(all of which need to be purchased separately)

Often it is a less costly option for small businesses than buying a set of individual policies. Many insurers customize BOPs for specific types of businesses.

Not all businesses qualify for a BOP.

A home-based business or a company with only a few employees may start out with a BOP and then expand its coverage as it grows.

Asset Insurance

Property Insurance protects small business owners from losses due to damage to physical space or equipment and as a result of theft.

For insurance purposes, a business' property includes the physical building in which it resides, as well as its other assets.

With Property Insurance you can buy :

Actual Cash Value Insurance - Reimburses for the value of lost, damaged or stolen goods after depreciation.

Replacement Cost Insurance - Reimburses the amount it would take to replace, rebuild or repair damages with materials of similar kind and quality, without deducting for depreciation.

SELECTED REFERENCES

Website on Business, Property and Liability by NAIC - http://www.insureuonline.org

QUESTIONS FOR REVIEW AND DISCUSSION

Describe ways a business can loose money when a key employee or owner dies prematurely.

Briefly outline the provisions of the tax code relating to deductibility of premiums and taxation of policy proceeds in key-person life insurance.

Discuss with examples the major liability loss exposures of business firm.

Explain the coverage provided by a worker's compensation and employer's liability policy.

Explain the two insuring agreements that typically appear in a Directors and officers (D&O) liability policy.

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