Types of Business Insurance
Being in business comes with all kinds of risks.
It’s essential that you understand those risks and take steps to manage or minimize them as much as possible. That means having the right type – and the right levels – of insurance.
No sound business starts without custom-tailored coverage. So, before you begin, you should consult with an experienced insurance agent or broker and thoroughly investigate your business insurance needs.
What Should You Cover?
They types of coverage you choose will really be dictated by the nature of your business and the risks it carries. Your individual needs may go far beyond what we cover here. A knowledgeable insurance agent (and perhaps an attorney experienced in your industry) can give you the best guidance. Still, there are some basic kinds of coverage you should consider.
Protects the owner of the property (or the lenders holding a mortgage) against loss caused by the actual destruction of a part or all of the property by fire, windstorm, explosion, falling aircraft, riot and other perils.
Business Interruption Insurance (and Other Time Element Coverage)
Protects against loss of earnings when you can’t do business because of damage or destruction of the physical property. Business interruption insurance pays close to what you normally would have earned. The premiums, especially when part of a complete insurance package, are low. There is also similar insurance which provides coverage if you are hospitalized and have to shut down business.
Liability Insurance (Including Business Automobile)
Protects against loss arising out of legal liability for death, injury or damage to the person or property of others caused by negligence. Included are obligations to pay medical, hospital, surgical and disability benefit to injured persons, and funeral and death benefits to dependents, beneficiaries or personal representatives of persons who are killed, irrespective of legal liability.
Fidelity bonds guarantee against loss due to the dishonesty of employees. Surety bonds guarantee the performance of various types of obligations assumed by contract or imposed by law. Surety bonds are most often used in the construction industry and are often required on public construction projects.
Workers’ Compensation Insurance
Provides for payment of compensation benefits, as established by state law, to injured employees of a business.
Group Insurance for Employees
Group life insurance and group health insurance provided as employee benefits must conform to standards established by state and federal statute.
Coverage for any product manufactured by the insured. Coverage applies to the product once it leaves the manufacturer’s hands and covers the manufacturer in case the ultimate user of the product sues for bodily injury or property damage.
E-Insurance for Companies with an Online Presence
With the growth of the Internet and e-commerce, the law regarding business insurance is evolving as coverage is being extended to new areas. Both the insurance industry and the courts are starting to sort out how existing insurance products apply to e-commerce.
Businesses that operate on the Internet face the possibility that their activities may subject them to liability in other jurisdictions. Since the Internet transcends geographical boundaries, one may be subject to a lawsuit in another state or even another country. It is fair to say that any company doing business on the Internet should consider that it is essentially a global business that might be sued in any court and in any territory where its business presence becomes known.
Companies with operations on the Internet are in the business of information publishing, vulnerable to liabilities that typically plague media companies such as defamation, invasion of privacy and intellectual property infringement claims.
While these causes of action are not new, an Internet company’s assets are more vulnerable to theft or business interruption. Damages associated with intangible assets, such as data theft or loss of business capability, pose risks unique to Internet companies.
As with all insurance, a business must make sure of what is and is not covered by their current insurance before investigating the variety of Internet-specific policies.
Help for Businesses Unable to Obtain Liability Insurance
The Joint Underwriting Association (JUA) was created to provide liability insurance coverage only to persons or entities unable to obtain insurance through ordinary methods if the insurance is required by statute, ordinance or otherwise required by law, or is necessary to earn a livelihood or conduct a business and serves a public purpose.
The Minnesota legislature specifically authorized the JUA to provide insurance coverage to day care providers, foster parents, foster homes, developmental achievement centers, group homes, sheltered workshops for mentally, emotionally, or physically disabled persons and certain citizen participation groups. The eligibility of other classes of business for JUA coverage is determined on a class-by-class basis.
The JUA is specifically prohibited by statute from issuing either product liability coverage or environmental impairment coverage. Further, the JUA cannot issue coverage to any business which is conducted substantially outside the state of Minnesota unless the insurance is required by statute, ordinance, or otherwise required by law. The JUA may reject high-risk clients and risks it deems hazardous.
After having been unable to find an insurer willing to write the coverage sought, application may be made to the JUA, which determines whether the risk falls within a class for which the association already provides coverage.
The time frame for issuing a policy depends on several factors, including whether:
- The appropriate policy form has been approved for use by the JUA board of directors
- A rate schedule has been adopted for that class
- The class or particular applicant requires committee or board review prior to quoting
- The 30-day Minnesota Market Assistance Plan program (MMAP) period has expired and no quote for coverage has been offered
- The applicant's current coverage has expired
- No market can be found
- The applicant is quoted by MMAP a premium rate 10 percent or more in excel of the JUA’s rates for similar coverage
Consultants at our Small Business Assistance Office can help you understand more about the basics of business insurance. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.
Our Guide to Starting a Business in Minnesota covers this and other important issues.