Business Insurance Basics
The most common types of insurance for technology businesses at a glance
Every business needs insurance to protect against potential loss or damage. Because of the nature of IT consulting and computer-related businesses, there are distinct added risks and vulnerabilities that can be addressed through specialized insurance policies. Here is a brief overview of the insurance available to safeguard your company – and satisfy your clients; you’ll find more information on each of the corresponding coverage pages.
Business Insurance Basics: Business Liability Insurance
Commercial General Liability (CGL) policies cover four types of claims: bodily injury resulting in actual physical damage or loss; property damage or loss; personal injury (including slander or libel); and advertising injury. Often, it is offered in a package with Property coverage at very competitive rates.
Commercial liability insurance is not expensive but the cost to defend a claim can be catastrophic. One benefit of carrying general liability insurance is that for covered claims, all damages, legal defense fees and settlement charges are paid by the insurer up to the limits of the policy.
Your TechInsurance agent can provide you with recommended coverages and limits for your business liability insurance. He or she can also discuss with you optional coverages, or endorsements, you might wish to purchase for added protection against certain risks. If necessary, an Umbrella Liability policy can be purchased separately to extend coverage well above the limits of your standard commercial general liability policy.
Business Insurance Basics: Property Coverage
Property insurance protects your business property against physical loss or damage by theft, fire or other means. Because every business has property that could become lost or damaged, this form of business insurance is one of the first things you should buy when you start a company.
Property coverage can be structured several ways. In the most basic business insurance policies, Property coverage protects your furniture, computers, office equipment and other materials.
For many businesses, the most basic Property coverage is not enough. You may need a policy that insures data, papers, records, money and securities kept at your place of business. Sometimes this coverage is included in a basic Property policy (it may be listed as Valuable Papers or Media and Extra Expense coverage); if not, it can usually be purchased as an extra endorsement to your standard policy.
Business Insurance Basics: Package Policies (BOP)
Package Policies combine General Liability and Property Insurance. When you evaluate business insurance, consider a package policy such as a Business Owner’s Policy (BOP). A BOP combines Property coverage and General Liability insurance in a single business insurance policy. If eligible, you may find that you can get better business coverage at lower rates than you would get from two separate policies.
Keep in mind that Business Owners Policy packages are especially designed for small- to medium-sized businesses operating in a low-risk business class. The BOP includes Commercial General Liability insurance and Property insurance for physical assets, such as office furniture and computers. The package policy may also cover loss of business income and extra expense.
A BOP generally insures lost or damaged property for replacement value, which means that you would receive enough from your settlement to replace the property at today’s market value. The Property portion of a BOP may also cover other people’s personal property in your “care, custody, and control” to the extent it would be covered under a standard Property policy.
The Liability coverage of a BOP is comparable to a typical Commercial General Liability (CGL) policy, providing protection against claims of bodily injury or property damage. The Liability portion also covers the cost of defending lawsuits that claim you are responsible for causing bodily injury or property damage.
(Note: BOP Liability does not protect against professional errors or negligence normally covered by Professional Liability business insurance.)
Business Insurance Basics: Workers’ Compensation Insurance
Workers’ Compensation Insurance provides medical and disability coverage for on-the-job injuries or work-related illness. It is required by regulation in most states when you have W2 employees. In many states principals such as owners, officers and partners can exclude themselves from workers’ compensation coverage.
Worker’s Compensation policies also typically include Employer’s Liability coverage, which protects the company should an employee allege that the employer’s negligence or failure to provide a safe workplace was the cause of his/her injury or illness.
Business Insurance Basics: Professional Liability / Errors and Omissions (E&O) Insurance
Professional Liability / Errors and Omissions insurance covers crucial aspects of your business and your interactions with your clients. It protects technology companies if they are faced with the two most common forms of liability risks:
- Claims for “malpractice” in which companies are sued for failing to maintain accepted standards of care as a technology professional or company, and
- Breach of contract claims for failing to perform contracted services in a timely manner and within the contractual terms.
Professional liability coverage protects you against potentially catastrophic litigation involving professional negligence – charges of failing to perform professional duties. These might include loss of client data; software or system failure; claims of nonperformance; or negligent oversell.
Massive software giants, multinational hardware producers, and individuals writing programs or servicing computers out of their homes are all equally at risk for professional / E&O liability suits. Essentially, if you make your money providing IT services, you should have Professional Liability / E&O insurance. This insurance protects your company and your future by responding to professional liability claims and helping you keep your business operating while potential lawsuits move through the courts.
Business Insurance Basics: Commercial Automobile Insurance
Hired Auto and Non-Owned Auto coverage is typically added as an endorsement on a General Liability policy. When there are no vehicles titled in the company name, this coverage usually meets your client’s contract requirement for Commercial Auto coverage.
Hired Auto coverage replaces or augments the liability coverage offered by auto rental agencies. However, it does not cover physical damage to the vehicle that is rented. You should still obtain physical damage coverage from the rental agency. In addition, liability coverage provided by your Hired Auto coverage is designed to protect your company, not the employee driving the rented vehicle. The employee is still personally liable for injuries or property damage to third parties in an accident.
Non-Owned Auto coverage protects your company in the event that your company is sued as a result of an auto accident that you or one of your employees has in a personal vehicle while on company business and the personal insurance maintained by the driver is inadequate to pay the claim.
Business Insurance Basics: Employment Practices Liability Insurance (EPLI)
Employment Practices Liability Insurance (EPLI), typically covers allegations of discrimination, wrongful termination and sexual harassment of employees. Employment Practices Liability Insurance also may be bundled with Directors and Officers liability insurance, which protects against claims that allege misconduct by the officers of a company against individuals or groups affected by the directors’ actions.
EPLI protects companies against claims that past, current and prospective employees of the company bring against the company, its directors and officers, and its other employees. Common employment practices violations include discrimination (based on sex, age, race, religion or other factors); sexual harassment (including “quid pro quo” harassment claims); wrongful termination; and a variety of other employment-related claims that violate employees’ civil rights or their ability to perform their jobs in an acceptable and fair working environment.
Business Insurance Basics: Umbrella Liability / Excess Liability Insurance
Umbrella Liability (also known as Excess Liability) provides additional coverage when the limits of insurance on an underlying policy are exceeded. For instance, if a claim is settled for $1,500,000, but your General Liability policy has a $1,000,000 coverage limit, the umbrella policy would pick up the additional amount.
Umbrella Liability policies add coverage to General Liability, Hired and Non-Owned Auto Liability, and Employer’s Liability for a single premium. Umbrella coverage does not apply to the Professional Liability policy.