Business Property Insurance

The insurance basics: property, liability, and people

Most people are familiar with the “everyday insurance” triad: automobile, home, and life. Unfortunately, that familiarity often doesn’t extend to the multifaceted fourth leg of the insurance chair for many: business insurance.

If you run a small business, what you don’t know about business insurance can hurt you.

The terminology used by the insurance industry often is overwhelming, but basically there are three types of insurance for your business: property, liability, and people.

Here’s a look at all three.

Property: covers building losses

Basic property insurance covers your business against unforeseen losses due to fire, lightning, vandalism, and other mishaps. Optional coverage can also be obtained (at additional cost) to cover against less likely events such as earthquakes and floods.

Property policies essentially fall into two groups. A “named-peril” policy will cover certain losses

resulting only from causes that the policy identifies. An “all-risk policy” covers any type of loss except for those specified in the policy.

The difference is important—one policy specifies what it will cover, while the other identifies losses that it won’t. So pay close attention to these details.

Once you decide what sort of protection you need, think about what items you will need to cover. This checklist is not comprehensive, but it contains items worth considering:

  • Buildings, whether owned or leased
  • Inventory and supplies
  • Machinery and boilers
  • Office equipment, including furniture, computers, printers, and fax machines
  • Valuable accounting and other paper records
  • Automobiles, trucks and construction equipment
  • Intangible property such as trademarks

Since it’s a good idea to buy insurance based on replacement value, it’s necessary to take stock of your business and list the items that you have, along with their replacement values. Make sure you look beyond the obvious, such as notebook PCs and signs not attached to a building. Once you have the

list, decide exactly what items are worth insuring and make sure they are covered by the policy.

Liability: gives you legal protection

Liability insurance provides coverage in case your business is sued for something it did—or didn’t do—that resulted in property damage or injury to someone. This type of claim is common these days, given the extensive number of lawyers offering contingency fees for their services (if they don’t win, their client doesn’t pay). One classic example is someone who slips and falls on your premises and sues for the loss of income (and possibly medical problems) while they were unable to work.

Liability insurance covers the cost of damages awarded to the injured party, as well as the costs associated with your defense in a lawsuit. Consider these guidelines to determine the amount of coverage. One way is to use a recent liability settlement in an industry related to yours as a guide. Another option is to base coverage on your business’s total assets. Check with your trade association and your insurance broker before making final decisions.

Many insurance companies offer broad coverage in a single policy by combining property and liability insurance coverage into a business owner’s policy. Unfortunately, it may not be adequate is some cases. For example, it may suffice for a two-person computer consulting firm, while a restaurant with a lot of customer traffic may need more extensive liability coverage.

Note, too, that liability coverage will not protect you against claims for nonperformance of a contract. That’s covered by professional liability or “errors and omissions” insurance. If you’re in the engineering consulting business, for instance, you’ll want to look into this. (Check out TechInsurance ( for an explanation of the coverages in this area.)

Wrongful termination of employees, sexual harassment, and race- or gender-based lawsuits are generally covered by employment practices liability insurance.

People: health and workers’ comp

A health plan covering the medical and dental needs of your workers is optional. Workers’ compensation insurance, on the other hand, is state-mandated coverage for injuries and illnesses that are job-related, and required by employers in every state except Texas. A workers’ compensation policy may pay medical, disability income, rehabilitation, and also death benefits.

It’s important that you check with your state’s labor department for its definition of “employee.” It can include a full-time, 40-hour-a-week person as well as someone who works only a few hours a week.

Choosing an insurance agent or broker

It’s never wrong to admit that you may need help in selecting the best insurance coverage for your business. That can come from either an insurance agent or a broker. An insurance agent represents an insurance company and sells only products from that firm. A broker, on the other hand, represents more than one company and is free to suggest any number of solutions.

When selecting an agent or broker, the National Federation of Independent Business recommends that you not limit your search to the phone book or online directories. Ask for referrals from other business owners, particularly those with insurance needs comparable to yours.

Make sure the agent you choose has professional accreditation, such as the CPCU (Certified Property and Casualty Underwriter) or CIC (Certified Insurance Counselor).