Starting a business is as much a part of the American Dream as home ownership, maybe more. It’s estimated that 145,000 small businesses start each year. According to the Small Business Association, the 23 million small businesses account for over 54% of all US sales, provide 55% of all jobs, and 66% of all new jobs since the 1970s. In addition, the small business sector occupies 30 to 50% of all commercial real estate space, an estimated 20 to 34 million square feet. Small business continues to be the fastest growing sector since the financial debacle in 2008.
Protecting that dream is as important as having the courage to dream, then launch, nurture, and grow that dream into a thriving enterprise. The basic commercial insurance policy or BOP (Business Owner’s Policy) provides an amazing amount of protection for a variety of business types. A BOP contains two broad areas of coverage; liability and property.
This will be the first in a multipart series on commercial insurance basics where we’ll look at liability and property coverage, and other package items in a basic commercial insurance policy. We’ll also look at terrorism coverage which is offered on all commercial insurance policies.
Liability Coverage: All commercial insurance policies contain liability coverage which is designed to pay or compensate a person or entity for harm or wrong that you’re liable for. There are a wide variety of harms or wrongs a small business can be found liable for including someone slipping and falling in your shop or office, failing to provide a service you contracted for, ruining someone’s property, and much more.
Some of the common items found in the liability section of a commercial insurance policy include:
- Each Occurrence: This is the maximum amount the policy will pay for any single claim and is specified in a dollar amount such as $500,000, $1,000,000, etc.
- Aggregate Limit: The maximum amount the policy will pay in total liability claims. If the aggregate limit is the same as the each occurrence limit, then your policy protects you for one major lawsuit. If another one occurs, then you’re on your own, which is why I recommend an aggregate limit that’s twice the amount of the per occurrence limit. Having that level of coverage is only a few dollars more and allows you to be covered if sued twice in a 12 month time period.
- Completed Products: Do you make something such as a game, clothing, custom hardware, or some other product or line of products? If so, completed products coverage protects if someone is harmed or wronged by your product. Even if you don’t make something tangible, most BOPs will include this coverage as a part of their package.
- Personal and Advertising Injury: An advertising injury occurs when an ad you run, in traditional media, your website, etc. makes a false claim about a competitor that hurts them financially. It can also occur when you or one of your employees says something that makes a false claim about a competitor. This coverage can also include instances of slander, libel, or invasion of privacy.
- Damage to Premises Rented to You: Most small businesses start in a garage, spare bedroom, or some type of rented space, either retail, office, or industrial. If something happens in your rented space such as a fire or water leak, this protection will cover the damage to your rented premises for repairs, etc.
- Medical Expenses: Should someone be injured in your space and it’s minor, medical coverage should take care of it. Typical amounts of coverage are $5,000 and $10,000 depending on the insurance company.
- Hired and Non-owned Auto: Rent a car or van to take items to a trade show or business meeting in a different city? Or maybe you send an employee to pick up office supplies at the local store in their car? Hired and non-owned auto protects you and your company when someone’s hurt in an instance like one of our examples or something similar. Some BOPs automatically include this coverage as a part of their package while others don’t.
- Employment Practices Liability:  Sometimes business owners or managers do something stupid with an employee. Employee Practices Liability or EPLI protects the business should someone commit sexual harassment, discrimination, wrongful termination, invasion of privacy, false imprisonment, breach of contract, emotional distress, or violate wage and hour laws.
Next week, we’ll take a look at the property portion of a commercial insurance policy. Do you have a question, comment, or suggestion? Please share them with me in the comments section of our blog or on our Google + or Facebook page. I’d love to hear from you!
