Insurance
A Deep Dive Into Business Owners Policy Exclusions to Avoid Surprises
January 27, 2025
| February 23, 2023
Author: Jason MorrisonEdited by: Jason Morrison and Reviewed: Jason Morrison
You instinctively know that insurance exists to protect you. For example, you protect yourself with life insurance if the unthinkable happens — that you die before your kids grow up and move out of the house. Or homeowners insurance, which protects you if lightning strikes your home. Business insurance does the same for businesses — it protects you if a customer claims that your business hurt or damaged them or if your company uses faulty equipment. You need business insurance to ensure you are protected, and your employees have coverage for work-related injuries or illnesses.
These are just a few reasons you may need business insurance. We’ll answer the question you may be asking yourself: “Do I need business insurance?”
Business insurance can offer various benefits, covering damage and incidents your business would otherwise have to pay for on its own. For example, it may protect your assets during natural disasters, such as floods, hurricanes, fires, tornadoes, and other perils. A “peril” is insurance-speak for an event or circumstance that results in property damage.
It can give you peace of mind, save money, protect your business from damage, and provide employee benefits. In many cases, the law requires business insurance. It can also show your customers that you can manage risk. For example, if you’re a roofer, you can show customers you have roofers liability insurance.
It can encourage and build trust between you and your employees. As you can see, businesses need insurance for more than meets the eye.
Small businesses may need to look into general liability insurance, business income insurance, and workers’ compensation. Depending on your specific business and its particular needs, you may also need to look into other types of insurance. Check with your carrier for a comprehensive overview of the types of insurance you may need.
As a business owner, you’re no stranger to the countless expenses that come with running a business. From rent to utilities, it can be tempting to cut corners wherever possible. However, one area where you shouldn’t skimp is on the cost of small business general liability insurance. Businesses need liability insurance for the following reasons: General liability insurance covers third-party bodily injury, damage to property, and personal injury. What exactly do these terms mean?
Commercial general liability insurance also covers legal expenses when litigation occurs.
Business income insurance, often also called “business interruption coverage,” can come as part of a standard policy or as a rider (an “add-on”). It covers operating expenses and lost income when a company cannot operate due to physical damage by a covered peril.
Workers’ compensation provides coverage in the case of work-related injury or illness. Each state has different workers’ comp requirements, and most states require businesses to carry this type of insurance. It can help protect your business and employees by covering missed wages if your worker needs time off while they recover from an injury or illness, medical expenses, or vocational rehabilitation. It also offers death benefits to an employee’s family in the case of death while at work.
It is vital to protect your assets, both business and personal. Your business may need insurance coverage for the following reasons.
The federal government requires every business with employees to carry workers’ compensation, unemployment, and disability insurance, according to the U.S. Small Business Administration. Some states require more insurance, which you can learn more about from your state website.
It (specifically workers’ compensation) offers employees replacement income if injured while working. It also pays for medical expenses. In exchange, they cannot sue for their injury, no matter who was at fault, including you, the employer.
Workers’ comp goes beyond helping just employees. It can help you because you’ll benefit by avoiding employee injury lawsuits.
It also protects customers by guaranteeing compensation for losses incurred due to a specified incident. For example, suppose a customer trips on a crack in the sidewalk outside your business, and you are at fault for negligence in maintaining the sidewalk.
In that case, your general liability insurance may cover the incident. Customers can rest assured that they are protected when they visit a business which is insured.
You want people to think of you as trustworthy and dependent, and it can help set a standard of trustworthiness for your business. This may seem like a “soft” reason to have business insurance, but it’s not. Your business reputation likely means a lot to you, and it’s one of the most important reasons why insurance is important for business!
Many states require insurance for certain dealings in business and contracts. A contract is an agreement between parties or a legal obligation enforceable between two parties.
For example, a wedding planner may have to carry general liability insurance in case their design at a wedding causes the bride’s grandpa to slip and fall on the rose petals they supplied for the wedding. (Note that the venue will have to as well.)
Employees expect certain benefits, including workers’ compensation, when they become part of your company. As a business owner, your employees likely keep all the wheels turning, so you probably want to take care of them. Your employees can feel more secure when you have the right type of insurance. It could also help you keep employees and recruit new ones.
Standard insurance policies cover tornado damage and wind and rain, which may damage windows and roofs. However, you may need additional coverage for hurricanes in coastal areas. Coverage for floods, earthquakes, and volcanoes requires different add-on policies.
It doesn’t cover flood water that enters from ground level and causes damage, though you can get coverage from rain and hail damage and losses from tornadoes.
Earthquake policies cover extensive damage, including from tremors, and most business insurance policies cover damage caused by a volcanic explosion, ash, dust, shockwaves, or lava. However, you may find it hard to get coverage inside lava flow hazard zones. Talk with your insurance agent about these other types of coverage.
Ultimately, business insurance offers protection against risks (some everyday risks) and helps protect you against mistakes and things entirely out of your control, such as weather-related incidents. It can help more than you serve as peace of mind — it can offer satisfaction and relief for anyone you interact with, from clients to employees.
Now that you know the answer to “Why does a business need insurance?” you may have a better idea of the importance of business insurance in your own business.
Business insurance ensures that you’re completely protected, no matter what happens. If you need more clarification about the types of business insurance you need, call your insurer.
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