7 Types of Business Insurance to Know

7 Types of Business Insurance to Know

7 Types of Business Insurance to Know
Charles Munyi
Feb 24, 2022
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Running a business is already challenging enough. 

On top of the daily operations, there’s the possibility of significant financial loss from unforeseen circumstances. That’s why business insurance is crucial to protecting your investment.

Buying the right business insurance coverage could mean the difference between going under after a loss or recovering with minimal setbacks.

Review this guide to learn more about seven types of business insurance that can help your company.

What is Business Insurance?

Business insurance is a collective term for the various insurance policies that help protect your company against operational risks. Comprehensive coverages are designed for specialized industries, like restaurants or contractors. Insurance carriers also provide a broad spectrum of add-ons to increase your coverage options. 

Business insurance policies can protect your company from common financial losses resulting from property damage, theft, legal liability, employee injury, and business interruption. Some commercial insurance policies also protect your organization’s reputation.

Ultimately, the right insurance policy and coverage limits is crucial in curtailing the adverse impact of claims against your business.

7 Types of Business Insurance

Business risks are inherent, and you shouldn’t pay out of pocket for every risk. Different types of business insurance exist to curtail your covered losses. Review these seven types based on your professional services.

1. General Liability Insurance

Commercial general liability insurance protects your business against the financial loss and legal costs incurred from third-party claims filed against you, your employee, or the company. 

These third-party claims include: 

  • Bodily injury: Bodily injury claims are made for damages caused to someone who is visiting your business premises. It may also include coverage for claims of damage caused by your business operations, like the cost of medical bills after a customer ate contaminated food.
  • Property damage: This coverage includes someone else's property lost or physical property damage by your business. If you’re a lawn care business, you might get coverage when a tree branch falls on a house as you conduct your pruning services. 
  • Reputation harm: Liability insurance also insures against the risk that negative sentiments about a customer or another business tarnishes or cause them to lose revenue.

2. Cyber Liability Insurance

Cyber liability insurance protects your business from cyberattacks resulting from information technology infrastructure and activities, including internet-based threats.

First-party cyber liability coverage insures against the loss of your business data, including customer and employee information, due to hacking, theft, data destruction, extortion, and denial of service attacks. 

Third-party cyber liability coverage protects you against liability claims made against your business for failure to safeguard data or for errors and omissions. 

Cyber insurance may also help pay for the lost income due to business interruption, legal defense costs and penalties imposed, and the cost to recover and replace the lost data.

3. Lessor’s Risk Only Insurance

Lessor’s risk only (LRO) is a business insurance classification issued by insurers to property owners who lease a substantial or entire portion of their buildings to tenants. The building owner insures the value of their facility and any liability associated with shareable areas, while tenants insure their contents separately. 

Lessor’s risk only insurance is designed for commercial landlords who own office spaces, apartment buildings, retail complexes, and warehouses. Usually, the landlord must not occupy more than 25 percent of the building they are leasing out. 

4. Vacant Insurance

Standard commercial property policies have an additional coverage exclusion for property that sits vacant for a specific period, like 45 consecutive days. Vacant insurance fills this gap by protecting your commercial property when there are no occupants, due to ownership transitions or ongoing renovations. Vacant insurance provides liability protection against third-party legal claims and property damage losses.

Vacant commercial property could be in the form of land or buildings. Your land is considered vacant if it’s just an empty lot that sits undeveloped, while vacant buildings do not have any occupants.

5. Contractors Insurance

Contractors insurance protects your business from financial loss from work-related accidents. Contractors, subcontractors, and tradespeople should protect their livelihood with comprehensive coverage that matches their exposure to risks.

Contractors insurance is also often a requirement for securing a work contract. Trades that may need contractors’ insurance include carpenters, electricians, painters, plumbers, handypersons, remodelers, and general contractors.

6. Workers’ Compensation Insurance

Workers' compensation insurance protects your business from claims by employees who suffer an on-the-job illness or injury, whether within the business premises or while conducting business operations. 

The injured employee receives benefits to cover their medical expenses, lost wages, rehabilitation costs, and any partial or permanent disability the employee sustains. Self-inflicted injuries are not covered even if the injury occurs at the job site or during regular business hours. 

In exchange for the compensation, an employee forfeits their rights to sue for any damages. Most states mandate that businesses employing at least 3 to 5 employees carry workers’ compensation, and non-compliance may attract a hefty penalty. 

7. Commercial Auto Insurance 

Commercial auto insurance policy protects your business when a business vehicle is stolen, vandalized, involved in a collision, or otherwise damaged. It pays for bodily injury caused to others and property damage caused by the vehicles used in your business operations. 

Commercial auto doesn’t cover personal vehicles used for business operations, unless that’s their exclusive use. In this case, you may need to buy non-owned auto insurance.

Explore Different Types of Business Insurance

Business insurance is a safety net for those unexpected financial losses. Consider insurance coverage as a long-term strategy to protect your business. Contact your insurance agent and ask them to get you a Pathpoint quote today.

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