When you started your business, you might have known the risks associated with taking a leap into the unknown. You could face damages to your property from a fire or flood. An unreasonable client may try and slander your business through social media. You could be forced to respond to an employee injury.
The important thing is you knew those risks were a possibility, and you worked to reduce them. Much of running a successful venture hinges on managing risk – either taking it on or mitigating it.
It is only natural to wonder how to keep your business free from unnecessary risk. That’s a good question to be asking. In this post, we’ll be looking at the two most common types of commercial insurance: general liability insurance and business owner’s policy, to help you make the best decision for your business.
In a nutshell, general liability insurance (GLI) is a type of insurance that protects a business from torts (claims) that come from third parties such as customers and suppliers. It is designed to protect you against various accidents or mistakes. Without this coverage in place, you would pay any sort of expenses related to these issues out-of-pocket.
GLI covers a range of possible claims such as:
As an additional point, general liability insurance does not cover any injuries suffered by those on your business’s payroll. Those claims are covered under a separate type of insurance known as worker’s compensation.
Finally, many financial institutions, potential business partners, investors, landlords, and licensing boards may require your business to have general liability insurance before engaging with you. It’s important to have not just for peace of mind, but also to open the door to bigger business opportunities.
It is important to remember that while there are general price rates for general liability insurance, the price of your plan will also depend on the type of industry you are in. If you are in a higher-risk industry, such as construction, expect to pay slightly higher premiums.
In contrast, a business owner’s policy (BOP) is much broader than general liability insurance. For many business owners, it is a much more attractive choice as it includes two additional kinds of coverage in one package: commercial property insurance and business interruption insurance.
Commercial property insurance covers any damage that occurs to your property or its contents. Both leased and owned property are covered, with some stipulations depending on your policy.
Business interruption insurance covers lost income and extra expenses due to unforeseen circumstances, such as a flood, fire, or other catastrophes. This type of coverage can also be called business income insurance, as it protects the income of your company. It is important to note that this coverage will only protect your income from specific circumstances outlined in your policy. Simply because you lost income due to an unfortunate circumstance does not automatically mean you get reimbursed.
Generally speaking, a business owner’s policy will be pricier than general liability insurance, as BOP covers three disparate issues.
Though both types of coverage apply to similar issues, there is one other major difference to consider: eligibility. General liability insurance is typically available to all businesses regardless of criteria. Business owners policy is not.
In order to qualify for a BOP, certain conditions need to be met such as:
In addition, insurance companies might also look at the type of property you own, type of business, amount of revenue, stability, security systems, and other factors. Needless to say, BOP is a bit more complex than at first glance. Though its benefits are credible, the application process is much more stringent.
On the other hand, these two types of insurance are also quite similar. Both cover damages based on bodily harm, damage to property, damage to your business’s reputation, and advertising damages. Both policies also allow for upgrades, or the addition of other policies to strengthen your risk mitigation strategies. These could be policies like worker’s compensation or product liability insurance.
While information is good and all, the most critical question is also the most pragmatic: what’s best for me? Though we can’t pretend to give you an answer that speaks to your direct situation, here are some ways to think about which policy is right for you.
Considering how much a BOP covers, you might not need all that it offers. For instance, if you run a fully remote business from your laptop as a digital nomad, it doesn’t make sense to bundle commercial insurance coverage for a property you do not own. But, it might make more sense if you hire many employees to produce materials for you. The same type of reasoning goes for any other type of coverage. It is important to only cover the losses that you can potentially incur in the first place.
Think about what kind of risks your business would likely face. If it is unlikely that someone could be injured while using equipment, then maybe selecting a policy that has lower coverage amounts for bodily injury damages may make sense. However, a caveat is needed. You also need to think ahead about the kinds of work you plan to do in the near future. Rather than going through multiple policies in a short time frame (and many fees) choosing a policy that reflects the trajectory of your business is much wiser.
In line with our second point, you also want to ensure you choose a policy that can grow with your business. Business owners policies allow you to bundle different kinds of policies together to create a custom-tailored insurance solution for your business. Keeping in mind the possibilities that come with your coverage will keep you abreast of unnecessary paperwork and possibly some fees.
To conclude, here is a short recap of the two major types of insurance:
General liability insurance covers your business against bodily harm, property damage, advertising damages, and some reputational damages.
Business owner’s policies include all of the perks of GLI but with the added coverage of property insurance, and business income insurance in the event of an issue that affects your bottom line.
Remember, the best insurance program for your business isn’t based solely on cost, it is based on how well it suits your business – now and in the future.
Content and associated insurance products are provided by Brokery, LLC (“Brokery”), a licensed seller of insurance. The above does not in any way constitute an endorsement or referral of Brokery’s products or services. Further, the above content does not in any way alter or amend the terms, conditions, or exclusions of any insurance policy.
Start, grow, and manage your business. We're with you each step of the way.