It is important to protect yourself against any loss, whether you are running your own company or making money as a side hustle.
Property and casualty is the primary tool to mitigate business risks such as those described in Wealth of Geeks.
Each insurance policy has its own terminology.
Understanding the types of insurance available can help you to limit the financial losses that could be catastrophic. You will want to be sure to understand which types of insurance apply to your side business or business.
Property and Casualty Insurance
This article will discuss the most important types and sizes of property and casualty coverage for small business and side hustles.
This includes coverages for business owners, professional liability, workers compensation, fidelity bonds, and surety.
Each type of business insurance will be highlighted, along with the coverage they provide. You should also consider some other factors when deciding whether or not to purchase them.
Table of Contents
Business Owners’ Insurance
Vehicles
Liability
Premises and operations
Products Liability
Property
Umbrella
Professional Liability
Workers’ Compensation
Surety & Fidelity Bonds
Surety Bonds
Fidelity Bonds
Bonds
Other types of property and casualty insurance
Property and Casualty Insurance: Where to Purchase?
Business Owners’ Insurance
Small businesses may purchase a policy package, known as a Business Owners Policy (BOP), that covers their liability and property risks, along with the vehicle. This is similar to combining personal auto insurance with homeowners’ insurance.
Separate policies are available for businesses that do not require all three types. Commercial auto (covers any vehicle type), general liability and property are the separate policies.
Package policies are usually cheaper than three separate policies if you need all three types of coverage.
The limit of responsibility is the amount that the insurer will pay in the event of a liability claim.
The amount that the insurer will pay the insured before it pays for physical damages is determined by the amount of deductibles.
The deductibles for comprehensive and collision coverage of vehicles and any claims relating to damage to buildings or contents covered by a policy can be separated.
Vehicles
It does not matter whether you buy a commercial auto policy or a BOP. The coverage for your vehicle is the same. The policy protects the business owner from any liability arising out of the operation of the vehicles covered by the policy.
In other words, if a driver with liability insurance is involved in an accident, the third party costs will be covered by their policy. These costs may include damage or injuries to third parties’ property.
Physical damage coverage is also available to the insured. This insurance covers damage to the insured vehicle from an accident or other perils such as theft and fire.
Commercial vehicle insurance policies are similar to personal auto policies, which I have covered in depth here.
Commercial auto insurance is required if you use your vehicle to run a side business or for a side hustle. Personal auto insurance policies exclude coverage for the following:
Employees in the course of employment.
Ownership or operation of vehicles, such as Uber and Lyft, is not allowed when used for public transportation or livery.
When the insured is employed in a business or engaged in another activity.
Most claims against your auto insurance policy will be denied if you use your car for a business or side hustle.
The cost of auto insurance depends on a number of factors, including the type of vehicle insured, the limits and coverages selected, the driving habits of the driver, the location of the vehicle, and the distances traveled.
Liability
Most businesses face at least one of four types liability: premises and operations (discussed earlier), products and professional, vehicles, and other.
Both general liability policies as well as BOPs include product and premises liability. Professional liability is covered by a separate policy. I have discussed it below.
Premises and operations
Premises and Operations coverage (which I will call Prem/Ops), provides insurance for items related to the location of your business or its operations. It covers damage or injury to the property of third parties, not employees.
Prem/Ops is most commonly used to cover slips and falls that occur at business sites. If someone is injured in your parking area, at your location or due to your operations, you may be responsible for the medical costs and/or wages of that person.
You should consider premises and operation coverage if your customers visit your business. Most homeowner policies do not cover claims relating to a business.
It is therefore important to review your policy to ensure that you are covered if your business is conducted from your home.
Prem/Ops premiums are based on the nature of your business, the types of locations you have, and the liability limit that you choose, among other things.
Products Liability
Product liability insurance provides coverage for damages resulting from your product. This includes third parties who are injured (and not employees) or their property that is damaged. Medical device manufacturers, for example, have product liability insurance that protects them against claims of defective products causing injury or illness in patients.
Burns caused by McDonald’s coffee, which was allegedly served too hot, are also covered under the products liability coverage. You should consider purchasing product liability insurance if you manufacture a product which could cause injury to someone or damage property.
The cost of product liability insurance depends on a number of factors, including the type of products you sell, how many sales are made, and what limit of liability is purchased.
Property
Your property is protected by a property insurance policy, which includes buildings and their contents. If you do not own the building, you can purchase only the contents insurance.
Property insurance protects you against many perils including vandalism and theft, as well as fire, hurricane, or tornado. You may need to purchase separate coverage for earthquakes or floods in many areas.
In most cases, any intentional damage, or damage caused by war, arson and even riots, is not covered. You should read your policy carefully to understand what’s covered.
You estimate the value of your building and its contents when you purchase property insurance. Insurance companies can reduce your claim amount, even if it is for a partial loss, if they believe you have undervalued your property. It is therefore important to accurately determine the value and contents of your building.
Business interruption is always included in property insurance policies for businesses. This coverage pays for your lost profits as well as some overhead costs when you have property damaged by a covered peril.
Insurance companies will also cover expenses for a temporary office where your business can be operated while your building undergoes repairs or replacement.
Business interruption insurance is only applicable when your business has been interrupted by a peril that falls under the contents and buildings coverage.
A pandemic, for example, is not a covered peril because it does not damage the building or contents. If your business shuts down due to a pandemic, you will not be covered.
The premiums you pay for your property insurance will depend on a number of factors, including the type, age, and value of the insured building, the contents insured, where it is located and the deductible that you choose.
Umbrella
A umbrella policy will allow you to increase your liability limits on all of your policies simultaneously. A umbrella policy may cover vehicles, Prem/Ops and products liability. The limits of the policies underlying them must meet minimum requirements.
A umbrella policy protects you from liability claims that are not covered by your underlying insurance policies, like slander and libel. Personal umbrella policies and business umbrella policies are based on similar concepts.
The umbrella premiums are based on the limits and deductibles of the policy and all its characteristics.
Professional Liability
Professional liability insurance covers you in the event that someone claims you caused them an economic loss due to a mistake you made when you provided professional services.
If you provide bookkeeping services, for example, you might be sued by a customer if your tax returns were incorrectly prepared, resulting in a financial loss to the client.
Legal services can include anything from not meeting a deadline in court to giving incorrect advice. Professional liability policies usually cover all of these mistakes unless they are made intentionally.
You will want to buy a professional liability insurance policy if your business offers professional advice to clients or provides professional services. Professional liability is the same as products liability, which covers what your business produces.
The premium for professional liability insurance is based on the services you provide, your annual income, and the liability limit that you select.
Workers’ Compensation
Workers compensation insurance, also known as workers comp, protects employers against costs incurred by employees due to injuries or illnesses.
As long as your company has at least a minimum number of workers, almost every state in the US requires that you provide workers compensation for them.
The minimum number of employees required is typically four. In some states like California and Colorado you are required to have coverage even if there is only one employee.
Workers compensation reimburses employees a portion of their medical and lost wages. Workers’ compensation employees are not allowed to sue their employers for injuries or illnesses covered under the policy, except in very limited circumstances.
The premiums for workers compensation are based on the number of employees, their wages, state where they work and the type of job performed by each employee.
Surety & Fidelity Bonds
As part of their business, some businesses are required to purchase surety bonds or fidelity bond. The majority of surety bonds guarantee to third parties that you, the principal, will carry out certain actions.
Fiduciary bonds, on the other hand, protect employers against fraudulent or dishonest acts of their employees.
Surety Bonds
A construction bond is one of the most popular surety bonds. Your business might be a construction firm that promises to build a building for a customer.
Your business will most likely be paid in advance for certain services. The buyer will then want a guarantee from you that the building will be completed.
A construction bond can be purchased by an insurer on behalf of the obligee (the buyer). The insurer will pay you for not completing the building or hire a contractor to finish it.
Commercial surety bonds can also be used to cover notary signatures and costs associated with mining or drilling operations. The requirements for surety bonds vary greatly from state to state. The “What Bond Do you Need?” section on this website was very interesting.
Fidelity Bonds
The majority of fidelity bonds cover money, securities, or property owned by clients to which employees may have access.
A fidelity bond, for example, will cover the embezzlement by an employee of funds to be used in future services or products. A fidelity bond will also protect against the misappropriation or real estate funds, pension assets and other assets.
A fidelity bond will also protect you if your employee steals something from a client while they are at their business or home.
Bonds
Most small businesses and side hustles don’t need fidelity bonds or surety. They are still essential to a company’s risk management strategy if they have any exposure to these types.
Costs of surety bonds and fidelity bond are determined by the face amount, type of coverage, history, and financial status of the insured.
Other types of property and casualty insurance
A small business may need other types of insurance.
Crime Insurance: Property insurance and fidelity bond do not cover all theft losses. You may need to consider purchasing crime insurance if you sell products.
Cyber Insurance – Cyber insurance will cover you if an attack on your computer system disrupts your business. You can also be protected if you have your business information or the personal data of your employees or customers stolen. You will want to look into the different types of cyber insurance if your business is exposed in any way.
Directors’ and Officers’ Liability Insurance – D&O covers third party economic losses that are caused by significant decisions taken by directors and officers. D&O is often purchased by publicly-traded or multi-owner companies. D&O Insurance may be necessary if you do not own your company.
Property and Casualty Insurance: Where to Purchase?
Property and Casualty Insurance for a Business is similar to purchasing it for personal exposures.
You can purchase business insurance online from some insurers. Progressive is one example. I have no knowledge of its coverage, premiums or services.
Direct writers include other insurers such as Liberty Mutual. When buying insurance, you speak directly with an employee of a Direct Writer.
Brokers and agents in the insurance industry provide access to other insurers. They have access to many different insurers. Agents can help small businesses with their insurance needs, particularly those that do not have unique exposures. If you are a large company or require specialized knowledge, then you may need to use a broker.
If you’re new to purchasing insurance for your company or your business is exposed to unique risks, I recommend a direct writer or an insurance agent.
Online insurance purchases, if done by a well-informed buyer, are often cost-effective. This lower premium is due to the insurers having lower costs, as they don’t need to pay for commissions or expenses of sales forces.
This article was originally published on Wealth of Geeks. It has been republished by permission.
