As a first-time business owner, you might ask yourself, “What is commercial insurance, anyway?”
Think about it this way: a business takes a lot of time, energy, and money to run successfully, and the business owner wants to protect that investment. Commercial insurance (also called business insurance) is a practical way to achieve this goal. Business owners purchase insurance policies which can, in turn, compensate them for financial losses arising out of certain events.
That’s a broad definition, of course. Different insurance policies can apply to different types of events and under different circumstances. Generally, commercial insurance is designed to protect a business from common risks, or liabilities, including…
- Third-party lawsuits.
- Property theft and damage.
- Customer injury.
- Client lawsuits.
It won’t protect a business against everything, but technology business insurance can be lifesaver in (potentially) expensive situations.
How Commercial Insurance Works
Your IT business experiences a covered event – someone breaks in to your office and steals a bunch of laptops, for example. You file a claim with your commercial-insurance provider. They investigate the claim, assess the damage, and then offer you the funds to buy new laptops and replace the window that the burglar smashed.
Other claims might be a bit more complex. A liability claim, for example, often involves your business being sued. In these situations, someone – it could be a customer, client, or unrelated third party – believes your business is liable for causing them financial damage and wants compensation from you.
If you’re sued for an event covered by commercial insurance, your insurance provider will probably provide an attorney to take charge of your legal defense and either defend your case in court or offer to settle with the plaintiff. The costs associated with this, including the attorney’s fees, the court costs, and the settlement or judgment, can be paid for by the insurance provider – up to policy limits, and not including the deductible.
Commercial Insurance Policy Details
Every insurance policy comes with its share of fine print, and commercial liability insurance is no different. Any policy you purchase will probably include…
- A deductible: the amount you must pay towards a claim before the insurance provider will offer its funds. For example, a business pays a deductible of $10,000 out of pocket in a liability case that ends up costing $150,000, but the insurance provider covers the remaining $140,000.
- Policy limits: the maximum total amount of money that the insurance policy will pay out. Typically, there’s a limit per claim and a limit per the life of a policy. Many commercial liability policies have a total limit of $1 million.
- Coverages and exclusions: the coverage section in an insurance policy details what the policy can and will pay for. Exclusions outline what it won’t pay for. A common exclusion in a liability policy, for example, is if you intentionally harm someone to cause them damage.
Pay attention to the details of your policy so you know what you’re getting. Talk to your insurance agent if you have any questions.
Types of Commercial Insurance
There are many types of commercial insurance, but these are some of the most common policies you’ll come across:
Click on any of them to learn more about their specific coverage details.
Commercial Insurance Requirements
In most cases, the only commercial insurance a tech business is legally required to have is Workers’ Compensation Insurance – and typically only if it’s an employer.
However, a business may be contractually required to carry certain policies. If you lease a building or office space, for example, your landlord will probably want you to have General Liability Insurance. If you take on a large business client, they’ll likely ask that you have Professional Liability Insurance. Having insurance coverage is often just a part of doing business in today’s world.
If you still have questions about commercial insurance, check out our FAQ page.