The primary reason for acquiring business insurance is to protect the business you own from unforeseeable events that will cost you dearly; it insulates your company from the consequences of any potential adversity and ensures financial comfort. The importance of insurance has been highlighted by the COVID-19 pandemic, as a result of which many business insurance providers suffered significant losses.
Post-COVID studies into underwriters in the insurance industry revealed that the industry had neither the infrastructure nor capacity to support the losses of claim on such a large scale. It exposed the need for change in order to establish a sound system that was capable of safeguarding businesses from the fallout of future pandemics. This article explores the current state of business insurance due to how it has evolved over the last two years.
What is business insurance?
The term business insurance is used to refer to a couple of concepts, namely: the limited liability protection afforded to LLCs due to their business structure, or liability insurance held by a company.
LLC protection
A limited liability company (or LLC) is one of several business structures a company can opt to elect when they decide to incorporate. As part of their structure, businesses of this entity benefit from ‘limited liability’ protection by the creation of a delineation between the business’s assets and the owner’s personal assets.
It is this separation between the two asset types that protects the owner’s personal assets from being pursued by creditors or in court to cover the debts of the business.
To ensure this protection for your personal assets as a business owner, it is important to maintain a separation between your personal and business finances. This precludes a situation in which the assets become mixed, and your limited liability protection forfeited.
Liability insurance
The second definition the concept of ‘business insurance’ can refer to is the policies an LLC holds in order to shield it from specific risks.
Where limited liability protection defends personal assets, this LLC insurance protects the business’s assets. These two safeguards work together to provide complete financial protection to a business should any damaging unforeseen events occur.
A business may be required to employ a plethora of policies if they want to make sure they are as protected as they can be; the number and type of policies required will change depending on the nature of the business’s work. Insurance agents offer the most comprehensive method of checking whether your protection is sufficient; they do this by studying your business’s industry, liabilities and current policies.
Photo: TRUiCWhat is covered?
There are several insurance policies available for a business to purchase, the coverage provided by the three most common plans has been outlined below.
General liability insurance
General liability insurance is by far the most often employed insurance policy. It is able to protect a company from shouldering the financial weight of claims relating to either bodily and personal or property damage.
It is common in most states for businesses to be required to own this type of insurance policy if they intend to engage in certain fundamental corporate operations. Some of these operations include being able to: rent office space, place a bid on a contract, and engage in work on a client’s property.
Business owner’s policy
A business owner’s policy is a collection of coverages wrapped into a single insurance policy to protect an LLC from the most common types of liabilities.
The standard policies wrapped in a BOP policy are general liability insurance, property insurance, and business interruption insurance. Depending on your agent and the insurance company writing the policy, they may be able to add more policies into your BOP based on the type of business you operate.
Professional liability insurance
Professional liability insurance is a slightly more niche policy than general liability as it is only really helpful in industries where businesses engage in providing specialist ‘professional advice’ to customers. In these industries, it is considered a standard, and is also known as the coverage for ‘errors and omissions’.
Put simply, it protects against situations where a professional makes an error when giving advice to a client which results in a significant detrimental effect on them.
In conclusion
The need for insurance is clear: to protect businesses against unforeseen risks that would (without protection) cause extreme financial damage. The types of policy needed by a business vary depending on a number of factors such as what risks they incur and what industry they are operating in.
In the aftermath of COVID-19, it is now almost standard for all businesses to have general liability insurance, though several other policies are also commonly required in addition to this, such as professional liability and business owner’s insurance. For more information about LLC insurance, please see TRUiC’s resource.
Disclaimer: The information provided in this article is being provided solely for informational and promotional purposes and should not be construed as investment, tax or legal advice.