What’s the difference and do you need both?
It’s finally happened – you’ve decided to strike out on your own and start a business. There are a million details to take care of, and one important necessity is insurance. Sure, we know it’s not the funnest topic, but unforeseen risks lurk around every corner when you have a business, so it’s important to be prepared.
Accidents happen all the time, and some are so bad your business might not recover. A fire or vandalism, for example, could set you back indefinitely. And don’t forget, as a small business owner, your personal finances are on the line.
Commercial property and business liability are two very important types of insurance for business owners to consider having. Each of these policies protect your business in essential ways.
Insurance can be complicated, but it doesn’t have to be. Let’s talk about the difference between these two types of insurance, the basics of each policy, and how to decide on policy limits and deductibles.
Commercial property insurance
Commercial property insurance protects your business against loss of assets – all of the physical property that’s vital to your day-to-day operation. Assets include buildings, stores, warehouses and offices, as well as computers and other equipment, like furniture, inventory, and any other physical resources you need to run your business.
Not only does commercial property insurance protect a business’s physical assets, but it also covers other people’s property, your business’s income, inland marine, and freight.
If you own or lease office space, manufacture products, manage inventory, lease equipment, or take care of the property of others, you need commercial property insurance.
It will cover the repair or replacement of business property that is damaged by dangers like:
You’ll want to make sure your commercial property insurance policy protects against the risks in your area. For example, if your business is in Florida, you’ll obviously want to protect your business against weather-related risks like storms and floods. Make sure your policy also insures the contents of your building, including any movable property, like vehicles.
Depending on your needs, your policy can cover assets outside your building, like your company sign, landscaping, fences, or other external structures. Damage to these features all impact your ability to conduct business.
And what about business assets used off-premise? If you or your employees take company equipment (like computers) home or on the road, you’ll want to insure them against theft or loss.
A commercial property policy can also recover a loss of income if there’s property loss. If you suffer physical losses of property, your policy may be able to reimburse you for net income and expenses.
How much you pay depends on a number of factors including:
- Choosing coverage for “named” perils vs. all perils. A policy that covers you for all perils is going to be more expensive than one that has perils you specifically identify, like wind or hail damage.
- Choosing actual cash value vs. replacement cost. With actual cash value coverage, you’ll be paid the depreciated value of your property. This figure comes from subtracting the amount of depreciation from the cost of replacement. As an example, if you have a five-year-old computer that is worth $500 and a new one is worth $1,500, you’ll receive $1,000.
- With a replacement cost policy, you’ll receive the amount of money necessary to replace the property that was stolen or damaged. That means, per the example above, you would receive the entire $1,500 because that’s what it will cost to replace the computer.
- Because actual cash value includes depreciation, and replacement cost does not, a policy with a replacement cost provision will cost more.
- Your overall risk factors. These factors include:
- Building construction – what are its safety features and how well is it maintained?
- Geography – this includes location, land value, local crime rates, and how often natural disasters occur
- Hazardous material
- Recent natural disasters – these can have a big impact on rates
- Deductible – most commercial property insurance has a flat deductible, which specifies an amount for each loss. Other deductible options include aggregate, franchise and one that is percentage-based. If you have business income coverage, it could include a waiting period clause in the deductible that is typically 72 hours.
- Your overall risk factors. These factors include:
Business liability insurance
So commercial property insurance has things covered, but what about people? If someone slips and falls in your store, for example, or one of your employees accidentally breaks a vase while working at a customer’s home, you would be responsible for damages. This is one reason business liability insurance is so important. It helps you take care of the people involved with your business – your employees, customers, partners, suppliers, and vendors.
Because there are unique risks, there are different types of liability policies, including:
- General liability. This can help cover legal expenses for third-party lawsuits, such as if a customer is injured in your store and sues you.
- Professional liability. This is also called “errors and omissions” insurance and usually pays for legal expenses if a client claims your work was negligent when providing a professional service. You should consider this coverage if you provide professional services to clients or give advice.
- Workers’ compensation. This insurance is required by every state except Texas, and can help pay employees’ medical bills and lost wages if they are hurt on the job. In Florida, workers’ compensation is required under Chapter 440.
- Employment practices liability. This policy helps to pay for legal expenses in the event of discrimination lawsuits by employees and job candidates.
- Cyber liability. This policy pays for expenses if you suffer a data breach or malicious software attack. Some of the expenses involved include customer notification, credit monitoring, legal fees, and fines.
Because there are so many variables, you should discuss the factors involved with your insurance agent to get the best policy. It’s likely that policies can be bundled to save you money!
Your business-savvy insurance partner in south florida
Avante Insurance knows and understands the risks involved when you start a small business. We also understand the worries and can offer industry-specific advice.
Our team of helpful experts will work with you to get the best type of coverage for your business. Reach out and book a no obligation conversation with our team at 1-305-648-7070 or complete our online contact form.
This blog and website are made available by the publisher for educational and informational purposes only. It is not to be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state.