Small Business Guide to Insurance

Thinking of starting your own business, and wondering what type of insurance you should have? Or has your business grown, and you want to know if your insurance coverage still matches the business needs?

Business owners purchase many types of insurance to protect their interests. This guide will give an overview to many types of insurance so you can make educated choices for your small business. 
 

While businesses count on insurance to protect the investment in time, money and other resources, consumers can also be protected when businesses are insured. Should anything go wrong with goods and services, certain insurance may compensate people who interact with a business.

There are many choices for business owners to consider when selecting insurance.An insurance agent (producer who is licensed to sell insurance) or broker may offer a “package” that covers many small business needs, or design a policy with coverage designed for the particular business. It is important for the business owner to know what the policy includes.

Workers Compensation insurance is required for all businesses with employees.

All public and private employers in Colorado, with limited exceptions, must provide workers compensation coverage for their employees if one or more full or part-time persons are employed. A person hired to perform services for pay is presumed by law to be an employee. This includes all persons elected or appointed to public sector service and all persons appointed or hired by private employers for remuneration. There are a few exemptions to this definition.

Colorado state law mandates that a business provides workers’ compensation coverage for all employees. This insurance provides prompt, partial wage replacement and covers medical expenses for workers injured on the job. The business must pay the full cost of this insurance. It is unlawful to deduct the cost of this coverage from an employee’s wages.

More information is available from the Division of Workers Compensation in the Colorado Dept. of Labor and Employment (CDLE). The Colorado Division of Workers' Compensation is the state office responsible for administering the Colorado Workers' Compensation Act. 

Unemployment Insurance -- All businesses with employees are subject to Unemployment Insurance tax. Unemployment Insurance is not regulated by the Division of Insurance, it is in the Colorado Department. of Labor and Employment. 

Employees are generally considered anyone who is paid wages and performs a service for the business. The underlying purpose of the Colorado unemployment benefits program is to help maintain the economic and purchasing power of the community by assisting the most exposed members of the community, the unemployed worker.The Colorado Department of Labor and Employment has an extensive employer handbook to help determine if a business must pay Unemployment Insurance Tax and to determine whether someone is an employee of the business and eligible for Unemployment Insurance benefits. 

CDLE Employer Handbook on Understanding Unemployment Insurance in Colorado

The minimum limits of liability required by Colorado law are:

$25,000-per person for bodily injury
$50,000-per accident for bodily injury
$15,000-per accident for property damage.

Policies are not limited to these minimums and additional coverage may be purchased. A person who is injured in a car accident is not restricted to seeking only those amounts if the damages or medical costs are greater, and may attempt to collect additional damages or reimbursement for losses directly from the business or vehicle owner. 
 

Professional Liability Insurance is required for certain professions. For other professions, it may be strongly recommended, if not required by law. This type of insurance is specific to the risks/liabilities in their profession. Professional Liability Insurance may be called “Malpractice” insurance for some professions (doctors and other health professionals) and Errors and Omissions (E&O) for other professions. This type of insurance can pay the costs to defend the professional’s reputation and cover the potential damages to anyone who was harmed by improper actions or negligence. (See below for more information on types of liability insurance.)

Lender-required insurance -- If the business acquires a loan to purchase a building, vehicles or equipment, the bank or lender may require insurance to protect their investment in the structure, items or materials being purchased.

Other types of business insurance
 

Depending on the type of service or products offered, a small business may purchase insurance coverage which includes:

general liability;
errors and omissions (E&O);
property coverage for fire, water damage and more;
spoilage of inventory;
business equipment and equipment breakdown;
inland marine for mobile equipment
crime; employee dishonesty, burglary & robbery
business interruption;
commercial automobile and use of non-owned vehicles;
property of others
employers’ liability
umbrella & excess Liability
and farm or crop coverage.

Errors and Omissions (E&O) insurance might be purchased by any number of professions to protect themselves against claims that professional services were not handled properly. If a consumer is harmed due to any mistakes made by an employee or owner of the business, the E&O insurance help protect a company, its employees and others from claims alleging negligence in performing or failing to perform Professional Services. Almost any professional can be held both professionally and personally liable for their own negligence and for those they supervise.

For professions such as architects, title agents, real estate agents, mortgage brokers, and engineers it is called “errors and omissions” often shortened to “E&O.” For doctors and attorneys, it is called “malpractice insurance.” 

Commercial Umbrella Insurance
Many businesses consider a supplementary policy called “Commercial Umbrella Insurance.”

An umbrella policy is an added layer of liability insurance protection that goes above and beyond your policy's stated coverage limits. This coverage is designed to kick in once any other coverage has been exhausted. The general liability insurance is the primary policy for the business, but an umbrella policy is designed to provide additional protection above the limits of the general liability insurance. Umbrella insurance may also insure a business if someone has damages or injuries for losses beyond the scope of the traditional general liability policy.

A commercial umbrella plan will typically cover things such as:

personal injury (injury to a person, as opposed to damage to property);
liability for both written and oral agreements or contracts;
non-owned aircraft liability (if you rent or charter aircraft for business use);
liquor law liability (if the business serves, sells, or makes alcoholic beverages, it can be found responsible if someone harms themselves or others due to intoxication);
negligent action (when someone who works for your business did not take reasonable care to prevent damage or injury to another party, or if the business manufactured or sold a product which caused an injury);
and extension of coverage to other insured parties, such as business partners or employees. The details of any particular umbrella plan should be carefully reviewed within the policy contract, as the coverage will vary.

Always check your policy to be sure you understand the types of liability which are covered.

Excess Liability insurance is another type of additional commercial insurance. Before a claim is filed against an excess liability insurance policy, the limits of the primary underlying insurance must be exhausted. Excess liability is a secondary policy that covers a wide variety of possibilities.

As an example, a business could have coverage of $1,000,000 on a general liability policy, but there is a claim of $1,400,000. After the initial million dollars is paid (through the liability policy), the excess liability policy will cover the damage award for the amount exceeding $1,000,000 up to its policy limit.

Property insurance protects against losses or damage to the real property (buildings and/or tenant improvements) and personal property owned by the business. 

Rented or Leased Buildings - Important note: a property owner or landlord usually carries insurance on the building and property. The owner's policy typically does not cover contents of a tenant when the building is rented or leased. The renter needs insurance to protect the building improvements paid by the renter as well as contents of the rental space, independent of the landlord's interest in the structure. Again, if the building location is leased, the contents - from computers, to materials, to inventory - are protected only if insurance is purchased specifically for that reason.

Life Insurance or “Key Employee” insurance should be considered, particularly if there are employees who are hard to replace and critical to the ongoing success of the business. The key employee may be a designer, manage a critical process within the business, or have specialized knowledge about the business. A key employee may be the founder or partner in the firm, or have relationships with suppliers, vendors or customers that would be difficult to maintain without the employee’s involvement.

Key employee insurance is basically a type of life insurance that protects the business against the costs of replacing an employee with special skills or value to the business; training a new employee; assuring creditors, suppliers and customers that the business will carry on; and any projects that were the responsibility of the key employee will continue without interruption. The life insurance premiums are paid by the business, and the business is named as the recipient of the death benefit to cover costs associated with the loss of the key employee. 

National Association for Insurance Commissioners (NAIC)

Disaster Planning for Small Business from the NAIC

Protecting Small Businesses from Fraudulent Health Plans from the NAIC

 

National Flood Insurance Program
Commercial Flood Insurance Information