Business Insurance Basics: What to
Know
D.C. Department of Insurance,
Securities and Banking
July 16, 2014
Presentation Overview
1. Workers’ Compensation Insurance/Employers’
Liability
2. Business Property and Liability Insurance
3. Auto Insurance for Commercial Vehicles
4. Group Health and Group Disability Insurance
5. Group Life insurance
6. Home-Based Business Insurance
2 | Business Insurance Basics: What to Know
Workers’ Compensation Insurance
Most Workers’ Compensation policies offer 2 types of
coverage
• Workers’ compensation coverage protects a business
owner from claims by employees who experience a workrelated injury or illness – either sustained on business
premises or due to business operations.
• Employers’ Liability coverage protects the employer
against work related injuries not covered under workers’
compensation; such as, an obligation to pay damages
because of a wrongful death claim, suits alleging negligence
or failure to provide safe working conditions
Business Insurance Basics: What to Know
Workers’ Compensation Insurance
• A workers’ compensation policy covers the employee’s medical
expenses, rehabilitation costs , lost wages, death, and survivor
payments.
• Business owners, independent contractors, domestic employees in
private homes, farm workers and unpaid volunteers are usually
exempt from workers’ compensation eligibility.
• When you first purchase workers’ compensation insurance, the rate
will depend on your payroll and your industry. After a few years, the
actual experience of your company will affect the premiums you pay.
• In the District, most businesses are required to carry workers’
compensation insurance for their employees. You will need a
separate workers’ compensation policy for this type of
coverage.
Business Insurance Basics: What to Know
Business Property and Liability Insurance
Property insurance
Property insurance protects business owners from losses due to damage to
physical space or equipment, and as a result of theft. For insurance purposes,
a business’ property includes the physical building in which it resides, as well
as its other assets. All of the following, owned or leased, can be considered
business property:
•
•
•
•
•
•
•
•
The actual building
Inventory, furniture, machinery, equipment and supplies
Computers and other data processing equipment
Valuable papers, books and documents
Artwork and antiques
Television sets, VCRs, DVD players, satellite dishes
Signs, fences and outdoor property not attached to a building
Non-tangible items such as trademarks and copyrights
Business Insurance Basics: What to Know
Business Property and Liability Insurance
There are three types of property insurance coverage:
•
•
•
Basic form, which includes losses resulting from a fire, lightning, windstorm, hail
and explosion, plus the cost of removing property to protect it from further
damage.
Broad form, which includes basic plus extended coverage for other types of
perils, such as a roof collapse (e.g. caused by snow or ice), riot and civil
commotion, etc.
Special form, which includes basic and broad, and covers all direct physical
losses except conditions specifically excluded as listed in the policy.
With property insurance you can buy either actual cash value (ACV) or replacement
cost insurance (RPL). (RPL – Depreciation= ACV)
Business Insurance Basics: What to Know
Business Property and Liability Insurance
Liability Insurance
•
If your company, product, work, employee or anything else associated with your
company causes physical injury to a client or guest or damages their property or
belongings, liability coverage provides compensatory protection
•
Liability insurance, also called Commercial General Liability (CGL), covers four
categories of events for which you could be held responsible:
– Bodily injury;
– Damage to others’ property;
– Personal injury, including slander, libel, and false or misleading advertising.
– Medical payment & tenants legal liability (for those who rent or lease their
work space).
– Products & completed operation ( deck builder forgets to secure a railing)
– Fire legal liability (employee’s space heater damages the landlord’s building)
– General liability ( Customer tripping on a tattered carpet)
.
Business Insurance Basics: What to Know
Business Property and Liability Insurance
There are three types of legal damages people may sue
you for that are typically covered by a CGL policy:
•
•
•
Compensatory damages: financial losses suffered by the injured party and
future losses they may suffer resulting from an injury they claim.
General damages: non-monetary losses suffered by the injured party, such
as “pain and suffering” or “mental anguish.”
Punitive damages: additional penalties and charges a defendant must pay.
(Coverage availability can be regulated by state statute)
Standard liability insurance does not protect a
business against:
•
•
•
Claims from sexual harassment, wrongful termination of employees, failure to employ
or promote, or race and gender lawsuits.
Claims related to operating an automobile or truck.
Professional Liability insurance — or Errors and Omissions insurance
Business Insurance Basics: What to Know
Business Property and Liability Insurance
Business Interruption/Continuation or Business Income Insurance
covers the loss of income that a company suffers after a catastrophe or
disaster while the establishment is being rebuilt. It is designed to put the
business back in the same financial position if no loss had occurred.
The following are typically covered under a business interruption insurance policy:
• Profits- Profits that would have been earned (based on prior months' financial
statements);
• Fixed Costs- Operating expenses and other costs still being incurred by the property
(based on historical costs);
• Temporary Location- Some policies cover the extra expenses for moving to, and
operating from, a temporary location;
• Extra Expenses- Reimbursement for reasonable expenses (beyond the fixed costs)
that allow the business to continue operation while the property is being repaired.
• This type of coverage cannot be bought separately, but can be added on to the
business ’property insurance policy or a comprehensive package policy.
Business Insurance Basics: What to Know
Business Property and Liability Insurance
Business Owner’s Policy (BOP): A Package Solution
• Many small business owners purchase a business package policy
called a “BOP” – a business owner’s policy. A BOP typically includes
property insurance, business interruption/continuation insurance,
crime, and liability insurance.
• Often it is a less costly option for small businesses than buying a set
of individual policies. Many insurers customize BOPs for specific
types of businesses.
• However, a BOP does not cover professional liability (liability claims
arising from wrongful practice by professionals), auto insurance,
workers’ compensation, health or disability insurance – all of which
need to be purchased separately.
Business Insurance Basics: What to Know
Business Property and Liability Insurance
Business Owner’s Policy (BOP): A Package Solution
• Not all businesses qualify for a BOP. For example, a factory or
jewelry store would probably not qualify for a BOP. Those businesses
– because of their unique risks – usually require more customized
coverage than what’s included in a standard BOP.
• A home-based business or a company with only a few employees
may start out with a BOP and then expand its coverage as it grows.
Business Insurance Basics: What to Know
Commercial Auto Insurance
Commercial Auto Insurance
All motorized vehicles, whether used for personal or business purposes, need auto
insurance. Automobile liability insurance is usually mandatory and covers medical
expenses for injured persons and damages to the property of other individuals as a result
of a motor vehicle accident caused by the insured’s negligence.
• While the types of coverage provided by personal and commercial auto insurance
policies are essentially the same, there are important distinctions. Typically,
commercial auto insurance policies have higher liability limits, for example $1 million.
They also may have provisions that cover rented and other non-owned vehicles,
including employees’ cars driven for company business.
• Several factors related to ownership and use of vehicles determine whether a
personal or commercial policy is appropriate. These include:
• Who owns or leases the vehicle – you individually or the business as an entity
• Who drives the vehicle – you or your employees
• How the vehicle is principally used – for example, transporting people, delivering
packages or carrying hazardous materials
Business Insurance Basics: What to Know
Group Health & Disability Insurance
Commercial Health
Providing health insurance for employees is the most expensive benefit offered
by employers. It is also a useful benefit to help attract and retain good
employees. The Affordable Care Act requires that many businesses offer
health insurance to their employees or pay a fine.
Health care reform includes several benefits for small business owners. Small
business owners may be eligible for a 50% tax credit if they choose to cover
their employees under a health insurance plan or a 35% for small tax exempt
employers. This tax credit is available to small businesses that have less than
25 full time employees. The credit is available for eligible employers for two
consecutive taxable years.
To be eligible for the credit the small employer must pay premiums on behalf of
employees enrolled in a qualified a Small Business Health Options Program or
qualify for an exemption to this requirement.
Business Insurance Basics: What to Know
Group Health & Disability Insurance
Furthermore, all small businesses that have 50 employees or
less are exempted from all employer mandates to provide
coverage in the new reform law.
The District of Columbia DC Health Link has made it easier
for a small business to offer expanded health insurance
options for employees without an undue administrative
burden. DC Health Link also allows small businesses to
obtain competitive insurance rates and not be subjected to
inflated prices for the same coverage offered to larger
companies.
Business Insurance Basics: What to Know
Group Health & Disability Insurance
Another health related insurance option for business owners to consider is
disability insurance. There are two types of disability insurance that cover your
employees should they become ill and unable to work:
•
Short term disability, which covers a portion of the employees salary for a
shorter period, usually 3-6 months following a disability. The specific time
period and percentage of salary replaced varies by policy. Generally short
term disability follows a period of sick days paid at 100% of salary.
•
Long term disability, which typically begins after a employee is disabled
and unable to work for at least 6 months. Long term disability can extend
for a number of years or until the employee reaches age 65 depending on
the terms of the policy.
Business Insurance Basics: What to Know
Group Life Insurance
Group Life Insurance
Some small business owners offer group life insurance to employees. Group life
insurance can be part of an employee benefit plan that is paid for by the employer or a
voluntary offering, whereby the employee pays for the coverage.
• For policies paid by a business owner, the benefit can often be equivalent to a full
year’s salary. These types of policies can be viewed as an added benefit or
“supplemental” to other life coverage an employee may already have.
• If an employee wants additional coverage on top of what an employer is willing to
purchase, for double or triple times his/her salary as an example, he or she may have
to pay for it individually instead.
• Group life insurance policies tend to be less expensive than those purchased
individually based on the fact that many group policies are only effective while an
employee within the group is employed at that particular company. Most group life
insurance is sold on a term basis. Term life insurance pays a death benefit if the
policyholder passes away within a specified time period.
Business Insurance Basics: What to Know
Home-Based Business Insurance
Home-Based Business Insurance
•
•
•
Home-based businesses – those exclusively run from a home and no other
location – comprise roughly half of all U.S. businesses and generate a huge
amount of economic activity.
Home-based businesses – like all businesses – should be properly insured
to protect their assets and their owners against certain risks. Often, homebased businesses are underinsured – a fact their owners discover after an
incident occurs when they realize the insurance they have is inadequate to
address the magnitude of the problem.
If your home-based business has employees, most states will require you to
purchase workers’ compensation insurance.
Business Insurance Basics: What to Know
Home-Based Business Insurance
•
Many home-based business owners believe that their homeowners or
renters insurance policy will adequately cover their home-based business.
However, that coverage is rarely enough. For example, most homeowners
insurance policies limit coverage due to damage or loss of business
property to $2,500 in the home and $250 away from their home.
– You may be able to add a simple endorsement to your existing
homeowners insurance policy that can increase the standard coverage
for business equipment.
– Some types of home-based businesses may be able to purchase a
homeowners liability endorsement to protect you in case someone gets
hurt in your home in the course of conducting business.
– In-home business policies
– Business Owner’s Policy (BOP)
– Business Interruption/Continuation Insurance
Business Insurance Basics: What to Know
Be an Educated Insurance Consumer
All Insurance Consumers Should:
•
Shop Around — Examine rates from several companies, making sure to
compare plans that offer the same coverage.
•
Protect Yourself — Stop. Call. Confirm.
disb.dc.gov
(202)727-8000
•
Review Annually — Each year, check your policies to make sure they
continue to meet your changing needs.
Business Insurance Basics: What to Know