05-Coverage-Types

Understanding Insurance Coverage Types

This guide explains all the different types of insurance coverage you can offer clients. You'll learn what each covers, who needs it, and how to recommend the right amount.

The Main Coverage Types

1. General Liability Insurance

What It Is: The most basic business insurance. Think of it as protection against everyday accidents and lawsuits.

What It Covers: - Customer injuries on your property - Damage to other people's property - Advertising injuries (like libel or slander) - Product-related injuries - Legal defense costs

Real-Life Examples: - A customer slips on a wet floor and breaks their arm - Your employee accidentally damages a client's expensive equipment - Someone claims your ad copied theirs

Who Needs It: - Almost EVERY business - Required for most commercial leases - Required for business licenses - Required for contracts

Typical Coverage Amounts: - $1 million per occurrence (per incident) - $2 million aggregate (total per year) - $5,000-$10,000 deductible

Cost Factors: - Type of business - Number of employees - Annual revenue - Claims history - Location

2. Property Insurance

What It Is: Protects the physical assets of the business - buildings, equipment, inventory.

What It Covers: - Building damage from fire, storms, theft - Equipment and machinery - Furniture and fixtures - Inventory and supplies - Lost income during repairs

Real-Life Examples: - Fire destroys the restaurant kitchen - Thieves steal computers from the office - Storm damages the roof - Pipe bursts and floods the store

Who Needs It: - Anyone who owns a building - Businesses with expensive equipment - Retailers with inventory - Any business with physical assets

Coverage Types: - Replacement Cost - Pays to replace with new - Actual Cash Value - Pays current value (depreciated) - Business Income - Covers lost revenue during repairs

Typical Coverage Amounts: - Building: Full replacement cost - Contents: $50,000-$500,000 - Business Income: 3-12 months of revenue

3. Workers' Compensation

What It Is: Covers employees who get hurt or sick from their job. Required by law in most states if you have employees.

What It Covers: - Medical expenses - Lost wages (usually 66% of regular pay) - Rehabilitation costs - Death benefits to family - Legal costs if employee sues

Real-Life Examples: - Cook burns hand on stove - Office worker develops carpal tunnel - Delivery driver injured in accident - Employee slips in stockroom

Who Needs It: - Required if you have employees (even just one!) - Some states exempt very small businesses - Owners sometimes excluded (check state laws)

Cost Factors: - Industry risk level (office vs. construction) - Payroll amount - Claims history - State regulations

Classification Codes: Each job type has a code and rate: - Office workers: Low risk, low rate - Roofers: High risk, high rate - Retail: Medium risk, medium rate

4. Commercial Auto Insurance

What It Is: Covers vehicles used for business purposes.

What It Covers: - Vehicle damage (collision and comprehensive) - Liability for injuries to others - Medical payments - Uninsured motorist protection - Rental car coverage

Real-Life Examples: - Delivery van hits another car - Company truck is stolen - Employee has accident while on business errand - Van vandalized in parking lot

Who Needs It: - Businesses with company vehicles - Delivery services - Contractors with work trucks - Any employee driving for business

Important Note: Personal auto insurance usually DOESN'T cover business use!

Coverage Limits: - Liability: $1 million minimum recommended - Comprehensive/Collision: Actual vehicle value - Medical: $5,000-$10,000 per person

5. Professional Liability (Errors & Omissions)

What It Is: Covers mistakes in professional services. Also called E&O insurance.

What It Covers: - Professional mistakes or negligence - Failure to deliver services - Giving bad advice - Missing deadlines - Document errors

Real-Life Examples: - Accountant makes tax error costing client money - Consultant's advice causes business loss - Architect's design has structural flaw - IT company loses client data

Who Needs It: - Consultants - Accountants and CPAs - Lawyers - Architects and engineers - IT professionals - Real estate agents - Medical professionals

Typical Coverage: - $1 million per claim - $1-2 million aggregate - Prior acts coverage (covers past work)

6. Cyber Liability Insurance

What It Is: Protection against digital threats and data breaches.

What It Covers: - Data breach response costs - Customer notification expenses - Credit monitoring for affected customers - Legal fees and fines - Lost income from system downtime - Ransomware payments

Real-Life Examples: - Hacker steals customer credit card data - Employee loses laptop with sensitive information - Ransomware locks company computers - Email hack leads to wire fraud

Who Needs It: - Any business storing customer data - Online retailers - Healthcare providers - Professional services - Any business using computers!

Coverage Components: - First-party coverage - Your direct costs - Third-party coverage - Claims against you - Business interruption - Lost income

Typical Limits: - Small business: $250,000-$1 million - Medium business: $1-5 million - Large business: $5 million+

7. Umbrella/Excess Liability

What It Is: Extra liability coverage that goes above your other policies.

What It Covers: - Claims exceeding other policy limits - Some claims not covered by other policies - Legal defense costs - Worldwide coverage usually

Real-Life Examples: - Major accident exceeds auto policy limit - Large lawsuit exceeds general liability - Multiple injury claims from one incident

Who Needs It: - Higher-risk businesses - Businesses with significant assets - Companies with multiple locations - Businesses with many employees

How It Works: - General Liability: $1 million limit - Umbrella adds: $5 million more - Total protection: $6 million

8. Business Interruption Insurance

What It Is: Covers lost income when you can't operate due to covered damage.

What It Covers: - Lost revenue - Fixed expenses (rent, salaries) - Temporary relocation costs - Extra expenses to stay open

Real-Life Examples: - Fire closes restaurant for 3 months - Flood damages store requiring repairs - Power outage spoils inventory - Key equipment breaks down

Coverage Period: - Usually 12 months - Can extend to 24-36 months - Starts after waiting period (48-72 hours)

9. Employment Practices Liability (EPLI)

What It Is: Protects against employment-related lawsuits.

What It Covers: - Wrongful termination claims - Discrimination allegations - Sexual harassment claims - Wage and hour disputes - Breach of employment contract

Who Needs It: - All businesses with employees - Especially important for: - Growing companies - High-turnover industries - Companies without HR departments

Typical Claims: - Employee claims age discrimination - Former employee sues for wrongful termination - Sexual harassment allegation - Failure to promote claim

Specialty Coverage Types

Product Liability

Manufacturers
Distributors
Retailers Covers injuries from products you make or sell

Liquor Liability

Bars and restaurants
Event venues
Liquor stores Covers incidents related to alcohol service

Directors & Officers (D&O)

Corporations
Nonprofits
Companies with boards Protects leaders from personal liability

Crime Coverage

Cash-heavy businesses
Retail stores
Any business with employees Covers employee theft and fraud

Equipment Breakdown

Manufacturers
Restaurants
Medical offices Covers mechanical/electrical breakdown

How to Determine Coverage Needs

Step 1: Identify Risks

Ask these questions: 1. What could go wrong? 2. What would it cost? 3. How likely is it? 4. Can the business afford the loss?

Step 2: Check Requirements

Look for mandatory coverage: - State laws (workers' comp) - Lease requirements - Contract requirements - Loan requirements - Professional licensing

Step 3: Consider Industry Standards

Common coverage by industry:

Restaurant: - General Liability - Property - Workers' Comp - Liquor Liability - Equipment Breakdown

Construction: - General Liability - Workers' Comp - Commercial Auto - Tools & Equipment - Builders Risk

Professional Services: - General Liability - Professional Liability - Cyber Liability - Business Property

Retail Store: - General Liability - Property Insurance - Workers' Comp - Crime Coverage - Business Interruption

Step 4: Calculate Coverage Amounts

General Liability: - Minimum: $1 million - Standard: $2 million - High-risk: $5 million+

Property Insurance: - Building: Full replacement cost - Contents: Actual value of everything - Add 10% for inflation

Workers' Comp: - Set by state law - Based on payroll - No choice in limits

Business Income: - Calculate monthly expenses - Multiply by recovery months - Add 25% buffer

Package Policies

Business Owner's Policy (BOP)

Combines common coverages at discount: - General Liability - Property Insurance - Business Interruption

Good For: - Small businesses - Low-risk operations - Standard businesses

Not Available For: - Restaurants (usually) - Auto-related businesses - High-risk operations

Commercial Package Policy (CPP)

Customizable package including: - Any combination of coverages - Single policy convenience - Usually better pricing

Coverage Exclusions to Know

General Liability Doesn't Cover:

Employee injuries (need workers' comp)
Auto accidents (need commercial auto)
Professional mistakes (need E&O)
Employee actions (need EPLI)

Property Insurance Doesn't Cover:

Floods (need separate flood insurance)
Earthquakes (need earthquake coverage)
War and terrorism (sometimes available separately)
Wear and tear

Deductibles Explained

What's a Deductible? Amount business pays before insurance kicks in.

Types: - Per Occurrence - Pay once per incident - Aggregate - Total for the year - Waiting Period - Time-based (business interruption)

Choosing Deductibles: - Higher deductible = Lower premium - Lower deductible = Higher premium - Balance affordability with risk

Typical Amounts: - Small business: $500-$2,500 - Medium business: $2,500-$10,000 - Large business: $10,000+

Tips for Recommending Coverage

Start with Essentials

General Liability (always)
Property (if they have assets)
Workers' Comp (if employees)
Auto (if vehicles)

Add Based on Risk

High customer interaction? Higher liability
Expensive equipment? Equipment coverage
Handle data? Cyber liability
Professional services? E&O

Consider Growth

Room to grow in limits
Easy to add coverage
Scalable policies

Bundle When Possible

BOP for small businesses
Package policies for larger
Multi-policy discounts

Common Questions

Q: Can they skip coverage to save money? A: Some coverage is required by law. Others protect their life savings. Explain risks of going without.

Q: How much is enough? A: Enough to cover worst-case scenario without bankrupting the business.

Q: Why so many different policies? A: Each covers different risks. Like tools in a toolbox - need the right one for each job.

Q: Can one policy cover everything? A: Package policies combine several, but usually still need some separate coverage.

Red Flags

Watch for businesses that: - Want bare minimum everything - Don't understand their risks - Have had many claims - Operate in multiple high-risk areas - Don't follow safety standards

Next Steps

Identify all business risks
Determine required coverage
Recommend appropriate limits
Explain each coverage clearly
Show value vs. risk

Remember: Your job is to protect the business. Better to have coverage and not need it than need it and not have it!