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Insurance Coverage Small Businesses Might Need (But Often Don’t Have)

By | 03.11.21

Insurance Coverage Small Businesses Might Need (But Often Don’t Have)

By Katherine Jones, Coterie Insurance

Small businesses are often required to have some degree of commercial business insurance. However, even with General Liability Insurance, a Business Owners Policy, or Professional Liability Insurance, there may still be some gaps in coverage — gaps that could lead to costly claims and litigation.

Additional insurance coverage covers the risks that remain even after you buy small business insurance. This is something you should consider as your business grows and evolves.

When Do You Need Additional Small Business Insurance Coverage?

Your state, lenders, landlord, or customers may require you to carry some degree of insurance coverage. Unfortunately, it’s not always enough to protect against every risk that threatens your business — or even hazards unique to your niche or area of expertise.

Do you produce specialty products or work with cutting-edge processes and technology? Are you spearheading advancements in your industry? Or do you simply see gaps in your existing coverage that could potentially threaten your continued success?

Examine your business to determine if there’s anything not covered by your current small business coverage. If you notice any risks or perils not currently covered by your existing insurance, it may be time to consider additional or specialized coverage.

Should You Purchase an Endorsement or Separate Policy?

Additional insurance coverage is usually available through separate policies. Like many other insurance products, purchasing a separate policy often requires a new application and underwriting process, as well as a new premium for the additional policy.

Sometimes, the same or similar coverage may (or may only) be available through a policy endorsement. An endorsement, or rider, changes, adds, or removes coverage to your policy. Endorsements increase your premium, but are typically less expensive than an entirely separate policy and require less underwriting.

Coverage provided through an endorsement may be more specific or limited than purchasing an entirely separate policy. However, endorsements are often written to be customized to meet your exact needs, so you’re not paying for unnecessary coverage.

Endorsements are also a great way to increase your coverage as your business grows and becomes exposed to a greater number of risks or more complex hazards.

Types of Additional Small Business Insurance Coverage

The needs of one business differ compared to another, even if both businesses are part of the same industry.

Pauline’s Cleaning Service, LLC may face a different set or severity of risks compared to Nathan’s Cleaning Service, LLC. Pauline may have invested in expensive cleaning equipment, whereas Nathan’s business leases vehicles for company purposes.

Because your business is exposed to risks specific to you, it’s important to look over your existing insurance policies to see where you lack coverage. If so, bridge any gap with an endorsement or additional policy.

Products-Completed Coverage

Products-Completed coverage, or Completed Operations Insurance, protects you and your business after you’ve completed a product or project located outside of your business’s premises.

Consider a mason who builds new stone steps for a home. After completing the job, the mason moves on to another project for a different customer or dials back his work for the season. Months later, the homeowner injures herself when the steps fall apart beneath her.

The mason’s Products-Completed coverage would kick in to cover the cost of the homeowner’s medical expenses and the mason’s legal defense, as well as the cost of repairing the damage done to the steps and home — even though it’s been months since the project was finished.

In many cases, Products-Completed coverage can be purchased on a per-project and short-duration basis. Short-duration Products-Completed Insurance limits coverage to a single project at a defined location. It’s ideal for those small businesses that don’t need continual Products-Completed coverage (for example, businesses that only operate seasonally).

Key Person Coverage

Key Person, or key man, Insurance is a life insurance policy for a “key person” whose death would deal a significant blow to the success of a business.

With Key Person coverage, a business pays the policy’s premium and receives the policy’s benefits upon the death of the key person. Benefits are often intended to return business operations to normal after the key person’s death.

Key Person benefits may be used to:

  • Hire and train a replacement for the key person’s role
  • Pay off the business’s debts
  • Help the business close without declaring bankruptcy
  • Assist surviving shareholders with buying out the deceased’s shares
  • Cover a personal guarantee held by the deceased
  • Offset lost revenue

Owners, founders, directors, and other critical employees (such as top salespeople) are excellent candidates for a Key Person endorsement or policy. If someone’s death (including your own) would significantly damage your business’s ability to stay afloat, Key Person coverage may limit the financial blow (if not the emotional pain).

Business Personal Property Coverage

Business Personal Property, or BPP coverage, protects the contents of your building or place of business — not the building itself. BPP coverage doesn’t cover the building’s actual fixtures, but does cover tangible property, such as machinery, tools, and equipment. It may also cover intangible property, such as intellectual property.

A BPP policy or endorsement typically covers all perils, with the exceptions of wear-and-tear, flooding, war, and earthquakes. If a fire rips through your building, your BPP coverage would pay for the repair and replacement of office furniture, machines, computers, and other contents; it would not cover damage done to the actual building itself.

Building Personal Property coverage may be an endorsement included as part of a Business Owners Policy, but may also be purchased separately.

Contractors Installation, Tools, and Equipment Coverage

Contractors Installation, Tools, and Equipment coverage, or Contractors Equipment Insurance, is specialized coverage for mobile property and equipment.

Your property coverage under another insurance policy, such as your BOP, is typically limited to tools and equipment stored on the protected premises (your workshop or store, for example). However, contractors often leave property on a job site, exposing it to vandalism, theft, fire, and other dangers.

Contractors Installation, Tools, and Equipment Insurance protects your property when stored off-site. It can be used to repair or replace equipment — ranging from hammers and drills to excavators and pavers — and installations, such as fixtures and sinks. Contractors Equipment Insurance does not cover wear-and-tear.

Following a covered event, equipment less than five years old is typically replaced based on its replacement cost value, which is the cost of a like replacement. Older equipment may be repaired or replaced based on its actual cash value — the cost of the tool at the time of purchase minus its accumulated depreciation.

Contractors Equipment endorsements or policies may even extend coverage to rented or leased equipment.

Freelance Liability Insurance

Freelancers, or 1099 contractors, are self-employed professionals that share many of the same exposures as other small business owners.

For example, some freelancers may not often be at risk from physical perils, but may still be at risk of causing reputational harm. Or a freelancer’s negligence could result in a client missing a deadline and losing out on a lucrative deal.

In either case, the freelancer could be held liable for damages.

Independent Contractor Insurance covers those risks through a combination of General Liability Insurance and Professional Liability Insurance.

In addition to covering physical risks (such as a customer tripping and injuring themselves), General Liability coverage protects against allegations of reputational harm — libel, slander, and false advertising. Professional Liability Insurance protects against errors and omissions and breaches of contract — claims made as a result of your profession.

Depending on your business setup and current insurance coverage, you may even be able to add Freelance Liability coverage through an endorsement to your homeowners’ policy or Business Owners Policy.

Hired and Non-owned Auto Coverage

Some small businesses rent vehicles or require employees to use their personal vehicles for business purposes. However, if one of these vehicles is involved in an accident, a claim for damages may be made against your business.

Hired and Non-owned Auto coverage, or HNOA, protects your business from being held liable for any claims arising from the accident, as well as any subsequent judgments or settlements. It doesn’t pay for the damages done to a rented or an employee-owned vehicle, nor for any damages done to company property during transport.

Vehicles owned by your company aren’t covered by your HNOA coverage, but would be covered under a separate Commercial Auto Insurance policy.

Hired and Non-Owned Auto coverage may be purchased as an individual policy. You can also add it as an endorsement to your General Liability coverage.

Additional Insured Endorsements

Before giving you their business, a customer or client may require you to name them as an Additional Insured on your General Liability policy. This is accomplished through a policy endorsement.

Coverage for Additional Insureds is provided by either naming specific clients directly or via blanket coverage, which extends your policy’s coverage to a group of Additional Insureds.

When you extend your coverage to an Additional Insured, the Additional Insured is protected by the same events outlined by your policy. If a claim is made against them for a covered event, your GL policy would pay for the defense of the Additional Insured, including any judgment or settlement.

For example, a customer may trip over a contractor’s toolbox while the contractor is performing work in a store. However, because the contractor named the store as an Additional Insured on his General Liability policy, his GL coverage would protect the store from any claims arising from the customer’s injuries.

Though Additional Insureds benefit from your insurance coverage, they’re unable to change, cancel, or otherwise affect your policy. You remain the policy owner.

Equipment Breakdown Coverage

Equipment Breakdown coverage is a modernized form of what was once Boiler and Machinery Insurance. Where BPP coverage protects your equipment from named perils, such as fires and weather, Equipment Breakdown coverage repairs or replaces equipment that breaks down, in addition to property damaged by the breakdown.

Equipment Breakdown coverage may also cover lost income or additional expenses incurred as a result of a breakdown.

For example, if a short circuit damages a fridge containing inventory slated for delivery to a customer, your Equipment Breakdown coverage would pay for repairing or replacing the fridge. Depending on your coverage limits, your coverage may also cover any lost income and the cost of replacing the ruined products as a result of the breakdown.

Similarly, if a power surge damages a bank of computers and peripherals — printers, networking equipment, and monitors, for example — Equipment Breakdown coverage would kick in to repair and replace the damaged items.

Equipment Breakdown Insurance is sold as a separate policy or as an endorsement to an existing policy, such as your Business Owners Policy.

How to Buy Additional Small Business Insurance Coverage

Small business insurance is designed to be custom-tailored to fit the unique needs of your business. If your business has grown or otherwise changed, it’s a good idea to reevaluate your insurance coverage to identify if you’re exposed to any gaps in coverage.

Consider, too, the increased severity or complexity of any perils that may potentially jeopardize your business. If you initially took out a General Liability policy when you first got into business with nothing more than a work truck and a toolbox, you likely need additional protection, especially if you’re now driving bulldozers around job sites.

Endorsements may be added to a policy at the time you request a quote. In other cases, you may need to contact your insurer to discuss your options and whether or not additional coverage should be provided through an endorsement or a separate standalone policy.

By identifying and bridging the coverage gaps your business faces, you’re protecting the continued success and growth of your business and all of the hard work that’s gone into it over time.

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