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What is Business Insurance?

Business Insurance Overview

The term “business insurance” pertains to protecting against operational losses by a business. What type of loss is covered by a business insurance policy depends on the insurance company, the policy wording, and local limitations.

Common Coverage Types

There are several types of business insurance, each limiting coverage stipulations and restrictions. The most common types are:
1. Key Person Insurance: A business Key Person is considered so important to the company that loss the person could cause considerable damage to the company’s financial future. Benefits are paid if the Key Person covered experiences a disability that prevents working or if the Key Person dies. The remaining partners or owners can use the benefits only for legitimate business expenses, such as buying the disabled person’s stake in the business or hiring and training expenses for a replacement. Key Person Insurance is sometimes also called a Buy/Sell Agreement.
2. General Liability Insurance: This coverage protects the business against liability claims, negligence, manufacturing or personnel error, bodily injury, or even property damage. Liability insurance often covers the policy holders’ legal fees if the liability or event is covered under the policy.
3. Product Liability: Coverage protects against faulty products and damage, injury, or death from use of the faulty product.

Calculating Rates

Insurance companies use actuary tables configured from data using historical information and projected risks regarding similar businesses who have suffered covered losses and the costs incurred and quote an applicable rate per unit of coverage. The number of insurance companies who issue business insurance can influence business insurance rates as can the size and type of business, to name a few.

There are several categories of risk identification factors that combine into determining coverage approval and policy rates. Among them are business experience, operational hazards, and even location. Obtaining financing for business start-ups can sometimes rest on the business plan requiring purchasing viable business insurance.

Conclusion

Because business insurance spreads the risk costs among all businesses with coverage policies, a business may experience rate increases when no claim was filed against that business. However, the replacement costs for the individual business are generally considerably higher, making purchasing business insurance a wise decision for many business owners, whether involving a large, established business or a small business just starting.