What Is Commercial Insurance?

What Does Commercial Insurance Cover?

What a commercial insurance policy covers depends on what’s in a policy. For example, a convenience store owner will need certain coverages that a home-based, independent accountant may not require and vice-versa.

Policies are customized to meet a broad range of business needs to provide protection and financial support for potentially costly risks. For example, commercial insurance protects your assets and reputation if something goes wrong by giving you the support and funds you need to deal with an insurable loss or damage. It allows you to focus on serving your customers and running your business. 

What Are the Most Common Types of Commercial Insurance Coverages?

• Commercial general liability (CGL) insurance. CGL protects your business by providing financial support to cover the cost of third-party bodily injury or property damage claims resulting from your business’s operations and non-professional negligent acts. It also covers you for allegations of false advertising, and the products you manufacture, distribute, or sell provided you have product liability coverage as part of your policy.

• • Claims example: if a customer visits your business property and is injured after tripping over an extension cord and requires medical attention, or if a lawsuit is filed against you by a competitor for advertising misleading statements, CGL is designed to pay for your legal defence or damages to others if you’re liable. 

• Commercial property insurance. Commercial property insurance covers damage or loss to your business’s property (the building and attached physical structures), inventory, and contents from fires, water damage, natural disasters, theft, and vandalism. 

The coverage extends to your company’s assets and property, such as your office furniture and fixtures, computers and electronics, windows, outdoor signs, fences, and your employees’ personal property while they’re on the premises. 

• • Claims example: if a severe windstorm damages your property’s roof, commercial property insurance may pay for repairing or replacing the shingles or roof up to your policy’s limit.

• Errors and omissions (E&O) insurance. Also called professional liability insurance, E&O insurance protects you from claims arising from allegations of professional negligence. It’s considered a supplement to CGL insurance as it covers your services for mistakes, omissions, acts of negligence, or failing to deliver a service as promised.

• • Claims example: if you’re a financial advisor providing investment advice to your clients that leads to someone losing their retirement savings and they sue you for compensation, E&O insurance is designed to pay for your legal defence and damages awarded to the plaintiff. 

• Cyber liability insurance. Cyber liability insurance is a must-have for any organization with a website, that is involved in e-commerce, and uses or stores customers’ personal and financial information. Cybercrime is a threat to all businesses and self-employed professionals. This coverage is designed to shield you from monetary damages resulting from a cyber-attack or data breach by covering the cost of your legal fees, credit monitoring, notification costs, crisis management expenses, and repairs to your affected software systems.

• • Claims example: imagine if one of your employees unknowingly clicks on a link in an email phishing attack that installs malware on their work computer, resulting in your company’s and customers’ data being stolen. Cyber liability protection covers direct losses from legal challenges related to the event and the cost of restoring your software and network.

• Commercial auto insurance. If your business owns a small fleet of vehicles, a single utility van or pickup truck, or if you use your personal vehicle to do your job, you need commercial auto insurance. Any vehicle used to transport goods, materials, tools and equipment, or people for work purposes, likely requires a commercial auto policy. The main difference between your private-passenger car insurance and a commercial auto policy is the latter covers multiple drivers and typically has higher liability coverage limits.

• • Claims example: if you’re a contractor who uses their pickup truck to travel to and transport materials and equipment from one job site to another, or if you’re an occasional rideshare driver (Uber, Lyft, etc.) and get into an accident, commercial auto insurance may cover the cost of those damages.

• Tools and equipment insurance. General contractors, renovation experts, and skilled trades professionals all possess expensive tools and equipment they need to do their jobs. That’s why it’s vital to protect yourself from the cost of having to repair or replace them if they are stolen, lost, vandalized, damaged by a fire or flood, whether stored at a job site or while in transit. 

From hand and power tools and safety gear to heavy construction equipment like bulldozers and backhoes, tools and equipment insurance protects against damage and loss whether you own, lease, or rent them.

• • Claims example: if you leave your hand tools and a backhoe secured overnight at a job site and return the following day to find they’ve been stolen, tools and equipment coverage is designed to pay to replace the stolen items.

• Equipment breakdown insurance. Equipment breakdown insurance covers losses you suffer because of breakdowns, electrical arcing, mechanical ruptures, and other internal damage to nearly any equipment. 

A wide range of businesses and professionals should have this protection. From contractors, restaurant owners, and commercial property owners, equipment breakdown coverage protects things like office equipment, HVAC systems, kitchen appliances, boiler and pressure equipment, and heavy construction vehicles if they’re damaged by mechanical malfunctions or electrical shorts and surges.

• • Claims example: if your office’s HVAC system ceases to work because of a mechanical glitch or failure, equipment breakdown insurance may pay to repair the system. However, it does not cover losses to equipment related to operator error, wear and tear, or fire and water damage.

• Legal expense insurance. Often an inexpensive add-on to your overall policy, legal expense insurance provides financial support to hire an experienced lawyer for a broad range of common legal challenges, including tax audits and decisions, employment disputes, debt recovery, and client contract disputes. 

Hiring and retaining legal counsel can run into thousands of dollars. Legal expense insurance is recommended if you don’t have an internal legal team, need legal advice, or wish to pursue legal action against another organization or individual.

• Commercial crime insurance. According to studies, 64% of small business employees steal from their workplaces, and business owners worldwide lose an estimated 6% of their annual revenues to employee embezzlement. 

Commercial crime insurance is a financial backstop to protect your company from financial and inventory losses arising from internal theft, forgery, fraud, and other acts of employee dishonesty. It can be purchased separately or added as an endorsement to your overall policy. Organizations that deal in cash or digital payments are usually the most susceptible to internal theft and fraud. 

• Directors and officers (D&O) insurance. Sometimes called management liability insurance, D&O insurance protects an organization’s board of directors and senior executives from incurring personal financial losses from a lawsuit.

This type of coverage is applicable for any for-profit or nonprofit organization’s directors and officers to shield them from allegations of breach of legal or fiduciary duties, securities violations, wrongful dismissal claims, or decisions that cause financial harm to an organization’s stakeholders.

• • Claims example: suppose an organization’s directors and officers are accused of a wrongful act, such as misrepresentation to shareholders or failing to comply with federal or provincial workplace safety regulations and are subsequently sued. In that case, D&O insurance is designed to cover their legal defence fees regardless of the outcome of that legal action. However, D&O insurance does not cover claims or lawsuits resulting from fraud or intentional criminal activity.

Determining What Kind of Commercial Insurance You Need

To figure out what kind of insurance you need for your small business or profession, start by considering your industry, the products and services you provide, and who your customers are.

It also helps to get an overview of some of the most common commercial insurance terms you’ll come across in any policy. Let’s be frank: reading a small business insurance policy can be confusing when you’re unfamiliar with terms such as additional insured, certificate of insurance, or deductible.

However, you can streamline the entire process by partnering with a business insurance brokerage like Zensurance. That may lead you to ask, ‘what’s the difference between an insurance broker and an insurance company?’. Fair question. The difference is a broker works for you, and unlike an insurance agent, they do not work for one insurance company. Instead, a broker works with several insurers to find the coverage you need at the best price. On that note, more than 50 insurance carriers are in Zensurance’s partner network. That gives you a wider range of options versus buying a policy directly from one insurance company.

Give it a try! Whether you’re looking to switch insurance companies, need to renew your policy, or are simply curious about your options, submit an online application in a few clicks, and get a free quote for commercial insurance tailored for your industry from Zensurance.

— Reviewed by Matt Jardine, Team Lead, Property & Hospitality, Zensurance.