March 2005    Vol. 14, No. 3  REAP HOME PAGE  A publication of the Center for Rural Affairs    
REAP Rural Business Roundtable

Topic:  Let's Talk More about Small Business Insurance Needs

Take a couple of minutes to review the basic types of commercial coverage a small business may need to consider, including:

General liability and property coverage: Liability insurance protects you if someone gets hurt while using your product or service or if someone is injured while on your property. (Remember that many types of businesses may offer implied permission to visitors and passersby, creating opportunities for this kind of incident to occur.)

If you are found to be liable, the insurer will pay these damages for you, as well as cover your legal defense, if necessary. Be sure that your coverage applies to all of your physical assets: building, equipment, furnishings, fixtures, inventory, and employee actions.

Remember, you can be liable for your employees’ acts even if you do not specifically authorize what they do. Your customers and the public have a reasonable expectation that your employees will act in your stead.

Umbrella policy: Umbrella policies provide additional liability coverage even though the limits of an underlying policy may not be set that high. This type of coverage is called an “umbrella” because it opens up over these other coverages to protect you.

For example, suppose your business insurance provides up to $100,000 worth of coverage against liability, but someone injured on your property establishes a $125,000 claim against you for personal injury. In such a case, your umbrella policy would step in and provide the additional $25,000 worth of coverage.

Automobile coverage: Employers too often do not take into account their vehicle needs and liability even though vehicles may be a key element of the business plan. This can range from pizza deliveries to newspaper reporters racing across town to cover traffic accidents.

Who covers the use of these vehicles? Many small employers try to hedge their bets in this area, and simply decline to consider their exposure. But there is a risk and a liability to be considered.

For very small businesses and where the business use of vehicles is minimal, you can probably include it in your personal auto coverage. If the commercial use exceeds those limits, you are much better advised to seek the coverage that fits.

Professional liability: Certain kinds of professionals face a particular kind of liability. Lawyers, doctors, dentists, or even insurance brokers and agents — these kinds of professional people must have a certain level of qualification to practice their trade, and because they do, their customers have the right to expect they will act within certain parameters of competence.

When someone’s actual performance falls below these levels, their customers and clients may seek damages against the person or the business. Coverage that protects the business or the professional is sometimes called “malpractice insurance.” (Another popular name for this is: “errors or omissions” coverage.)

In a nutshell, this coverage protects these professionals against those circumstances where they face professional liability claims.

Life insurance: Even small companies may want to invest in life insurance when the owners or operators of the business are crucial to the success or failure of the enterprise. When companies invest in life insurance, it is usually through “key-man” policies, so called because the business itself is the beneficiary in the event that the key person or people die. The coverage will help the business replace those people as well as deal financially with the loss of their expertise.

Business interruption: If you are unable to operate your business as a result of a covered peril (fire, storm damage, vandalism, or other causes), business interruption insurance steps in to help you cover the losses. Many small businesses often trim this coverage from commercial packages in the hope of pinching pennies. However, this kind of coverage may prove invaluable if the business suffers because customers are denied access to your business.

Cases of business interruption that have occurred in recent years ranged from forest fire lines emergency workers set up in one Central Washington community, blocking access and preventing customers from reaching retail outlets, to the 1999 civil disturbances in downtown Seattle, preventing shoppers from reaching businesses during their peak Christmas shopping season.

One caution: Business interruption losses are not always easy to claim. For example, it is hard to establish the precise amount of business lost. Many insurers will require businesses to document these claims very carefully. You should be prepared to research records back several years before an insurer will accept a claim that otherwise merely shows a temporary dip in business.

Workmen’s Compensation insurance: Protects your employees if they suffer job-related injuries. The policy pays the medical bills for the employee who is injured on the job. If there is time off from work due to that injury, the insurance pays disability income to the injured worker.

Good insurance decisions are based on your analysis of the types of coverage that are appropriate for you and your business.

Reference: This fact sheet was prepared in part by the Office of the Insurance Commissioner in Washington State. The Nebraska Department of Insurance website is

Roundtable Topic Questions

  1. Discuss the types of business insurance presented in this fact sheet.
  2. Do the exercise of ranking businesses by risk exposures and discuss (see below).
  3. Members may tell insurance related stories or examples they know of to help other members with this topic.
  4. Members of your group may offer suggestions or share their methods in helping determine adequate coverage.

Explanation of terms:

  • Exposure is the risk of loss
  • Liability
    • Premises (ex. slip & fall)
    • Products (ex. a fire caused by a faulty candle you sell)
    • Advertising (ex. libel & slander (only if false))
  • Physical Damage (ex. fire, wind, hail, lightning)
    • Building
    • Business Personal Property
    • Business Interruption
  • Commercial Auto (ex. liability, collision)
  • Worker’s Compensation (ex. injury to your employee)

Group Exercise: On the scale of 1 to 3, rate the exposure of the following businesses for risk of possible loss, 1 being low risk and 3 being the highest.

Keep in mind that many businesses similar in nature may have their own unique risk of exposure and may need to address special considerations. For this exercise, you are to think in terms of average day-to-day circumstances. This is to be used for discussion only.

____ 1. Flower Shop                                     ____ 6. Roofing Company

____ 2. Family Restaurant                              ____ 7. Roller Skating Rink

____ 3. Convenience Store /Gas Station *      ____ 8. Book Store

____ 4. Muffler /Brake Repair Shop *            ____ 9. Hardware Store

____ 5. Lawyer’s Office *                              ____ 10. Dentist’s Office *

* Special considerations need to be addressed for these businesses, i.e. a lawyer's office and dentist should consider professional liability.

Answers: 1.1 2.2 3.2 4.2 5.1 6.3 7.3 8.1 9.1 10.1

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