The benefit and importance of a commercial insurance policy is clear, but tricky
Navigating the commercial insurance market can be tricky under the best of circumstances, and those of 2020 were anything but. A report on the state of the Canadian insurance market in 2020, published in September, pointed to various difficulties across all sectors of the Canadian economy. These problems are deep and wide, and they have certainly not made the prospect of getting a commercial insurance policy any easier.
Perhaps you’ve started a new business, and you’re curious as to which kinds of insurance you need. Maybe you’re looking to update your commercial insurance policy. Either way, you’ll have a number of questions—likely about what you need, how the insurance works, what it covers, and how much it costs. The following eight questions are all worth considering before you sign any commercial insurance policy:
1. What insurance do I need?
An insurance agent can help you to navigate this decision, but it’s worth thinking the question over before you start the process. Here are some types of commercial insurance that you might want to consider, depending on your needs:
- Extra expense insurance—This covers extra expenses that you might face if you’re restarting operations after a loss—for which you’re insured—has occurred.
- Business interruption insurance—If your business is temporarily shut after an insured loss, this type of insurance can help to compensate you for income lost during that time.
- Liability insurance—You could be deemed liable for “any bodily injury or property damage resulting from a business interaction,” according to the Insurance Bureau of Canada. There are policies that cover costs incurred in any legal defense you need to mount, as well.
- Errors and Omissions (E&O) insurance—E&O insurance is one type of so-called “professional liability” insurance, a broader category that will vary from industry to industry and business to business. E&O insurance would cover a case where you gave inaccurate or incomplete advice to a client, and they suffered because of it. “Malpractice insurance,” meanwhile, may be available to you depending on your profession, and covers damage caused by a treatment or service that has gone wrong. (2)
2. Are there perils for which I can’t purchase insurance?
A brief note on perils, risks, and hazards—as defined in the Insurance and Risk Management Institute’s glossary of terms, these mean the following:
- Peril—The cause of a loss, like a fire or windstorm
- Risk—“Uncertainty arising from the possible occurrence of given events”
- Hazard—A condition that increases the likelihood of a loss
You might then wonder if there are specific perils for which you simply can’t buy insurance. The simple answer is that no insurance policy covers literally everything. Some cover more, and some cover less, but there will always be perils that fall outside of your policy, so be sure you understand its limitations before you sign.
3. Is water damage covered?
Water damage can be a major problem for your business, and extreme weather events aren’t happening any less frequently just because there’s a pandemic. Whether or not it’s covered will depend on your policy, so it’s worth asking for specific information about what is and isn’t covered to ensure that you have everything you need.
- If an insured peril (like wind) rips open a wall, water enters your storage area, and inventory is destroyed, this could be covered.
- If you have sewer backup coverage, you could be covered if water or sewage has backed up through your flood drains.
4. Do I have to accept a first offer?
You do not. You should make a decision based on the coverage that you need, and on what you can afford. You should also be sure to speak with your agent to ensure that he or she understands all the options available that apply to your specific case.
5. My business is based in my home—do I need more coverage?
The following question comes up quite frequently when someone operates their business out of their home.
Won’t my homeowner’s insurance cover everything I need?
The answer to that one is simple: no.
A fuller answer would be that your homeowner’s insurance is not designed to accommodate your needs. Plus, your home is no longer what it was when it was originally insured; it’s now a home and a business.
Commercial insurance should be the primary consideration for any business. You should also make sure that you look at liability insurance. For example, if someone slips and falls on your property when making a delivery for the business, you’ll want to make sure that you’re covered.
6. What is a deductible?
A deductible, the “portion of a claim that you have to pay,” has an inverse relationship to your premium—that is, the cost of your insurance itself. This means that the higher your deductible is, the lower your premium will be.
Make sure that you can pay the deductible out of pocket; your insurance isn’t worth much if you can’t make a claim, because you can’t afford the deductible.
7. How can I keep my costs down?
It makes sense to choose the highest deductible that you can, while also managing the risks of potential losses you may face. This is something that your insurance agent can help with as well. Consider arranging an inspection, since it’s in their best interest to minimize the risks that you face. After all, if you don’t need to file a claim, the insurance company saves money.
8. What about COVID-19
There’s plenty of uncertainty surrounding commercial insurance and the pandemic. While you may not be able to find out everything you want to know in advance, you can ask an agent about any limitations pertaining to something like business interruption insurance with regards to COVID-19.
It makes sense to speak with your insurance agent at length before you sign anything, and remember that you don’t need to accept what you’re initially offered. Work through the questions above, and consider any others that you think could be specific to your situation; once you’ve done your research and informed yourself properly, you’ll be much better positioned to choose a policy that makes sense for your needs.
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