Commercial Insurance Coverage Timeline:
Understanding WHEN You Need WHAT Coverage
Commercial insurance can be an overwhelming topic for a small business owner. It is tough to find an honest assessment of what lines of coverage you need to add – and when. Part of the issue is that insurance is very individualized per company. Specific limits, coverages, and endorsements will be specific to every company and risk. However, I aim to provide a general overview of what policies and protections you should be looking at during various stages of business growth. Understanding what’s coming and what you will need helps curb the sticker shock and budgeting issues you may face if suddenly gaining a contract that requires a new policy.
I always recommend speaking to a broker about your specific company, your risks, your concerns, and your growth. These guidelines are not applicable to everyone and you may find yourself needing coverage sooner than advised here. On the other hand, we would not want you to pay for coverage you don’t need. Please contact us if you have questions about your specific needs – insurance evaluations & quotes are always free.
When you move into your first office…
Most office buildings/leases will require general liability insurance. General liability, or “GL” is insurance to protect the company from any damages or injuries. Under this type of policy the insurer (carrier) is obligated to pay the legal cost of a business in a covered liability claim or lawsuit. Covered liability claims include bodily injury, property damage, personal injury & advertising injury (damage from slander or false advertising). The insurance company also covers compensatory and general damages.
Another policy to consider when moving into your first office is property coverage. This policy can cover business personal property, which includes both company items kept in the office space (ex. Laptops, equipment), and inventory. This can also cover the building: you will need building coverage when your business owns their office space or other buildings.
GL policies are often packaged into what is called a business owner’s policy – a package policy with GL, property, and other coverages. Consider adding these when you have your GL or BOP quoted, as they are high-impact and low-cost to add to the policy:
- Hired & Non-Owned Auto Coverage: This coverage provides protection if you are sued for bodily injury or property damage caused by a vehicle not owned by the business, while on company business. Essentially, if your employee is running a company errand in their personal car and gets in an accident, HNOA is protection for the company.
- Data Breach Coverage: This is a coverage that can also be added to your errors & omissions policy, but if you are not at that point yet, we would recommend adding to your BOP. Data breach coverage provides protection if the sensitive information you may collect/store on company computers is lost or stolen (ex. Social security numbers of clients, credit card information).
When you hire your first employee…
As soon as you hire your FIRST employee, you are legally required to offer workers compensation coverage. The only employees exempt from workers compensation in CA are officers that own at least 15% stake in a 100% officer-owned company. Work comp is a form of insurance that provides compensation and medical care for employees who are injured in the course of employment, in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence.
When you are getting ready to release a product or service for the first time – OR when you will begin entering into client contracts…
Most businesses that offer a product or tech service will want professional liability coverage – also called errors and omissions coverage. As you begin entering into client contracts, you will often see this as a requirement by your clients in order to begin the contract. Errors & omissions covers two basic risks: (1) Financial loss of a third party arising from failure of the insured’s product to perform as intended or expected, (2) Financial loss of a third party arising from an act, error, or omission committed in the course of the insured’s performance of services for another.
Professional liability is quite different by industry, but exists in most professions. A common form of professional liability we are seeing more and more is Tech E&O. This is highly advisable for any company offering an application, software-as-a-service, etc. Tech E&O may also wrap in cyber and privacy liability with data breach coverage, as explained in relation to general liability policies above.
When you begin raising funding…
Often investors will require you to have directors and officers coverage in order to fund your company. “D&O” is liability insurance payable to the directors and officers of a company or to the organization itself to cover damages or defense costs in the event they suffers such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of a criminal and regulatory investigations/trials as well – in fact, often, civil and criminal actions are brought against directors and officers simultaneously.
Once you have 5 or more employees…
Once you have a growing team in place, you will want to add an employment practices liability insurance policy. Employment practices liability is an area of US law that deals with wrongful termination, sexual harassment, discrimination, invasion of privacy, false imprisonment, breach of contract, emotional distress, and wage and hour law violations.
At this time you may also want to add group benefits for your employees. Though it is not legally required to sponsor health insurance until you have 50+ full time equivalent employees, adding a partially-paid-for health insurance plan early on will help you to attract and retain top talent.
Benefit Experts Insurance Agency