Guide To Commercial Insurance for Businesses

Whether you’ve owned a business for many years, are a new business owner, or you’re contemplating starting a new venture, you’re probably weighed down by the responsibility on your shoulders. Even so, it’s challenging enough to operate a business without having to worry about suffering a huge financial loss due to unplanned and unforeseen circumstances. Your business — plus the financial livelihood of you and your employees — is an investment you must protect.

Businesses need comprehensive insurance protection from some of the most common losses experienced by business owners, including theft, property damage, employee injury, and business interruption. Commercial insurance coverage can be the difference between going out of business after a disaster or getting back up with minimal financial impairment and business interruption.

MoneyWizard has put together this guide to walk you through your commercial insurance options to find what’s appropriate for your business.

What is Commercial/Business Insurance?

Our insurance experts like to look at commercial/business insurance as an umbrella term for several potential insurance policies that help protect your business assets from loss that may occur during its normal course of operations. Each type of policy offers coverage for specific perils — your business will probably need a unique combination of policies for optimal coverage.

Businesses typically assess their commercial insurance needs based on their risks — which may depend on the nature of your operations and your industry. Different types of commercial insurance protect against potential claims by covering the associated costs.

Without commercial insurance, business owners might have to pay out-of-pocket for medical care, repairs, and legal costs if hit with a liability claim. Some types of business insurance are mandated by law, such as commercial auto insurance if your company owns vehicles or workers’ compensation insurance if you have employees.

What Does Commercial/Business Insurance Cover?

No single insurance policy protects against all your business’ operational risks. Different types of commercial insurance protect against property damage, customer injuries, cyberattacks, and other threats to your company.

In general, business insurance covers risks associated with:

• Customers and clients. Your customers are the lifeblood of your business, but they also bring the risk of lawsuits — which aren’t cheap. Some business insurance policies can help mitigate the risks presented by your customers.
• Employees. Employees can help your company grow, but they also introduce more risk to its daily operations. For instance, when you employ a workforce, you may be liable for infringing their work rights, discrimination, sexual harassment, and any workplace injuries they suffer.
• Property. You could lose your business property due to a fire, explosion, vandalism, flood damage, or some natural disasters. Remember, business property includes the physical building structure and the contents within it. Some business insurance policies can help protect your valuable or specialized business property, as well as other items under your business’ custody or care.
• Motor vehicles. You must insure all the vehicles your business uses to perform its daily operations — whether they’re business-owned or are your employees’ personal vehicles.

Common Types of Commercial/Business Insurance Policies

Being in business brings risks — and you can’t plan to pay out-of-pocket for the unforeseen. Even if your business is just starting up, you’ll need various policies to guard against your possible losses. Here are some of the fundamental insurance policies your business should look into.

Commercial General Liability

Commercial general liability (CGL) is a fundamental business insurance policy that guards against risks inherent in most of your business’ operations, namely harm to 3rd parties. Commercial general liability insurance guards your business against the financial loss and expenses associated with claims filed against it for:

• Bodily injury and medical payments
• Property damage
• Damage to reputation caused by libel and slander
• Harm or advertising injury caused by misleading or false advertising

A CGL policy is advantageous because the insurer defends you against all covered claims at no out-of-pocket costs for you and it will pay part or all of the damage owed. When you make a valid claim, your insurer will pay up to the policy’s stated maximum. If the claim is greater than your policy maximum, you’re required to pay the balance. However, you can protect your business from any excess liability payment by buying commercial umbrella insurance — it extends protection beyond the limits of your basic liability coverage. 

Remember, the scope of coverage under your policy depends upon the policy and endorsements you choose. A liability insurance policy won’t cover intentional injury, employee injuries, insured contracts, liquor liability, business vehicles, and failure to perform (professional negligence). Always read the policy fine print to understand all the coverage exclusions.

Commercial Property

Commercial property insurance is crucial if your business has a physical presence. Buildings you lease or own, your business personal property, and the personal property of others constitute the basic coverage sections of commercial property insurance. Covered perils include vandalism, fire, explosions, water damage, and some natural disasters.

Commercial property insurance policies are available as stand-alone policies or as part of a Business Owner’s Policy (BOP), which comprises two or more commercial policies (like commercial property and general liability). The main coverage areas include:

• Building coverage. This includes the buildings or structures and any complete additions as per your policy’s details. Equipment, machinery, and permanently installed fixtures are also insured. You’re required to insure the value of your buildings, otherwise you’ll face a monetary penalty at the time of a loss — known as coinsurance. Reading your policy’s coinsurance clause will help you avoid unpleasant surprises thereafter.
• Business personal property. This includes machinery, equipment, furniture, and fixtures not permanently installed. Business property may also include inventory.
• Personal property of others. This refers to property that’s in your company’s custody, care, or control. The type of company you run will determine whether you need to insure the personal property of others.
• Signs and marquees. Repairs or replaces exterior signs and marquees — whether free-standing or affixed to the building — due to loss or damage from vandalism, theft, fire, or wind damage.

With commercial property insurance, you may obtain either actual cash value or replacement cost coverage. Actual cash value insurance compensates you for the residual value of damaged, lost, or stolen goods after factoring in depreciation. Replacement cost coverage repays the amount it would take to rebuild, repair, or replace damages with materials of similar quality, without deducting depreciation.

Commercial Automobile

A business that owns or uses vehicles is typically required by law to carry at least the mandated minimum level of commercial auto insurance. Commercial auto accidents involving vehicles owned or used by your company, and it provides two forms of coverage;first-party and third-party damages. First-party coverage often pays for the policyholder’s vehicle damage and medical bills while third-party covers any property damage and injuries the vehicle causes to another person.

Commercial auto insurance coverages include:

• Liability covers third-party repair, medical costs, and your legal fees when you or your insured driver is at fault.
• Medical payments cover medical expenses for you, your passengers, and insured drivers no matter who’s at fault.
• Hired/non-owned auto covers third-party property damage and medical expenses when using a vehicle not owned by your business.
• Uninsured/underinsured motorist covers your vehicle repairs and medical expenses if you’re involved in a car accident with a driver who doesn’t carry sufficient insurance.
• Collision coverage repair costs if your business vehicle is damaged in a collision.
• Comprehensive coverage pays the repair costs if your vehicle is damaged by events other than a collision.

Your personal auto insurance policy excludes business-related driving, so you’ll likely not be covered for an accident that occurs when performing business-related operations. The same applies to company employees who use their personal vehicles for business.

Businesses involved in transport and delivery typically use larger, heavier vehicles that need more coverage. They may also purchase additional policies, such as semi truck insurance which may include the above coverages as well as industry-specific coverages like motor truck cargo.

Workers’ Compensation

Your business can help protect its employees through workers’ comp insurance — which pays for the medical expenses of employees who suffer occupational injury or fall ill in their line of duty. And if an employee dies while still at work, this type of business insurance may also provide death benefits to the employee’s family.

Canadian Workers’ Compensation Boards (WCB) are territorially and provincially regulated throughout the nation and provide insurance for workplace illnesses and injuries. In most territories, workers’ compensation insurance is mandatory if your business employs a certain number of workers — though some industries like banking, dentistry, and insurance are exempt from this required coverage.

Besides covering medical costs, workers’ compensation insurance may cover related expenses like:

• Retraining costs
• Replacement of lost wages
• The living costs for permanent disabilities
• Survivor benefits if an employee dies

However, this type of business insurance may not reimburse the full amount. Most workers’ compensation claims are capped at a particular limit, and your business may be required to pay a deductible or other form of cost-sharing. Besides, workers’ compensation insurance only covers occupational accidents and illnesses, so you should enroll in a business health insurance plan to protect your employees outside of the workplace.

How Much Does Commercial/Business Insurance Cost?

It’s rare that two companies will pay the exact same amount for their business insurance policies, not forgetting the cost can be difficult to predict since it’s based on multiple factors. It’s important that you understand what factors can alter the premiums of your commercial insurance policy.

• Risk level. Businesses carry different risk levels depending on their industry of operation. Your insurance provider evaluates your insurance application based on the risks. Certain risk factors, both physical and financial, increase exposure and translate to higher premiums. For instance, a contractor faces increased risk for some hazards by operating heavy machinery as compared to lawyers providing legal advice from a home office.
• Location. Your insurer also wants to know about your business’ location. There’s a higher probability that your business property will be damaged if you’ve set up the business in an area that’s been prone to crime, natural disasters or hazardous weather conditions in the past. The cost of your commercial property insurance is affected by location — you may need more coverage for your business property. Your business location could make it cheaper or more expensive to insure your business property.
• Number of employees. The size of the workforce your business has on its payroll will influence the cost of your business insurance. You’ll pay a higher premium if your business has more employees, since there’s a higher potential for claims. Every additional employee you bring on board increases the risk of an accident within your business’ premises, so you’ll need to obtain workers’ compensation insurance.
• Claims history. Your company’s claims history can give an insurance company a decent picture of the claims you make as well as claims made against your business. Your insurer uses your claims history to evaluate the type and frequency of claims your business faces. You can expect to pay more for coverage if your insurer deems you have a higher risk of making a claim.
• Years of operation. Lower commercial insurance premiums are available for well-established companies.

If you’re looking for actual figures, that’s understandable. You can expect to pay anything from $500 – $5,000 per year for your commercial insurance policy. Remember, businesses are different, so you shouldn’t get too attached to these figures.

For many businesses, the cost of commercial insurance policies is always a concern, but there are some ways you may lower the premium of your policy:

• Ask your insurance carrier for discounts
• Consider the option to bundle two or more coverage types into a single policy
• Consider raising your deductible
• Adjusting your policy limits to a lower amount may also bring down your premiums
• Insurance carriers may offer discounted rates for switching to them from a competitor

Frequently Asked Questions About Commercial Insurance

What Kind of Insurance Should a Small Business Owner Have?

Each type of insurance is designed to cover specific business risks — you don’t want to waste money on something you don’t need. The type of coverage your small business needs will depend on the nature of your business, whether you employ a team, among other factors.

At a minimum, some of the core policies small business owners should carry include liability insurance, property insurance, commercial auto, and workers’ compensation insurance. However, insurance companies often bundle various policies into a BOP package — which bundles coverage for property and liability insurance risks as well as add-ons that may be suitable for your small business.

The best way to start your commercial insurance plan is to collect quotes. Most insurance providers offer free insurance quotes that give you a good starting point. Speaking to insurance brokers can also point you in the right direction.

Is Commercial/Business Insurance Required?

Commercial insurance isn’t mandatory for you to operate a business, but it can protect you from the common risks your business faces in its daily operations. And while some types of commercial insurance are optional, provincial laws may mandate the following insurance requirements:

• Commercial automobile insurance if your business owns vehicles
• Workers’ compensation insurance if your business has hired employees

• Professional liability insurance if your business offers professional services

Failing to carry a type of business insurance mandated by law may attract fines or penalties.

Who Needs Commercial Auto Insurance?

Any business owner who uses company vehicles for work should carry commercial auto insurance coverage. This includes those who have business-owned cars and those who hire, borrow, or rent vehicles for work. It may also include coverage for business owners who use their personal vehicles for business activities, since such activities are excluded from a personal auto policy.

Other examples of when businesses need commercial auto insurance include food trucks, delivery drivers, rideshare drivers, and caterers.