Breaking Down 3 Misunderstood Types of Commercial Insurance

Here are some of the most commonly misunderstood business insurance policies explained in more detail.

As a business owner, you know that you are responsible for securing insurance for your company.  However, the commercial insurance market can be overwhelming with all the options and carriers out there.  To make matters worse, many business owners attempt to navigate the market with incorrect assumptions about certain policies.  To ensure that you are making informed coverage decisions, here’s what you need to know about the most commonly misunderstood business insurance policies

Business Interruption Insurance

  • What is it?
    • Business interruption insurance is designed to cover the revenue your business would lose if it were forced to close its doors temporarily. In addition to compensating you for lost income, business interruption insurance also provides coverage for recurring operating costs such as your business’s rent, utility payments, and employee paychecks.
  • Why is it misunderstood?
    • Many business owners do not secure this coverage because they assume that it is included in their commercial property policies.Unfortunately, this simply isn’t the case.  While your commercial property insurance will offer coverage for the physical damage that your business’s building, supplies, inventory, and equipment sustain during a covered peril, that’s as far as coverage goes.
  • Bottom line
    • If you do not secure business interruption insurance, then you risk a temporary business closure becoming a permanent one. Business interruption insurance is necessary to keep normal operations up and running despite the lack of income coming in.

Directors & Officers (D&O) Liability Insurance

  • What is it?
    • D&O insurance is a type of liability insurance that protects a company’s executive figures while they are serving on a board of directors and/or as officers of the company. This insurance offers coverage if executives make poor decisions that have adverse financial consequences for involved parties (employees, vendors, customers, investors, etc.).
  • Why is it misunderstood?
    • Many companies assume that their executive staff is protected by other forms of liability coverage. However, directors and officers need to secure their own special form of coverage.  Failing to secure this coverage would leave your company’s executive staff liable for compensating affected parties and covering their own legal costs.  As the cost of these claims is typically very high, failing to secure D&O insurance can leave the personal assets of executive staff vulnerable.
  • Bottom line:
    • If your business is managed by a board of directors or a team of company officers, then securing D&O liability insurance is the only way to ensure that the cost of a claim does not leave them in a state of financial ruin.

Equipment Breakdown Insurance

  • What is it?
    • Equipment breakdown insurance provides coverage if your business’s equipment breaks down due to a mechanical issue. In addition to compensating you for broken equipment, this type of insurance will also replace the income that your business loses due to the defective machinery.
  • Why is it misunderstood?
    • Most businesses assume their commercial property insurance covers their company’s equipment. Unfortunately, commercial property policies only offer coverage for equipment that is damaged by external issues such as fire, natural disaster, vandalism, and so on.  This means that equipment damages caused by internal malfunctions will not be covered under your commercial property insurance.  The only way to address these damages is with an equipment breakdown policy.
  • Bottom Line
    • If your business relies on specialty equipment, then having a key piece of machinery break down on you can be devastating.The only way to secure coverage to repair or replace broken machinery is with equipment breakdown coverage.

These are some of the most commonly misunderstood business insurance policies explained in more detail.  Are you interested in learning more about your commercial coverage options?  If so, then contact an expert at CIA Insurance and Risk Management.  We are ready to assist you with all your business insurance needs today.

Post written by Sophia Najjar, Vice President | Commercial Risk Management (CRM)

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