December 29, 2021

Types of Business Insurance

Types of Business Insurance

Business Insurance is a risk management tool that provides financial protection to commercial enterprises like shops, factories, warehouses, offices, and big corporations against common risks like damage to business assets, customer lawsuits, workplace injuries, and more.

Businesses operate in tumultuous environments. They are frequently exposed to perils that can cause considerable financial damage. Risks like a fire damaging stock of goods, a primary plant and machinery unexpectedly breaking down, or business products causing harm to the public, can occur at any time. To ensure the business and its stakeholders are protected through thick and thin, Business Insurance becomes an absolute necessity.

Business Insurance or Commercial Insurance is a contract of insurance between an insurance company and a business organisation, such as a shop, factory, warehouse, or any other enterprise.

In exchange for premiums paid at regular intervals, a Business Insurance policy provides financial reimbursement for any loss or damage suffered by the businesses due to common risks. Everything from the business’s assets like vehicle, building, machinery, to its legal liabilities can be covered with the help of Business Insurance.

Business Insurance safeguards the interests of not just the business, but also its customers, employees, shareholders, and even the general pubic. For example, policies like Workmen's Compensation Insurance, Public Liability Insurance, etc. provide companies with the necessary capital to compensate affected persons in the event of an accident. These policies, among others, have also been made mandatory in many countries.

Business Insurance is divided into two main sub-categories, namely, Business Property Insurance and Business Liability Insurance. Let’s discuss these in detail:

Business Property Insurance

Also known as Commercial Property Insurance, this category of insurance policies covers a business’s tangible assets, such as building, plant and machinery, commercial vehicles, furniture and fixtures, electronic equipment, and much more. Anything that is a physical property and has insurable monetary value to the business can be insured under a Business Property Insurance policy. Some of these policies are :

  • Fire and Allied Perils Insurance - This policy provides coverage to commercial assets like buildings and attached structures, plant and machinery, stocks of goods, furniture, fixtures, electronic equipment, and many more. They are covered against loss or damage caused by a wide range of perils including fire, riots, strikes, floods, terrorism, etc.
  • Machinery Breakdown Insurance -  This policy covers loss caused by unforeseen and sudden physical damage to a business’s machinery and equipment due to accidental electrical or mechanical breakdowns. Breakdown caused by both internal or external factors can be covered under this policy
  • Commercial Vehicle Insurance - This policy covers loss or damage to the insured vehicle, the driver’s personal liability and any third party liability that may arise during a road accident. Physical damage to the insured vehicle due to perils like fire, floods, malicious activity, riots, etc. is also covered.
  • Electronic Equipment Insurance - This policy provides comprehensive protection to all electronic devices like computers, e-registers, medical devices, industrial equipment, etc. from loss or damage due to fire and allied perils, electrical breakdowns, and burglary. The loss of electronic data can also be covered under such a policy

There are many other policies that fall in the Business Property Insurance category, such as Contractor’s Plant and Machinery, Money Insurance, Burglary and Theft, Neon Signboard Insurance, among several others.

Learn more: Property Insurance for businesses

Business Liability Insurance

The insurance policies under this category cover the business’s legal liability to pay compensation to third parties for any bodily injury, illness, or property damage caused to them by the business’s activities or on its premises. This kind of insurance helps the business in the event of any lawsuit levelled against it by covering the payable compensation and the defense costs incurred by the business. Some of these policies are :

  • Public Liability Insurance - Also known as Third Party Liability Insurance, this policy covers a business’s legal liability in the event of any injury, disease, illness, or property damage caused to members of the public. Public Liability Insurance has been made compulsory for certain business that deal with hazardous chemicals in order to provide immediate monetary relief to the victims
  • Product Liability Insurance - Product Liability insurance covers the business’s legal liability arising out of defects in its products. This liability could arise out of instances of death, injury, illness, or property damage caused to consumers, or any pollution or contamination of the atmosphere brought on by the business’s products. This policy also comes with an add-on cover for Product Recall - this cover is for manufacturers who are aware about the likely defects in their products and want to prevent any further usage of the defective product by requesting customers to return already sold units.  
  • Comprehensive General Liability (CGL) Insurance - This policy protects a business from financial loss if they are held liable for property damage, personal injury, or advertising injury caused to a customer or third party by business operations, services, or employees. This is a comprehensive policy with extensive coverage that goes beyond specific Liability Insurance policies & also covers liabilities arising out of Act Of God Perils, Fire Damages, Libel & Slander etc. Strictly speaking, CGL Insurance is a package policy consisting of Public Liability, Various Add-ons, Product Liability, and more.
  • Professional Liability Insurance - Also known as Professional Indemnity Insurance or Errors and Omissions Insurance, this policy provides coverage against legal claims of negligence or misconduct made against a service provider or a professional in the course of their duties. This kind of insurance is ideal for service-led businesses like accounting firms, hospitals, brokerage firms and for professionals such as Doctors, Lawyers, Engineers, etc.

Other Business Liability Insurance policies include Directors’ and Officers’ Liability Insurance, Workmen’s Compensation Insurance, Cyber Risk Insurance, and Group Personal Accident Insurance, among others.

Know more: Liability Insurance policies for businesses

Business Insurance can either be opted for as standalone policies to cover a single type of asset or liability, or as package policies. Package policies are relatively cheaper than opting for a bunch of individual policies. They contain an assorted group of related insurance policies that give extensive protection to the business across various risk domains. Such Insurance packages are suitable for large organisations that do not want to get a separate policy for each unforeseen event.

Business Insurance is almost as old as Business itself. It can provide an expansive financial cushion in the face of an unexpected and disastrous occurrence. It allows businesses to focus more of their resources on growth and efficiency, rather than on managing the myriad of risks they are constantly exposed to.

Did you know? Certain Insurance policies are mandatory for businesses to purchase!

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.