Commercial Lines Insurance Defined
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Commercial lines insurance includes property and casualty insurance products for businesses. Commercial lines Insurance helps keep the economy running smoothly by protecting businesses from potential losses they couldn’t afford to cover on their own, which allows businesses to operate when it might otherwise be too risky to do so.
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Breaking Down Commercial Lines Insurance
Commercial lines insurance include products, such as commercial auto insurance, workers compensation insurance, federal flood insurance, aircraft insurance, ocean marine insurance, and medical malpractice insurance. Commercial lines protect businesses against potentially devastating financial losses caused by accidents, lawsuits, natural disasters, and other adverse events. Available coverages and premium costs vary by business type, size, and location. In 2013, the five largest issuers of commercial lines, as measured by the amount of premiums written, were American International Group (AIG), Travelers, Liberty Mutual, Zurich Insurance Group and ACE Ltd. None of these companies had an especially large market share.
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While all commercial lines share some similarities, each policy will be tailored for the type of business being covered and the client’s unique needs. Suppose a structural engineering firm needs professional liability insurance. An insurance policy could protect the company against claims of negligence in creating a building’s plans, performing inspections, and supervising construction, as well as against claims of failure to render professional services. The firm could purchase general coverage as well as specific, additional coverage for each project, plus coverage for punitive damages.
Commercial lines aren’t just for large corporations. Even a small, home-based business might need one or more commercial lines because homeowners insurance provides limited or no insurance for business activities. For example, a home business might need commercial auto insurance for a company-owned delivery vehicle, workers compensation insurance for the employee who drives the vehicle, property insurance to cover business goods stolen from the home or vehicle and liability insurance to protect against claims by any client who claims the business’s product harmed them.
Other Types of Commercial Lines Insurance
Debris Removal Insurance
This insurance covers the cost of removing debris after a catastrophic event, such as a fire burning a building down. Before rebuilding, the remains of the old building must be removed. Property insurance alone typically won't cover the costs of removing the debris.
Builder's Risk Insurance
This coverage insures buildings while they are being constructed.
Glass Insurance
Glass insurance covers broken windows in a commercial establishment.
Inland Marine Insurance
This insurance covers property in transit and other people's property on your premises. For example, this insurance would cover fire-damage to customers' clothing from a fire at a dry cleaning business.
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Business Interruption Insurance
This insurance covers lost income and expenses resulting from property damage or loss. For example, if a fire forces you to close your doors for two months, this insurance would reimburse you for salaries, taxes, rents, and net profits that would have been earned during the two-month period.
As a first-time business owner, you might ask yourself, “What is commercial insurance, anyway?”
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Think about it this way: a business takes a lot of time, energy, and money to run successfully, and the business owner wants to protect that investment. Commercial insurance (also called business insurance) is a practical way to achieve this goal. Business owners purchase insurance policies which can, in turn, compensate them for financial losses arising out of certain events.
That’s a broad definition, of course. Different insurance policies can apply to different types of events and under different circumstances.
Generally, commercial insurance is designed to protect a business from common risks, or liabilities, including…
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Third-party lawsuits
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Property theft and damage
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Customer injury
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Client lawsuits
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Your IT business experiences a covered event – someone breaks in to your office and steals a bunch of laptops, for example. You file a claim with your commercial-insurance provider. They investigate the claim, assess the damage, and then offer you the funds to buy new laptops and replace the window that the burglar smashed.
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Other claims might be a bit more complex. A liability claim, for example, often involves your business being sued. In these situations, someone – it could be a customer, client, or unrelated third party – believes your business is liable for causing them financial damage and wants compensation from you.
If you’re sued for an event covered by commercial insurance, your insurance provider will probably provide an attorney to take charge of your legal defense and either defend your case in court or offer to settle with the plaintiff. The costs associated with this, including the attorney’s fees, the court costs, and the settlement or judgment, can be paid for by the insurance provider – up to policy limits, and not including the deductible.
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Every insurance policy comes with its share of fine print, and commercial liability insurance is no different. Any policy you purchase will probably include…
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Deductible
The amount you must pay towards a claim before the insurance provider will offer its funds. For example, a business pays a deductible of $10,000 out of pocket in a liability case that ends up costing $150,000, but the insurance provider covers the remaining $140,000.
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Policy Limits
The maximum total amount of money that the insurance policy will pay out. Typically, there’s a limit per claim and a limit per the life of a policy. Many commercial liability policies have a total limit of $1 million.
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Coverages and Exclusions
The coverage section in an insurance policy details what the policy can and will pay for. Exclusions outline what it won’t pay for. A common exclusion in a liability policy, for example, is if you intentionally harm someone to cause them damage.
Pay attention to the details of your policy so you know what you’re getting. Talk to your insurance agent if you have any questions.
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