Small Business Insurance

Small Business Guide to Insurance

While businesses count on insurance to protect the investment in time, money and other resources, consumers can also be protected when businesses are insured. Should anything go wrong with goods and services, certain insurance may compensate people who interact with a business.

There are many choices for business owners to consider when selecting insurance. A licensed insurance agent or broker may offer a package that covers many small business needs, or design a policy with coverage designed for the particular business. It is important for the business owner to know what the policy includes.

Federal Healthcare Reform law does not require businesses to provide health coverage to workers, though large employers will face penalties for failing to do so.

The Affordable Care Act may help small businesses and small tax-exempt organizations afford the cost of covering their employees. Businesses with fewer than 25 employees, that provide health insurance, may qualify for a small business tax credit of up to 35 percent (up to 25 percent for non-profits) to offset the cost of health insurance. This will make the cost of providing insurance much lower.

All public and private employers in Colorado, with limited exceptions, must provide workers compensation coverage for their employees if one or more full or part-time persons are employed. A person hired to perform services for pay is presumed by law to be an employee. This includes all persons elected or appointed to public sector service and all persons appointed or hired by private employers for remuneration. There are a few exemptions to this definition. 

Colorado state law mandates that a business provides workers’ compensation coverage for all employees. This insurance provides prompt, partial wage replacement and covers medical expenses for workers injured on the job. The business must pay the full cost of this insurance. It is unlawful to deduct the cost of this coverage from an employee’s wages.

More information is available from the Division of Workers Compensation in the Colorado Dept. of Labor and Employment (CDLE). The Colorado Division of Workers' Compensation is the state office responsible for administering the Colorado Workers' Compensation Act. 

All businesses with employees are subject to Unemployment Insurance tax. Unemployment Insurance is not regulated by the Division of Insurance, it is in the Colorado Department. of Labor and Employment.

Employees are generally considered anyone who is paid wages and performs a service for the business. The underlying purpose of the Colorado unemployment benefits program is to help maintain the economic and purchasing power of the community by assisting the most exposed members of the community, the unemployed worker.The Colorado Department of Labor and Employment (CDLE) has an extensive employer handbook to help determine if a business must pay Unemployment Insurance Tax and to determine whether someone is an employee of the business and eligible for Unemployment Insurance benefits.

Any vehicles used by the company must be properly insured according to Colorado law, whether they are owned, borrowed or leased.

The minimum limits of liability required by Colorado law are:

  • $25,000-per person for bodily injury
  • $50,000-per accident for bodily injury
  • $15,000-per accident for property damage.

Policies are not limited to these minimums and additional coverage may be purchased. A person who is injured in a car accident is not restricted to seeking only those amounts if the damages or medical costs are greater, and may attempt to collect additional damages or reimbursement for losses directly from the business or vehicle owner. 

Is required for certain professions. For other professions, it may be strongly recommended, if not required by law. This type of insurance is specific to the risks/liabilities in their profession. Professional Liability Insurance may be called “Malpractice” insurance for some professions (doctors and other health professionals) and Errors and Omissions (E&O) for other professions. This type of insurance can pay the costs to defend the professional’s reputation and cover the potential damages to anyone who was harmed by improper actions or negligence.

protects owner and business against liability resulting from non-performance of any of the products sold. Also known as Casualty insurance, it insures against injury or damage caused by the activities of the business. 

Both the business owner and its customers can be protected through business liability insurance. If a client suffers damages through actions or services of the owner or an employee of the business, this type of insurance will protect the owner's personal assets, the assets of the business, and pay for costs of defending against the claim. It also provides that a customer or client who has suffered damages will be adequately compensated. Liability insurance provides a business with financial protection in the case of a claim or a lawsuit.

Might be purchased by any number of professions to protect themselves against claims that professional services were not handled properly. If a consumer is harmed due to any mistakes made by an employee or owner of the business, the E&O insurance help protect a company, its employees and others from claims alleging negligence in performing or failing to perform Professional Services. Almost any professional can be held both professionally and personally liable for their own negligence and for those they supervise. 

For professions such as architects, title agents, real estate agents, mortgage brokers, and engineers it is called “errors and omissions” often shortened to “E&O.” For doctors and attorneys, it is called “malpractice insurance.”  

If the business acquires a loan to purchase a building, vehicles or equipment, the bank or lender may require insurance to protect their investment in the structure, items or materials being purchased.

Many businesses consider a supplementary policy called “Commercial Umbrella Insurance.”

An umbrella policy is an added layer of liability insurance protection that goes above and beyond your policy's stated coverage limits. This coverage is designed to kick in once any other coverage has been exhausted. The general liability insurance is the primary policy for the business, but an umbrella policy is designed to provide additional protection above the limits of the general liability insurance. Umbrella insurance may also insure a business if someone has damages or injuries for losses beyond the scope of the traditional general liability policy.

A commercial umbrella plan will typically cover things such as:

  • personal injury (injury to a person, as opposed to damage to property);
  • liability for both written and oral agreements or contracts;
  • non-owned aircraft liability (if you rent or charter aircraft for business use);
  • liquor law liability (if the business serves, sells, or makes alcoholic beverages, it can be found responsible if someone harms themselves or others due to intoxication);
  • negligent action (when someone who works for your business did not take reasonable care to prevent damage or injury to another party, or if the business manufactured or sold a product which caused an injury);
  • and extension of coverage to other insured parties, such as business partners or employees. The details of any particular umbrella plan should be carefully reviewed within the policy contract, as the coverage will vary.
  • Always check your policy to be sure you understand the types of liability which are covered.

Is another type of additional commercial insurance. Before a claim is filed against an excess liability insurance policy, the limits of the primary underlying insurance must be exhausted. Excess liability is a secondary policy that covers a wide variety of possibilities. 

As an example, a business could have coverage of $1,000,000 on a general liability policy, but there is a claim of $1,400,000. After the initial million dollars is paid (through the liability policy), the excess liability policy will cover the damage award for the amount exceeding $1,000,000 up to its policy limit.

Protects against losses or damage to the real property (buildings and/or tenant improvements) and personal property owned by the business.

Important note: a property owner or landlord usually carries insurance on the building and property. The owner's policy typically does not cover contents of a tenant when the building is rented or leased. The renter needs insurance to protect the building improvements paid by the renter as well as contents of the rental space, independent of the landlord's interest in the structure. Again, if the building location is leased, the contents - from computers, to materials, to inventory - are protected only if insurance is purchased specifically for that reason.

Businesses that lease or rent property must insure their own interests, including improvements to the property and contents. If a disaster strikes, the building owner may be reimbursed for the structure, but the renter’s belongings are not covered by the owner’s insurance policy.

Note that Flood Insurance is generally not covered under Business Property Insurance. A separate policy, specific for flood risk, is required. See Business Interruption Insurance for details.

National Flood Insurance Program FloodSmart.gov

Protects the business against physical property losses.  Replacement insurance can be purchased for the full cost of replacing the property or its current value. The specific method for determining the value of the property usually falls into one of two categories:

  • Actual Cash Value - is the cost to repair or replace an insured item of property at the time of the loss, less depreciation. The value of depreciation is based on the age and condition of the item. Personal property, such as contents, is typically settled at ACV unless the insured purchases Replacement Cost Coverage.
  • Replacement Cost Coverage - is the cost to replace lost or damaged property with new property of like kind and quality at current prices. For an additional premium, it is available for buildings and contents. Some insurers automatically include RCC in the policy; however, usually it is an optional coverage that must be purchased.

Insuring goods and equipment that are used away from the business location

What happens if the business owns or leases equipment that is not on the premises when it is lost or damaged? The historically named “Inland Marine” is a type of insurance that provides coverage for all moveable property that is normally taken off the business premises, including equipment and tools.

Inland Marine insurance can cover portable commercial property; many types of equipment used in construction; certain types of property such as tunnels and bridges, items and goods which are in transit; purchased property or materials that have not yet been installed by a contractor; and tools used by the business to make repairs off-site.

Should be considered, particularly if there are employees who are hard to replace and critical to the ongoing success of the business. The key employee may be a designer, manage a critical process within the business, or have specialized knowledge about the business. A key employee may be the founder or partner in the firm, or have relationships with suppliers, vendors or customers that would be difficult to maintain without the employee’s involvement.

Key employee insurance is basically a type of life insurance that protects the business against the costs of replacing an employee with special skills or value to the business; training a new employee; assuring creditors, suppliers and customers that the business will carry on; and any projects that were the responsibility of the key employee will continue without interruption. The life insurance premiums are paid by the business, and the business is named as the recipient of the death benefit to cover costs associated with the loss of the key employee.

Continuing expenses (salaries, mortgage, utilities, advertising, storage of inventory, leased computers and software), and maintain a business presence despite loss of the primary location.
Business interruption insurance covers the expected income the business would have earned, based on a history of financial records, had the disaster not occurred.

This insurance can cover a wide range of “unexpected events” from weather-related or disasters (the types of disasters which are covered will be specified in the policy); crime (vandalism forces the business to stop regular processes in order to restore working conditions and equipment); to repair the building (asbestos is discovered during a remodel, and must be removed before employees can return to work.)  

Related note: As mentioned above, Flood Insurance is generally not covered in a standard business property policy. Coverage for the business property can be purchased through the National Flood Insurance program. However, a business interruption insurance policy may cover loss of business continuity due to the flood, or related events. Your policy should be specific about what is covered.

Is designed to keep a business from closing its doors when there is an unexpected event that disrupts the business continuity and income, because the insured premises cannot be used for a period of time. This type of insurance – business interruption – can help the business survive a disruptive event by covering expenses such as the cost of relocation and advertising if the business needs to move to temporary offices, and can be the general name for a policy that covers many of the risks for an agricultural business, including farm equipment, liability, homes, outbuildings and loss of crops due to factors such as drought, pests or severe weather.

Specific crops, including those grown for medicinal use, can be covered through insurance policies which cover perils such as theft of living or harvested plant material, as well as loss due to fire, lightening, smoke damage, windstorms, hail and vandalism.