Not all insurance is the same. Your car insurance, for instance, will not protect your home. That much is obvious. What others do not realize is that business insurance is very different from personal insurance.
You can’t use one to protect the other. You won’t be covered and your financial health could be at risk should a claim be made against you.
So why is this? What are the differences between business insurance and personal insurance?
The Auto Insurance Example
There is no better way to demonstrate the differences between private and commercial insurance than to look at the differences when looking for coverage for your vehicle. Business and personal car uses tend to have different risks.
Most states in America require you to have personal car insurance, the only exception being New Hampshire. Personal insurance covers you while you and your family are out and about. This could be traveling to and from work, taking children to school, going on day trips or picking up some shopping.
For commercial entities, any vehicle being used for business purposes should be covered by an insurance company that is specifically for commercial use. By definition, ‘business purposes’ does not include driving to and from your office but does include visiting clients, delivering goods, etc.
Because commercial vehicles are often on the road more often than personal vehicles, the amount of risk that something will happen is much greater. Also, the risks are slightly different. A business vehicle, like a van, is likely to be kept unattended only in a secure parking area at the business’ premises with or without security. Depending on many factors, theft is more or less likely. But because it is on the road more often and the size of the vehicle may impede vision and handling, collisions have a higher chance of occurring.
Car insurance is dependent on who owns the vehicle and who drives it. These may be the same individuals but, more often, different people. The driver’s driving record affects the company’s insurance policy. Generally, commercial insurance can cover all employees using the vehicle or can be specific to a certain group of employees. Regardless, each person’s driving record is checked for the insurance policy.
Great personal auto insurance may protect anyone who drives the vehicle as long as the owner gave them permission to drive the vehicle. Commercial policies do not work that way. The drivers usually have to be listed on the policy. If someone is not named in the policy, the claim may be denied in the event of an accident.
Shopping Commercial Differences
The consumer’s experience shopping, evaluating and purchasing insurance is significantly different than commercial policies. This is usually a major learning curve for new business owners. Here are some of the major differences:
- Policies require underwriting and usually cannot be purchased the same day.
- Most policies, especially high risk policies, may take one to four weeks to quote.
- Loss runs are required for most commercial policies. Loss runs are a report that officially states whether you have had claims. Even if you have not had claims, the loss runs for up to five years are usually required.
- Once the applications are completed and submitted, different underwriters may ask additional questions that vary from one company to another. Be prepared to answer questions throughout the process.
- The policy may have narrow coverage and require you and your insurance representative to discuss adding coverages such as pollution liability, cyber liability, non-owned/borrowed auto coverage, unidentified trailer or inland marine. These terms are taken for granted on our personal insurance but crucial to add to most commercial auto and liability policies.
Imagine how different one family is from another yet the margin of difference when you look at the overall risks are not that different. When you look at businesses however, the variances are greater than the commonalities. A common home may be about 1500 to 2500 square feet. However a business can run out of a 150 square foot space all the way to multiple 500,000+ sf locations in multiple states. There are more questions to answer because there is so much more to consider when insuring a business.
What insurance policies do you need to protect your business? When was the last time your agent or broker visited your business location? Do you know cyber liability, including email, websites, credit card transactions are no longer covered on your general liability policy?
Ask us your questions in the comments below.