Is the Owner of a Business Insured?

Lucy Lazarony
November 4, 2020

Yes, the owner of a business can and should be insured in many different ways. It all comes down to the types of business insurance he or she purchases. For example, your actions are protected and insured with a general liability policy. This form of insurance protects you if you cause any damage to another whether it be bodily damage or damage to the client’s or another property. This is an essential policy to have for any business. And some clients will refuse to work with you if you don’t have this policy. So getting a general liability policy is on the top of every new business to do list. General liability insurance is typically structured to cover financial settlements as well as legal costs involved with defending lawsuits. Events covered by general liability insurance include accidents and injuries that occur on business property or stem from its business operations, medical payments for minor injuries sustained by visitors to company properties and liability damage to another’s property in the cause of doing business. Another important business policy is professional liability insurance. This insurance protects professionals such as lawyers, doctors, accountants and real estate professionals against negligence and other claims from clients. Any professional who has expertise in a specific area warrants this kind of insurance because general liability insurance doesn’t offer protection against claims of negligence, misrepresentation and malpractice brought forth by clients. Professional liability insurance is called medical malpractice in the medical field and errors and omissions insurance for real estate professionals. Every professional should consider a professional liability insurance policy, because every business professional has a specific area of expertise worth protecting against negligence and other claims. Now let’s look at other policies in which the business owner may be insured.

Business Owner’s Policy (BOP)

This type of policy includes general liability coverage as well as business property coverage. Your business property insurance protects your business from things like fire and theft and other covered perils. BOP policies are popular among small and medium sized businesses such as restaurants, wholesalers, retail stores and contractors. The liability portion of a BOP protects the business owner specifically if he or she should cause damage to another.

Life Insurance

Another way a business owner can be insured is through life insurance. With life insurance you select a designated beneficiary. A beneficiary is usually a family member but it could be a business associate. Once you select a beneficiary, you pay a premium for the life insurance. The policy is paid following the insured person’s death. What most people don’t know is that a life insurance benefit can also keep your business running long after you're gone. And if this is what the business owner wishes, he or she can designate a business partner or associate as the beneficiary to the life insurance and the money would be invested in the business.

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Excess Liability Insurance

Excess liability insurance is a type of insurance that provides higher coverage limits when placed on top of an original, primary policy. This gives a business owner additional liability coverage. The purpose of excess liability insurance is to close any gaps in coverage and provide an extra layer of protection should the primary insurance, such as a general liability policy, be exhausted. Excess liability insurance is a good backup plan for a general liability policy should you and your business warrant additional liability protection. But it doesn’t cover everything. An excess liability insurance policy excludes any claims that the primary insurance doesn’t cover. So if there is a claim that is outside your primary liability coverage, it is outside the scope of your excess liability insurance policy as well. An excess liability insurance policy does not apply to multiple policies. So it has just the one policy it can be applied to, such as a general liability policy, for its additional liability coverage.

Commercial Umbrella Insurance

If you’d like to get additional liability protection for multiple policies, you’ll want to invest in a commercial umbrella policy. A commercial umbrella policy works much the same way an excess liability insurance policy works, giving a business owner additional liability protection. A commercial umbrella policy steps in when a primary insurance coverage has reached its limits. But unlike an excess liability policy, a commercial umbrella policy can be applied to multiple primary policies and it also covers claims not included in primary policies. Insurance companies write commercial umbrella policies with aggregate limits and these limits range from $1 million to $2 million. Consider a commercial umbrella policy if you have multiple policies that you’d like to protect and if you are concerned about claims not covered by a primary policy.

Directors and Officers Liability Insurance

This liability insurance is, as its name suggests, paid to the directors and officers of the company or to the company itself. Its coverage extends to defense costs from investigations and trials against directors or officers of the company. This insurance protects the personal assets of directors and officers and their spouses in the event they are personally sued by employees, vendors, investors and customers for active or alleged wrongful acts in managing the company.

A business owner has several ways to be insured. Choose the best combination of policies that suits your business. And if you want extra liability protections choose an excess liability insurance or commercial umbrella policy. Both are good ways to give extra protection to a business owner and his or her business. And if you would like your business to go on long after you are gone you can designate a business partner or business associate as your beneficiary on a life insurance policy. That way money paid by the insurance company will get invested back into the business. If you want specific employees to be insured, you can buy a directors and officers liability insurance to make sure the key officers in your organization are covered.

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