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What Are the 4 Types of Business Insurance?

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There are numerous types of insurance for businesses. Four of the most common are professional liability, general liability, contents, and cybersecurity insurance.

The culmination of these coverages prevents major losses when a lawsuit threatens your company or if you find your business belongings, such as equipment or furniture, lost, stolen, damaged, or destroyed.

This article clarifies the benefits and uses of each of these policies.

What is professional liability insurance?

Professional liability insurance, also known as errors and omissions insurance (E&O), protects professionals, freelancers, and business owners against legal claims related to negligence, misrepresentation, or for not meeting a particular standard of service.

Coverage can protect your business when you provide:

  •   Bad advice
  •   Missed deadlines
  •   Errors or omissions
  •   A level of service that wasn't up-to-par

Many people believe they won't make a mistake to necessitate such a situation. However, a client only needs to perceive your services as negligent to file a claim.

For example, suppose you're a roofer. You could finish a project up to a standard that has satisfied dozens of prior clients. The finished product also complies with everything at the client's request. But if the client doesn't like their new roof, they may claim you were negligent and sue.

You may have taken all the proper steps in this circumstance but still face legal defence costs. Professional liability insurance covers your fees whether you're at fault or not.

What is general liability insurance?

Commercial general liability insurance covers lawsuits related to bodily injury or property damage occurring on your premises. It can also cover cases that relate to libel or slander.

Suppose you operate a retail store. It's the dead of winter, and you forget to salt the walkway leading to your storefront. If a client approaches your store, slips, and bumps their head, they might sue you for medical costs, pain and suffering, and any lost wages resulting from the injury.

General liability protects you from this lawsuit. Similar to professional liability insurance, it pays for legal fees, damage awards, and out-of-court settlements up to your policy limit.

A policy can further cover situations such as:

  •   You're a plumber fixing a toilet and you accidentally damage the client's marble tiles;
  •   A client trips over a cord at your accounting office and breaks their laptop; and,
  •   You're a carpenter — you leave your toolbox out, and a third-party stubs their toe.

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What is contents insurance?

Contents insurance provides the replacement or repair value of lost, stolen, damaged, or destroyed business assets. For example, suppose a fire from an adjacent property damages your store. Many of your tools, equipment, and furniture suffer from fire and smoke damage. It's obvious you need to replace everything.

Without the proper coverage, replacements result in out-of-pocket costs. But the right contents insurance covers these amounts, so you don't face a sudden financial fallout.

Contents coverage can replace your items in one of two ways:

  •   Replacement cost basis: Provides either an amount to repair your damaged belongings or purchase a new replacement with the kind and quality of the lost, stolen, or destroyed item — whatever amount is less. Thus, even if your destroyed equipment was 11 years old, you'd receive enough compensation to purchase a brand new one.
  •   Actual cash value: Provides compensation based on the cost of buying a replacement in a similar condition to what was lost. For example, if your 13-year-old display fridge is destroyed, an actual-cash-value contents policy only provides enough to purchase another 13-year-old display fridge — not a brand new one.

Ultimately, replacement-cost-basis policies offer more compensation if your tools or belongings are lost, stolen, destroyed, or damaged. As a result, you can expect contents insurance with a replacement cost basis to charge a higher premium.

What is cybersecurity insurance?

Cybersecurity insurance (a form of technology insurance) protects you from lawsuits and other costs that arise from cyber risks. This could include data breaches, viruses, hackers, and other technology issues that ultimately create significant expenses for your business to remedy.

Suppose you run an accounting practice. You hold a lot of sensitive client information like sin numbers, credit card information, and personal and corporate documents. A hacker might find a flaw in your security systems and steal this information to sell on the dark web. As a result, your clients are unhappy that someone stole their information. Some sue you for compensation.

In this circumstance, cybersecurity insurance pays for legal fees, damage awards, and out-of-court settlements up to the policy limit — just like professional or general liability insurance.

The bottom line

Professional liability, general liability, contents, and cybersecurity insurance are four common policies on any commercial insurance plan – they mitigate significant portions of the risk that your company faces. Keep in mind that all business industries are different, and you may need to customize your coverage to include other options, such as business interruption insurance, directors and officers liability insurance, and product liability insurance

If you want to learn more about the specific risks of your business industry, speak with a licensed insurance broker in Canada. They can better explain how a particular policy fits into your circumstances and guide you through the process of purchasing the coverage you need.

APOLLO Insurance provides affordable policies from Canada's top insurers. We make insurance accessible by allowing small business owners to get instant coverage in 5 minutes or less. Coverage is also available anywhere, with any device, and on a 24/7 basis.

Get a business insurance quote and purchase your tailored small business insurance plan today. 

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