Business Insurance: Coverage, Claim and Exclusions

Updated: 01-10-2019 11:43:20 AM

Losses in any business, be it small or big, are bound to happen. For a business to grow and flourish, you need to make sure that these losses do not affect the tempo of your progress. To bring such situations under control, it makes sense to get a business insurance.

What is Business Insurance?

A business insurance is like a safety belt which offers financial protection to the business from various risks. Business is not just about profits, it faces various risks as well. Safeguarding the business from unpleasant events and mishaps is extremely important for the steady growth of the business. For this reason, more and more businesses are opting for business insurance.

Types of Business Insurance

Business insurance is an end-to-end risk management scheme. It can be broadly classified under two heads.

Package policies (BOP)

Stand- alone policies

Getting a separate business insurance policy for each unforeseen event can be expensive. Thus, premium financial institutes of the country offer package policies. A typical Business Owner Policy (BOP) combines Liability Insurance with Property Insurance. Besides covering the expenses of the lost or damaged assets, the insurance will also cover legal expenses (lawsuit fees, settlement costs, lawyer payment, etc.) This type of business insurance is ideal for large businesses.

Separate policies under business insurance type cover a specific risk. Commercial Insurance companies provide specific insurance coverage to tangible and intangible business assets, fire hazards, group Mediclaim, etc. This policy is ideal for small businesses or businesses which are not concerned with all the different types of risks in the insurance list. This is cheaper than the package policy.

Eligibility Criteria 

Business insurance covers a wide range of big, small and start-up businesses. Most of the financial institutes provide coverage to the following business units. However, the list does not end here.

• Service industry
• Small restaurants
• Small retail stores
• Indian trading companies
• Indian manufacturing units
• Distributors and wholesale contractors

What all Business Insurance Covers?

Business Insurance offers comprehensive protection against all probable risks and unforeseen events that a business can encounter. Organisations can opt for a customised portfolio as mentioned below:

• Group Mediclaim: Also known as Group Health Insurance Plan, this is a scheme which insures all the employees and their immediate family members against medical expenses. This generally includes hospitalisation charges with the duration being at least 24 hours;. It also covers 30 days pre-hospitalisation and 60 days post-hospitalisation charges.
• Group Personal Accident: This is another type of Mediclaim policy under Business Insurance. Here, the expenses for unforeseen events like accidents are covered. The policy also provides compensation to the immediate family member (for example, parents/spouse) in case of accidental death.
• Asset Insurance: This plan insures the assets of a company. This generally includes damage to buildings, service facilities, walls and gates. It also covers repair costs.
• Marine Insurance: This insurance plan covers the expenses incurred due to loss/damage of goods during transit. This scheme generally covers transit damage caused through channels like railways/post/ courier/airways/roadways/sea.
• Liability Insurance: This scheme insures the third party engaged with the company. This legal liability is usually seen in manufacturing, construction and warehousing industries. This generally includes accidental deaths, disease or injuries and property loss or damage.
• Fire Insurance: This covers expenses incurred due to loss/damage of property due to fire breakouts. Some of the policies even insure property loss/damage done by natural calamities (like earthquakes, storms and floods).
• Burglary Cover: In case of theft, the insurance company provides the expenses. This policy covers cash, jewellery and valuable products.

The companies might also ask for some additional inclusions in the policy. These include-

• Neon Signs: damage is caused due to riot, theft or accident.
• Electronic equipment: Unforeseen damage caused to printers, computers and power backup.
• Plate glass: Breakage caused within the office premises.
• Baggage: If the business involves frequent travelling, loss of luggage of both the insured and the employees can be covered.

How Business Insurance Functions?

After buying a business insurance, your next step should be to understand the functioning of the insurance so that you can make claims, in case of any untoward incident. Let us see how it functions.

• Apply for the business insurance
• Insurer checks the eligibility of the business for the insurance
• The premium is calculated based on the business size, revenue generated by the company
• The business pays the premium as per the contract
• In case of any unforeseen event, the business applies for the claim amount
• The insurance company validates the claim
• In case the claim proves to be genuine, the insurance company settles the claim by paying the amount; else rejects the claim

Business Insurance Claim Process

There are two sides of the business insurance claim process:

Responsibility of the insured:

 Notify insurer of any accidents or any event which calls for a claim as soon as possible.

• If there is any crime like vandalism, the law enforcement team needs to be informed.
• After contacting the necessary bodies, the insured should follow up regularly with the insurer.

Responsibility of the insurer:

• An adjuster from the insurance company investigates the claim.
• If the claim is found genuine then the adjuster checks the policy terms and conditions.
• If the insured is eligible to get the claim, the amount is paid.

Documents Required for Claim Process

Whenever there is an eventuality, you need to immediately contact the insurance company to make claims. You should keep in place the required documents to avoid any delay or rejection. Here are some of the documents; however, the list of documents changes for different insurance plans.

• Duly filled in claim forms
• A picture or record of the event. This will help to substantiate the facts which have been mentioned in the claim application
• Police reports, as per the need and type of insurance

Time Taken to Settle the Claims

Usually, the insurance company settles the claim within 30 days of receipt of the application. However, the duration varies for different companies.

Companies Offering Business Insurance

• Bharti AXA
• Future Generali
• ICICI Lombard
• National Insurance
• United India Insurance

Exclusions under Business Insurance 

While the business insurance can keep an organisation safe from most of the risks associated with its business, there are few perils which are not covered under this policy. These include proper loss or damage caused by:

• Wildlife
• Power failure
• Wear and tear
• Military action
• Nuclear hazards
• Any type of pollution
• Governmental actions
• Explosion of machinery
• Expansion and shrinking of property
• Action as a result of Law enforcement
• Illegal activities performed by the insured

Important Aspects

Business owners can apply for the compensation only if:

• There is an actual loss of business income.
• There is suspension of activities due to the mishap.
• Need to make critical repairs as soon as possible. As the insurer will need to know the repairing costs and will also ask for proper evidence.
• Business owners need to inform the insurer about all aspects of the business. If any fact is not disclosed, it might invalidate the cover.
• If the damage is caused due to lack of maintenance, the claim might be rejected.

Advantages of Buying Business Insurance

Business insurance is heart and soul of business-risk management. Some benefits of getting a business insurance are:

• Compensates loss of income
• Secures the employees in case of medical issues, which ultimately motivates them to perform
• Improves credibility of the business in the eyes of clients and employees. Some clients might not enter into a contract if the business is not insured.

Also Read : Commercial Insurance: Coverage, Claim and Exclusions

FAQs

Q1. How is the premium for business insurance calculated?

The premium depends on the size of the business, type of business, coverage amount, number of earlier claims and business tenure.

Q2. Are imported or exported goods covered under business insurance?

Yes, this kind of business can be covered under marine and aviation insurance.

Q3. Can a business insurance help if a business owner dies or becomes disabled?

Income insurance, a part of business insurance, supports the business owners in case of long-term disability or death. This insurance guarantees a fixed income for a certain time period.

Q4. What is the difference between claims made coverage and prior acts coverage?

Claims made coverage refers to the claim for damage or losses which occurred during the policy term. Prior acts coverage refers to the claim for damage or loss which occurred before the initiation of the policy.

Q5. What is BOP?

It is Business Owner’s Policy, which is a combination of property and liability insurance policies.

Q6. What is the significance of claim history?

A policyholder’s claim history stays in record for 7 years. Even if the insurer switches providers, the previous claims will be considered before sanctioning the new ones.