business INSURANCE FAQ
What is business insurance?
Insurance is generally split down the middle into 2 categories: business insurance and personal insurance.
Most of us are familiar with personal insurance – insurance that insures personal property. If you’ve ever bought home insurance, tenants insurance or automobile insurance then you’ve bought a personal insurance policy.
Business insurance is a category of insurance that protects your business property and liability. Because the nature of businesses varies widely, there are also a great number of business insurance policies to cover a variety of risks.
For example, a business owner might purchase a Commercial Property policy to cover their office equipment, a Commercial General Liability policy (CGL) to protect them against things like slips and falls and a Professional Liability policy to protect themselves against allegations of negligence when providing professional services.
How do you get business insurance?
There are many ways to get business insurance, the most common way is to contact your insurance broker. You can also purchase business insurance directly from an insurance company or even online but it’s not recommended.
Business insurance is a bit more complex than your typical tenant insurance policy and it pays to work with a broker to ensure all your bases are covered, the right limits are selected and you understand all the terms and conditions.
What does a business insurance policy cover?
There are different types of business insurance policies that cover almost everything you can think of. It’s best to speak to a licensed insurance broker about your particular business to identify what types of risks you’re exposed to and what types of insurance you would need to protect against them.
Commercial Property Insurance:this provides coverage for your business property.
Commercial General Liability Insurance (CGL):this provides coverage against liability you might face if your business operations or premises cause bodily injury/sickness or property damage.
Professional Indemnity Insurance: this provides coverage for liability you might face from clients that allege bodily injury/sickness or property damage from your failure to provide proper professional services. If you’re classified as a professional (i.e. insurance broker, lawyer, realtor, consultant, etc.) you would need this coverage as it’s not provided by your CGL.
Business Interruption Insurance: if your property is damaged by an insured peril and you’re unable to operate your business, this insurance will pay for lost income and continuing expenses until your property is restored.
Directors & Officers Insurance: this insurance protects directors and officers of a company for duties owed to shareholders, creditors, employees, etc.
Often times, these various business insurance policies are available as 1 larger package policy covering the most common risks faced by most “Main Street” businesses.
Why do I need business insurance?
Most businesses invest heavily in their equipment, inventory, renovations, etc. If your business property were to be lost, you could be faced with significant expense to replace them and possible business interruption and lost income until they’re replaced. As with any large asset (i.e. your house), you should make sure it’s well protected with property insurance. Business insurance is one way to do that.
Another large risk your business would face is liability. If you operate a physical location with customers coming in and out, you have the duty to make sure they’re reasonably safe while on premises. Your business operations on or off premises (i.e. stocking shelves in the store, installations at a customer’s home, or liability for professional services) can also lead to lawsuits alleging bodily injury or property damage. The costs to defend yourself in court and pay damages can cripple your business. Investing in the appropriate business liability insurance policies can protect your business against this.
Is it mandatory to have business insurance?
No it is not strictly mandatory to have business insurance although other parties you work with may require you to carry it. For example, landlords may require you to carry property insurance or retailers may require you to have liability insurance before they would consider stocking your products.
Also, if you employ 1 or more people in Hong Kong (including part time and seasonal workers), you are required by the EC Ordinance to carry Employees’ Compensation Insurance to cover your liability for employees injured on the job.
What kind of insurance do I need for my business?
It depends on the type of business that you operate.
If you’ve made significant investments in commercial property, you should purchase commercial property insurance to protect it.
Similarly, if you are at risk of having your business operations and sales interrupted by the loss of physical property (ie. production machinery or your physical retail locations) you should purchase business interruption insurance to guard against it.
If you maintain a physical premises open to the public or have business operations that take place on site or at a customer’s location, a commercial general liability policy is essential.
If you offer professional services, insurance may be a requirement prior to licensure by your regulatory body. If not, professional indemnity insurance is still a good idea.
This is a short list of the most common types of business insurance in Hong Kong. To figure out which coverage(s) you actually need, you should speak with an insurance broker.
How much business insurance do I need?
It depends. Usually your commercial property insurance limits will depend on how much physical property you have (including inventory, money spent on renovations and upgrades, and physical equipment). You should choose a limit of insurance equal to what it would cost to replace that property if it were to be lost.
For the various types of liability insurance policies, you should choose a limit of insurance based on your gross receipts. The higher the value of your client contracts and the more volume of business you do, the higher the limit you should purchase.
A good commercial insurance broker should be able to help you tally up your numbers. Get in touch with a licensed Trusted Union commercial insurance broker to help you calculate these numbers.
How much is small business insurance per month?
It depends on what type of business you operate, how large your business is and what types of coverage you require.
Generally speaking, the cost of insurance scales up as you acquire more physical property or generate more revenues. This means that it should never be more than you can afford. Speak with a licensed Trusted Union commercial insurance broker in Hong Kong to get a more accurate estimate based on your unique business needs, budget and risk tolerance.
Does business insurance cover legal fees?
Yes, if you have a liability policy, it will include coverage for legal fees related to defending a lawsuit or claim against your business. This coverage for legal expenses pays in excess of the limits of insurance selected.
That means the coverage for legal expenses is technically unlimited and your limit of insurance is meant solely to pay for damages awarded against your business if you were to lose in court.
Do I need business insurance if I work from home?
Yes, even if you work from home, it may be prudent to purchase business insurance depending on the size of your business in terms of revenue and business operations.
Even though you don’t have a dedicated physical location, if clients come to visit you at your home office, you could face liability if they are injured while on premises.
If you provide professional services like consulting, engineering, legal services, or work as a real estate agent or broker, you could still face liability for failing to property perform your professional duties.
If you work from home and are thinking about insurance, there’s a good chance that you’re already seeing some of the risks you might face. Speaking with an insurance broker might help you decide whether you need insurance or not. In most cases, insurance for home based businesses is quite inexpensive and is a worthwhile investment to protect what you’ve built.
Do you need insurance to start a business?
No, it is not a requirement. Many home-based small businesses actually start out without insurance simply because in the early stages, the size of business makes insurance financially infeasible.
But once you get to a certain size or start investing more heavily in physical inventory or equipment, business insurance becomes more important as there’s more exposure and more to lose.
The only caveat here is Employees Compensation Insurance (EC Insurance). If you employ 1 or more people (including part time or seasonal workers), you need to purchase EC Insurance or face penalties under the EC Ordinance.
