Business Insurance, Explained

Business insurance offers financial protection if a third party files a claim or lawsuit against your company. Without it, you risk the longevity and economic health of the business you’ve worked so hard to build. So, we’re here to help keep your company safe.

In the following sections, we’ll explain the ins and outs of business insurance and even tell you how we can help you acquire the perfect policy for you!


What Is Business Insurance?

Business insurance is an umbrella term used to reference the plethora of commercial coverages available. Business insurance protects you from losses and damages related to unforeseen events, including third-party property damage, errors, and bodily injury, depending on the types you purchase.

The most common forms of business insurance errors and omissions coverage, commercial property insurance, and commercial general liability coverage. The insurance policies you need depend on a multitude of factors, including your projected revenue, industry, business size, and more.


Business Insurance Claims Examples

Starting your business insurance journey can be difficult without the correct information. So, to give you a better understanding of the wide range of situations covered by business insurance types, examine the claims examples below:


Example One: Slip and Fall Claim

Your client, Betty, slips on the stairs leading to your office. Sadly, she sprains her ankle and sues your business for bodily injury.

Betty is successful with the lawsuit. But thankfully, your commercial general liability insurance covers the medical and legal fees of $15,000.


Example Two: Fire Claim

A fire breaks out in your office block, damaging your computer equipment and office furniture.

Luckily, you purchased a commercial property insurance policy which covered the entire cost of replacing the destroyed items. The total cost was $45,000, which otherwise would’ve threatened your business’ longevity.


Example Three: Hospital Renovation Claim

You are a construction project manager. A company employed you to supervise a hospital’s renovation project.

After the job, the hospital suffered severe water damage due to the incorrect installation of 50 showers. The company sued you for failing to supervise the construction job effectively. However, your errors and omissions policy paid for the damages and legal costs. Without the policy, you faced thousands of dollars worth of debt.


Example Four: E-commerce Claim

You run a prolific e-commerce store. One day, somebody hacks your data system, compromising all your customers’ financial information.

The cost to repair your data systems, cover legal fees, and notify your customers about the breach equals $455,000. Unfortunately, there isn’t enough money in your budget to settle the amount. But thankfully, you bought cyber liability insurance when you started the e-commerce business, which covered the total amount.


Example Five: Failure to Pay Claim

You run a non-profit organization and have a few executive-level members. Your organization doesn’t repay the loan you received from another entity for a charity event.

The other entity successfully sues your non-profit for breach of trust. Helpfully, your directors and officers insurance covered the settlement costs.


What Does Business Insurance Cover?

Business insurance covers a myriad of situations, depending on the specific coverage type you purchase.

Discover the coverages included under each policy type below:


Commercial General Liability (CGL) Insurance Coverage

CGL insurance provides monetary protection during claims of third-party property damage or bodily injury caused by your business’ negligence or unforeseen accident. If you’re sued, it covers legal defence and compensatory costs, no matter the outcome of the lawsuit.

The policy usually covers the legal costs and damages in these circumstances:

  • Personal and advertising injury liability — This includes allegations of slander, false advertising, defamation, and libel.
  • Product liability — If your product causes property damage or bodily injury, CGL insurance covers the associated legal costs.
  • Bodily injury liability — It provides financial coverage in the event your business operations cause bodily injury to a third party.
  • Tenant’s legal liability — Coverage for the costs to replace or repair a property you occupy or rent.

Any business owner who comes into contact with third parties (i.e., vendors, clients, etc.) should have commercial general liability coverage.


Professional Liability Insurance Coverage (Otherwise Known as Errors and Omissions)

Professional liability or errors and omissions insurance protects you from third-party claims alleging financial loss due to your service. It also includes protection during negligence lawsuits, failure to deliver services as promised, and misconduct.

Generally, the following coverage areas are included in the professional liability insurance policy:

  • Media and advertising — Media services that caused your client to get sued for slander, defamation, or libel.
  • Products — Coverage for physical injury related to your product or a product failure.
  • Professional services — It covers negligent acts related to your services, as well as failure to deliver a service as advertised.

Professional liability insurance is essential to keeping your head above water during clients’ allegations if you provide services or give advice for a fee.


Malpractice Insurance Coverage

Malpractice insurance is a type of professional liability coverage for those working in the medical profession. There are two main types of coverage here — occurrence and claims-made — but our team can help you determine which type you need.

The specifics of medical malpractice policies vary depending on your type of healthcare facility or service. But they generally all cover legal costs and damages related to the following:

  • Misdiagnosis or failure to diagnose
  • Incorrect dosage or prescription provided
  • Referral delay
  • Inflicting physical harm on a patient
  • Treatment-related injuries
  • Operating on the wrong body part
  • Unnecessary surgery
  • Lack of informed consent
  • Patient’s mental suffering caused by consultation or procedure
  • Pressure ulcers and bedsores
  • Providing substandard treatment
  • Errors and omissions on the job

We normally recommend acquiring a malpractice policy that covers reputation restoration costs. Why? Because when medical lawsuits occur, they often inflict reputational harm to you and your clinic that’s tricky to recover from.


Product Liability Insurance Coverage

Product liability insurance protects you against claims of third-party bodily injury or property damage due to a product you sell, manufacture, or distribute. It covers design, marketing, and manufacturing problems, like insufficient safety warnings or incorrect labelling.

Specifically, the policy covers:

  • Design defects — The design of the product is unsafe or faulty before it’s constructed. For example, you chose toxic materials in the design phase.
  • Marketing defects — The product isn’t defective, but the corresponding marketing is missing vital information or isn’t sufficient, including lack of assembly instructions.
  • Manufacturing defects — The product was constructed incorrectly. For instance, the item is missing a screw.

You should take out product liability insurance if:

  • you sell, distribute, or make a product, including edible items.
  • you’re involved in a distribution chain.

The coverage doesn’t cover third-party bodily injury or property damages caused by something other than your product, like a service or slips and falls.


Commercial Auto Insurance Coverage

Commercial auto insurance, sometimes known as business auto insurance or commercial vehicle insurance, covers any vehicle used for business reasons. Usually, that includes cars, trailers, vans, and trucks utilized for tools, equipment, packaged goods, materials, and people.

Any vehicle used for business should be covered by a commercial auto insurance policy to safeguard yourself from third-party property damage and liability. Personal car insurance generally doesn’t cover accidents involving work automobiles.

The coverage is similar to a personal car insurance policy, including:

  • Uninsured auto — If an accident involves an uninsured motorist or you’re a victim of a hit-and-run, your commercial auto insurance pays for vehicle damage.
  • Direct compensation-property damage (DCPD) — It covers your vehicle and any attached contents (i.e., head-up displays, dash cams, etc.) if you’re not-at-fault or partially at fault for an accident. DCPD makes it possible to deal with your insurer directly instead of suing the other party for damages.
  • Third-party liability — Coverage if you’re at fault for an accident causing third-party property damage, injury, or death.
  • Accident benefits — If you’re injured in a vehicular accident, your policy pays for medical and rehabilitation costs, regardless of fault. You can increase this part of your coverage separately.


Commercial Property Insurance Coverage

Commercial property insurance, otherwise known as business contents insurance or commercial building insurance, offers financial coverage for physical loss or damage to your property and its contents caused by an external disaster.

Coverage typically extends to the following areas:

  • Electronics — Coverage for replacing or repairing any electronics damaged or taken from inside or outside of your commercial space.
  • Inventory — It gives you the money to repair or replace inventory and merchandise damaged in events like fires or stolen.
  • Tenant improvements — Coverage for the improvements you’ve made to the property as a tenant, including lighting, carpeting, and paint. In other words, all immovable improvements.
  • Building coverage — It covers the costs involved with replacing or repairing the property itself.
  • Equipment, fixtures, and furnishings — Coverage to repair or replace furnishings, equipment, and fixtures lost or damaged during unexpected events.

However, it won’t cover you in the following circumstances:

  • Items that mysteriously disappeared without reasonable explanation
  • Property left unoccupied for more than 30 days
  • Cash, precious metals, and securities
  • Wear and tear caused by everyday use


Directors and Officers Insurance Coverage

Directors and officers insurance financially covers the costs related to loss, indemnification, and legal defence against somebody serving as an officer or director for your corporation board. It’s essential for any company, whether for-profit or otherwise, with executive-level members.

Sometimes called management liability insurance, coverage usually includes financial protection in the following circumstances:

  • Failure to adhere to federal and provincial laws and regulations
  • Misleading statements
  • Inaccurate disclosure
  • Reporting problems
  • Decisions that cause adverse monetary consequences for company shareholders
  • Breach of fiduciary or legal duties
  • Wrongful dismissals
  • Allegations of negligence and misrepresentation
  • Employee discrimination claims

Helpfully, it also covers the legal costs associated with defending the directors and officers of your business.


Cyber Liability Insurance Coverage

Containment and repairs of system breaches or hacks can be costly — especially when you factor in the potential lawsuits filed by third parties. So, cyber liability insurance protects you from being responsible for paying.

While you can customize policies, they usually include coverage for legal costs and damages associated with these areas:

  • System damage and restoration — It covers the costs involved with repairing or replacing software systems harmed during a cyber event.
  • Incident response — This clause provides 24/7 access to a cyber incident response hotline. On top of that, it pays for a team to help you coordinate an effective cybercrime response.
  • System business interruption — If you suffer income loss due to a cyberattack, the policy reimburses your business.
  • Legal, forensic, and breach management — Coverage for notification fees, legal advice, credit monitoring, and crisis management entities.

Alongside the standard policy, you can purchase a social engineering endorsement, which provides coverage if an employee is manipulated into sending funds or giving system access to a cyber-criminal.


Builder’s Risk Insurance Coverage

Otherwise known as course of construction insurance, builder’s risk coverage protects your building while it’s under construction. Both home and business owners can purchase the policy, but it’s usually the project owner who buys it for the following:

  • Constructing a new home or commercial build
  • Adding an extension or an addition to a property
  • Major renovation tasks

It covers the building, materials left on the site, and liability if physical loss or damage occurs due to an insured event (i.e., theft, vandalism, fire, etc.). However, it only remains valid for the duration of the project. Once complete, you need commercial property insurance to keep your business premise safe.

Most builder’s risk insurance policies won’t cover damages caused by:

  • Government activities
  • Contractual penalties
  • Faulty materials, planning, or design
  • Mechanical breakdowns
  • Water damage (such as flooding)


What Doesn’t Business Insurance Cover?

In general, business insurance covers incidents involving third parties only. Usually, it won’t provide coverage for:

  • You
  • Your employees
  • Contractual liability
  • Cost guarantees or cost estimates
  • Intentional criminal acts


How Much Does Business Insurance Coverage Cost?

Business insurance costs vary drastically depending on the size of your business and the type of coverage you purchase. To give you a better idea of how much you might need to spend, look at the different coverages here:


Commercial General Liability Insurance Coverage

Small- to medium-sized businesses can expect to spend $450 yearly on a regular CGL policy with a $2 million limit.

The following factors affect how much your specific policy costs:

  • Your years of experience in the industry
  • Your annual and forecasted gross revenue
  • The number of employees
  • Your coverage limit
  • Your business’ previous insurance claims history

We can help you secure a policy that fits into your budget and protects your business from all angles.


Professional Liability Insurance Coverage

A basic professional liability insurance policy with a low limit (around $100,000) costs roughly $250 per year. But it can range from $150 to $2,000, depending on the coverage limit you choose and your risk exposure level.

Your revenue, experience, industry sector, and the number of employees also change the premium price.


Malpractice Insurance Coverage

Malpractice insurance can become incredibly expensive. It largely depends on the size of your practice, the scale of potential damage, your profession within the medical field, and the coverage limit. For example:

  • The average annual premium for obstetricians in Canada is $31,000.
  • Neurosurgeons typically pay $27,900 per year for malpractice insurance.
  • Orthopedic surgeons pay on average $24,288 yearly.


Product Liability Insurance Coverage

You should anticipate spending roughly $0.25 for every $100 your business makes in sales for product liability insurance. That means selling $100,000 worth of items every year costs you $250 annually.

However, the following factors can affect your premium price:

  • Product type — Some products come with more risks than others. For instance, a skincare brand faces many risks from allergic reactions to chemical burns, making their coverage more expensive than a bookstore.
  • Quantity sold — If you sell more products than your competitors, there’s a higher chance a customer will hold you liable, increasing the price of your insurance.
  • Revenue — Customers claim more in damages when they know your revenue is high enough to withstand the payout.
  • Past claims — If you’ve been known to make numerous claims on previous product liability insurance policies, you’re seen as a higher risk than those without past claims.


Commercial Auto Insurance Coverage

While it’s hard to give you a rough idea of how much you’ll pay for car insurance, we recommend anticipating a higher premium than your personal auto policy.

The coverage cost involves several considerations, including:

  • The number of kilometres driven annually
  • Where you keep your work vehicle
  • Where you work
  • The type of vehicle (i.e., truck, van, car, etc.)
  • Your driving record and experience
  • Your age and gender
  • Endorsements (i.e., optional coverage add-ons)


Commercial Property Insurance Coverage

Aside from the coverage limit you choose, your commercial property insurance cost depends on:

  • The type of property you’re trying to insure
  • Your business type
  • The condition of the property
  • The age of the property
  • The property’s location
  • Your commercial property insurance claims history


Directors and Officers Insurance Coverage

The average cost of directors and insurance coverage is between $5,000 and $10,000 per year for a $1 million limit. But, if you’re a low-risk small business, the premiums may decrease to $500, while a high-risk company could pay up to $50,000 annually!

The specific cost for your business depends primarily on its type and size.


Cyber Liability Insurance Coverage

Professional liability insurance usually includes a low level of cyber liability insurance (below $50,000) for an extra $100 to $200 per year. However, companies storing sensitive data need a higher limit, so they must take out a standalone policy totalling $750 to $1,000 per year.

Generally, insurers take the following factors into account when deciding your premium payment:

  • Cybersecurity training initiatives taken by your employees
  • Security systems in place
  • Industry
  • Services you provide
  • Amount of customer or patient information stored


Builder’s Risk Insurance Coverage

The cost of builder’s risk insurance is largely dependent on the type of project it must cover. Usually, the project’s hard and soft costs, previous insurance claims, and the value of the building are considered when calculating your premium price.


Who Needs Business Insurance Coverage?

No matter the size of your business or its industry, insurance coverage is vital for survival. Commercial liability insurance ensures all costs associated with unexpected disasters like damage caused to third parties, defective products, and alleged negligence are covered.

Since your business is unlike any other, we suggest speaking with our team to find out which types of insurance are best for you.


How to Get Business Insurance in Canada

With LiabilityCover, finding the right insurance provider is straightforward. All it takes is these four simple steps:

  1. Complete our secure form or call our toll-free number.
  2. We analyze your insurance requirements based on the information you provide.
  3. We connect you with a licensed insurance brokerage or agency that specializes in providing insurance to your industry.
  4. The broker or agent contacts you to help you get the insurance your company needs.


Why Choose LiabilityCover

We connect professionals like you with the best licensed insurers across the country, specializing in offering coverage to others in your profession. Insurance is complicated when you attempt to brave it alone, so let us take the pressure off your shoulders. We make insurance simple.

Just follow the steps above to start your inquiry and protect your business from all eventualities.


Frequently Asked Questions


Is Business Insurance Coverage Tax Deductible?

Yes, any necessary business insurance can be deducted from your taxable income. The “necessary business insurance” types change based on your industry, but it usually includes commercial general liability insurance, cyber insurance, and commercial property insurance.


Is Insurance Mandatory to Run a Business in Canada?

No, business insurance isn’t required to run a business in Canada legally. However, it can save you a lot of money and keep your business afloat if and when lawsuits or claims occur.

If you’re trying to decide whether you need business insurance, consider your profession and industry. For instance, most governing bodies in the medical field require healthcare professionals to take out malpractice insurance.

For best results, talk to one of our team members! We’ll examine your business information and recommend policies you should consider.