Understanding Your Coverage: A Plain-English Guide

Insurance policies are written by lawyers for other lawyers. This is not an accident. It's a feature—one that benefits carriers who can point to precise language when denying claims, and one that frustrates everyone else involved.

Let me translate the most important parts of your commercial coverage into something resembling human language.

General Liability: What It Actually Covers

Your general liability policy covers you when someone who isn't your employee gets hurt or has their property damaged because of something your business did.

The classic examples: A customer slips on your wet floor. Your product injures someone. Your employee accidentally damages a client's property while on-site. Your advertising infringes on someone's trademark.

What it doesn't cover: Your own employees (that's workers' comp). Your own property (that's your property policy). Professional advice that goes wrong (that's professional liability). Intentional acts (those aren't accidents). Things you knew were going to happen (not insurable).

The limits: "Each Occurrence" is the maximum the policy pays for any single incident. "General Aggregate" is the maximum it pays in total for the policy period. "Products-Completed Operations Aggregate" is a separate bucket for claims related to products you've sold or work you've finished.

If you remember one thing: General liability covers accidents that hurt other people or their stuff. It doesn't cover damage to yourself, your employees, or your own property.

Property Insurance: What It Actually Covers

Your property policy covers your stuff when something bad happens to it.

"Your stuff" means: Your building if you own it. Your contents (furniture, equipment, inventory). Your improvements and betterments if you lease. Your business personal property wherever it's located.

"Something bad" depends on your policy form. "Named perils" coverage only covers specific things listed in the policy—fire, lightning, explosion, windstorm, etc. "Special form" coverage (also called "all-risk") covers everything except what's specifically excluded.

The exclusions that matter most: Flood is excluded (you need a separate flood policy). Earthquake is excluded (you need a separate endorsement). Normal wear and tear is excluded. Intentional damage is excluded. Government action (like condemnation) is usually excluded.

The valuation trap: "Actual Cash Value" means you get paid what your stuff was worth at the time of loss, including depreciation. Your 5-year-old equipment might be worth 30% of what you paid. "Replacement Cost" means you get paid what it costs to replace your stuff with new stuff of similar kind and quality. Always try to get replacement cost coverage.

Business Interruption: The Coverage Nobody Understands

Here's a scenario: A fire damages your building. Your property insurance pays to repair the damage. But while repairs are happening—maybe four months—you can't operate. No revenue. Employees still need to be paid. Rent is still due.

Business interruption coverage pays for the income you lose and the expenses you continue to incur when a covered property loss shuts down your operations.

What triggers it: A covered property loss. If the property damage isn't covered, the business interruption isn't covered either.

What it pays: Your "net income" (profit) plus "continuing expenses" (things like rent and key employee salaries that continue even when you're shut down). Not payroll for employees you lay off. Not expenses you don't actually incur.

The period of restoration: Coverage lasts from the time of loss until you could reasonably be back in operation with similar equipment. Not until you actually reopen—until you reasonably could. If you drag your feet on repairs, the carrier isn't paying for your delay.

Why this matters: Most businesses could survive a property loss if they could keep operating. It's the months without income that kill them. Business interruption coverage is often the difference between recovering and closing permanently.

Workers' Compensation: The Non-Negotiable Coverage

Workers' comp is different from other commercial insurance. In most states, it's legally required if you have employees. The coverage is statutory—meaning the state defines what it covers, not your policy language.

What it covers: Medical expenses for work-related injuries and illnesses. Disability payments when employees can't work. Death benefits for families of employees killed on the job. Rehabilitation services.

What it doesn't cover: Independent contractors (usually). Injuries that happen outside of work. Self-inflicted injuries. Injuries that occur while an employee is committing a felony.

The employer's liability portion: Part B of your workers' comp policy covers lawsuits from employees for work-related injuries that fall outside the workers' comp system. This is rare but possible—typically when employers are grossly negligent.

Your experience modification rate: Your workers' comp premium is heavily influenced by your claims history. Businesses with more workplace injuries pay more. Businesses with safety programs and low claim rates pay less. A 0.7 experience mod means you pay 30% less than average; a 1.3 mod means you pay 30% more.

Commercial Auto: More Than Just Vehicle Coverage

Commercial auto covers vehicles owned by your business and liability arising from their use.

Liability: Pays for injuries and damage you cause to others while driving for business. This is the coverage other people care about—it's often required by contracts and clients.

Physical damage: Pays to repair or replace your own vehicles. "Comprehensive" covers non-collision damage (theft, vandalism, weather). "Collision" covers collision damage. You can carry both, one, or neither.

Hired and non-owned auto: Covers your liability when employees drive their personal vehicles for business, or when you rent vehicles. This is the coverage most small businesses need and many don't have.

The personal auto trap: Your personal auto policy probably excludes business use. If you're driving your personal car for work and cause an accident, your personal insurance might deny the claim, and if you don't have commercial coverage, you're personally exposed.

The Bottom Line

Insurance is confusing on purpose. Complexity benefits the party that drafted the contract, which is always the insurance company.

But the core concepts are manageable. General liability covers accidents that hurt others. Property insurance covers your stuff. Business interruption covers your income when you can't operate. Workers' comp covers your employees. Commercial auto covers your vehicles.

The devil is in the exclusions and limitations. That's where claims get denied and businesses get surprised. Understanding the basics helps you ask better questions about those details.