When establishing a company in the U.S. market, several types of insurance are required and others may be necessary, even if they aren’t mandatory. What is required depends on the circumstances. Companies and individuals in the U.S. have a history and tendency to be quite litigious, therefore it is wise to be fully covered in the event that a problem or lawsuit should arise.
First, it is important to understand exactly what insurance is. Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily uses to hedge against the risk of a contingent, uncertain loss. Typical U.S. insurance types are listed below, but this list is not exhaustive:
Insurance typically required and used by companies:
- General Liability Insurance: In the United States, general liability insurance coverage most often appears in the Commercial General Liability policies obtained by businesses, which covers both public and product risks. It is a part of the general insurance system of risk financing to protect the purchaser (the “insured”) from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event it sued for claims that come within the coverage of the insurance policy.
- Property Insurance: Provides protection against most risks to property, such as fire, theft, and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance. Property insurance covers your office or manufacturing facility, but also your goods in third-party warehouses.
- Umbrella Insurance: An umbrella insurance policy offers extra liability coverage that goes beyond the limits of the insured’s general liability insurance. It protects against being sued for damages and owing more money than is covered by the general liability policy. It also protects against libel, vandalism, slander, and invasion of privacy.
- Worker’s Compensation (WC): WC is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence. There are different requirements in each state as to how many employees a company can have before this becomes a mandatory requirement.
- Cargo Insurance: A sub-branch of marine insurance, covering a company’s property that is shipped via freight on ships. When transporting goods via mail or courier, shipping insurance is used instead.
- Directors and Officers Liability Insurance (D&O): D&O is liability insurance payable to the directors and officers of a company, or to the organization(s) itself, as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers of the company. (It is typical for a company and its officers to be named in a lawsuit.)
Insurance engaged less frequently, depending on certain circumstances:
- Renter’s Insurance: If the company plans to pay for an apartment, most complexes require renter’s insurance. This provides most of the benefits of homeowner’s insurance (which should be bought if a house or condo is purchased instead of rented). The tenant’s personal property is covered against named perils such as fire, theft, and vandalism. The owner of the building is responsible for insuring it, but bears no responsibility for the tenant’s belongings.
- Auto Insurance: If you will have a company car, auto insurance is needed. It typically includes property coverage (damage or theft of the car), liability coverage (legal responsibility to others for bodily injury or property damage), and medical coverage (for bodily injury, rehabilitation, lost wages, and funeral expenses).