Insurance Handbook - Alaska Department of Community and ...

Insurance Basics
Business Insurance
policy limit. It also provides for legal defense costs, even where there has been
no wrongdoing.
4. Umbrella or Excess Policies
As the name implies, an umbrella liability policy provides coverage over and
above a business’s other liability coverages. It is designed to protect against
unusually high losses, providing protection when the policy limits of one of the
underlying policies have been used up. For a typical business, an umbrella policy
would provide protection beyond Its general liability and auto liability policies.
If a company has employment practices liability insurance, directors and
officers liability, or other types of liability insurance, the umbrella could provide
protection beyond those policy limits as well. Cost depends on the nature of the
business, its size, the type of risks the business faces and the ways the business
implements risk reduction.
5. Key Person Life Insurance
The loss of a key person can be a major blow to a small business if that person
is the founder of the business or is the key contact for customers and suppliers
and the management of the business. Loss of the key person may also make the
running of the business less efficient and result in a loss of capital. Losses caused
by the death of a key employee are insurable. Such policies compensate the
business against significant losses that result from that person’s death or disability.
The amount and cost of insurance needed for a particular business depends
on the situation and the age, health and role of the key employee. Key employee
life insurance pays a death benefit to the company when the key employee
dies. The policy is normally owned by the company, which pays the premiums
and is the beneficiary. The monies from key person insurance can be used to
buy back shares in a company from the estate of the deceased, pay a head hunting
firm to find a suitable replacement and cover costs or expenses while the
business adjusts to the loss.
Package Policies
Commercial insurers sell coverages separately and/or offer policies that combine
protection from most major property and liability risks in one package. Package
policies are created for types of businesses that generally face the same kind and
degree of risk.
1. Packages for Small Businesses
Smaller companies often purchase a package policy known as the Business-
14 I.I.I. Insurance Handbook www.iii.org/insurancehandbook