Insurance is a contract and is essential to running a business. Businesses can use insurance to manage risk, helping to protect people and companies from exposure to liability. Common types of insurance include home, life, auto, fire, and property. Depending on a business's location and activity, its leaders might seek insurance to guard against the impact from anything from earthquakes to truck collisions to cybersecurity. Insurance policies do not cover every contingency. Common exclusions include criminal activity, suicide, data breaches, and dangerous activities. Under these circumstances, the insurer will not pay out even though a policy exists.
At A Glance
Insurance is a contract in which one party indemnifies another party against loss from a specified future event or contingency in return for the payment of a premium.
- Insurance lets people absorb potentially large and immediate costs from business interruptions or accidents without financial hardship or bankruptcy. People with an insurable interest in a property can buy insurance to lessen the risks of ownership.
- Common types of insurance are home, life, health, fidelity, auto, fire, property, casualty, liability, collision, inland marine, and comprehensive.
Common exclusions from insurance include suicide, drug abuse, data breaches, and dangerous activities. If these activities took place, then the insurer will not pay for a claim.
- Insurance is one mechanism for businesses to consider in managing business risk.
- The business risks that can be managed vary greatly. Insurance for these types of risks includes fidelity insurance, such as director and officer insurance, which protects the business from the breach of fiduciary duties owed by these people. It also includes life insurance on key employees or shareholders, which can fund replacements or buyouts.