A BUSINESS OWNERS GUIDE TO
COMMERCIAL
INSURANCE
INSURANCE ADMINISTRATION
A BUSINESS OWNERS GUIDE TO
COMMERCIAL
INSURANCE
INSURANCE ADMINISTRATION
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
TABLE OF CONTENTS
Who We Are .......................................................................................................................... 1
How We Help Consumers...................................................................................................... 1
Resources for Consumers ....................................................................................................... 2
Introduction to Commercial Insurance .................................................................................. 3
Insurance for Your Business .................................................................................................... 4
• Commercial Auto Insurance .............................................................................................. 4
• Property and Liability Insurance ........................................................................................ 8
• Property Insurance ............................................................................................................ 8
• Business Interruption/Continuation Insurance .................................................................. 9
• What to Do After a Property Loss ................................................................................... 11
• Liability Insurance ........................................................................................................... 12
• Business Owners Policy: A Package Solution ................................................................... 16
• Home-Based Business Insurance ...................................................................................... 16
• Workers’ Compensation Insurance .................................................................................. 18
• Other Types of Coverage to Consider for Your Business .................................................. 20
• Flood Insurance ........................................................................................................... 20
• Earthquake Insurance .................................................................................................. 21
• Surety Bonds ................................................................................................................ 21
Insurance for Your Employees .............................................................................................. 22
• Health Insurance for Small Businesses ............................................................................. 22
• Group Disability Insurance ............................................................................................. 26
• Group Life Insurance ...................................................................................................... 27
• Key Person Life Insurance ............................................................................................... 28
Contact Information for Maryland Businesses ...................................................................... 31
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
WHO WE ARE
e Maryland Insurance Administration (MIA), founded as the Maryland Insurance Division
in 1872, is an independent state agency located in downtown Baltimore. is agency regulates
Maryland’s $26 billion insurance industry and makes certain that insurance companies, health plans
and producers (agents and brokers) comply with Maryland’s insurance laws. e MIA also licenses
more than 110,000 producers and approximately 1,500 insurance companies, regulates insurance
rates and forms, monitors insurer solvency, investigates consumer complaints and travels across the
state to provide consumers with educational materials on insurance.
HOW WE HELP
CONSUMERS
e MIA can educate you about your rights and investigate written
allegations that your insurance carrier, insurance producer (agent or
broker), or another entity engaged in the business of insurance has
violated state law. Violations may include:
• denying authorization for medically necessary services;
• improperly denying or delaying payment of all or portions of a
claim;
• improperly terminating your insurance policy;
• raising your insurance premiums without the proper notice or in
excess of what the law allows;
• making false statements to you in connection with the sale of insurance or the processing of
insurance claims; or
• overcharging you for services, including premium nance charges.
We provide assistance to consumers, businesses, health care providers (including doctors and
hospitals) and producers (agents and brokers) in all areas of insurance. is includes life, health,
disability, workers’ compensation, automobile, homeowners, and property insurance. e MIA does
not have jurisdiction over workers’ compensation claims. ose complaints should be directed to
the Workers’ Compensation Commission at www.wcc.state.md.us.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
e MIA provides assistance by:
• answering general insurance questions and providing educational information about dierent
types of insurance coverages. We oer guides to help you compare rates among insurance
companies writing automobile and homeowners insurance, medical professional liability
insurance, health coverage for small employers, as well as Medicare supplement insurance
policies. Some include questions you may wish to ask when shopping for insurance.
• suggesting actions or processes you may take to help resolve your insurance problem;
• forwarding a copy of your complaint to the insurance company, if appropriate;
• obtaining written and verbal information or explanations from the insurance company or its
representatives on your behalf.
• investigating a company’s action(s) to determine compliance with state law, regulations and
policy contracts;
• taking corrective action against a company if it violated a state law, regulation or policy that
the MIA enforces.
RESOURCES FOR
CONSUMERS
e MIA produces consumer guides, rate comparisons and frequently asked questions (FAQs) related
to various types of insurance. Here are some of the publications we oer to consumers:
• A Consumer Guide to Homeowners Insurance;
• A Consumer Guide to Auto Insurance;
• A Consumer Guide to Life Insurance; and
• An Insurance Preparedness Guide for Natural Disasters.
You may access this information in several ways:
• Download from the MIA’s website, www.insurance.maryland.gov, then under “Consumers,”
click on “Publications” and scroll down the page to locate the brochure you want.
• Call 800-492-6116 or write to us, and we will mail copies to you.
• Visit our booth at community events throughout the state.
• Find these printed materials at various state and local agencies.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
INTRODUCTION TO
COMMERCIAL INSURANCE
Operating a business is challenging enough without having to worry about suering a signicant
nancial loss due to unforeseen and unplanned circumstances. Commercial insurance can protect
your business from some of the more common losses experienced by business owners, such as
property damage, business interruption, theft, liability, and employee injury. Purchasing the
appropriate commercial insurance coverage can make the dierence between going out of business
after a loss or recovering with minimal business interruption and nancial impairment to your
company’s operations.
HOW DO I PURCHASE COMMERCIAL INSURANCE?
When looking to purchase commercial insurance, the best place to start is to identify a licensed
producer (agent or broker). A producer can help you decide what types of coverages you need, which
policy you should purchase, how to shop for the best policy and coverage, and when your coverages
could be more cost-eective.
A trusted agent or broker can be a valuable asset to your business—someone who understands
your business, not just the coverage being sold. Producers should understand the insurance policies,
the companies they represent, how the company handles and pays claims, and the rating and audit
provisions applicable to commercial policies. Friends, associates, attorneys, and nancial consultants
may be able to refer you to a producer. e MIA can tell you whether the producer is licensed and in
good standing.
WHAT KIND OF INSURANCE DO I NEED TO PURCHASE FOR MY BUSINESS?
Many kinds of insurance are available to businesses. Which one you should purchase depends upon
the individual risk characteristics of your business, and the type(s) of loss you want to insure against.
A licensed producer will be able to present you with dierent policy and coverage options.
It is important to understand that a producer’s proposal is just that—a proposal. When all is said and
done, it is your choice. Make an informed decision about which insurance best ts your business
and oers you the desired level of protection. e relationship you build with your producer is
extremely valuable in this critical decision-making process. Experienced, licensed producers deal with
lots of businesses similar to yours and can oer you the benet of their knowledge to ensure that you
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
do not have gaps in coverage. Commercial insurance can be complicated, so be sure to discuss
any terms, conditions, or concepts you are not familiar with or do not fully understand with your
producer. One of the services producers provide is their ability to answer your questions and help
you understand the insurance you are considering.
While your business may not need all types of commercial coverages, it is a good idea to have basic
knowledge of the types of insurance coverages available. As your business changes and expands, you
should reassess your coverages and determine what additional coverages you may wish to purchase.
is is particularly true if your business grows and new risk exposures arise.
INSURANCE FOR
YOUR BUSINESS
COMMERCIAL AUTO INSURANCE
All motorized vehicles registered in Maryland, whether used for personal or business purposes, are
required to carry automobile liability insurance. When a policy is canceled or nonrenewed, an insurer
is legally required to notify the Maryland Vehicle Administration (MVA) of the policy’s termination.
Automobile liability insurance coverage includes payment for medical expenses and damages
sustained by other injured people (i.e. bodily injury) and damages to the property of other
individuals as a result of a motor vehicle accident caused by the insured’s negligence. e
minimum amount of liability coverage required by Maryland law is:
• $30,000 for bodily injury per person;
• $60,000 bodily injury per accident; and
• $15,000 property damage.
Maryland has two other statutorily required automobile coverages: Uninsured/Underinsured
Motorist and Personal Injury Protection (PIP). e minimum amount of Uninsured Motorist
Coverage required by Maryland law is:
• $30,000 for bodily injury per person;
• $60,000 bodily injury per accident; and
• $15,000 property damage.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
e limits for bodily injury per person and per accident also provide underinsured motorist
coverage. However, as a business, you may wish to purchase automobile insurance above the
minimum limits. You should discuss this in greater detail with your agent or broker.
Maryland law requires insurers to oer their policyholders at least $2,500 in Personal Injury
Protection (PIP) coverage. However, you may be able to waive PIP coverage in certain instances.
is is known as “Limited PIP.” Also, if you meet some conditions, MAIF and some other insurance
companies will permit you to fully waive PIP. Waiving PIP in part or in full may reduce your
premium. You should consult your producer for a thorough explanation of PIP and the options
available.
e MVA conducts a random sample of registered vehicles to ensure that vehicle owners have
purchased the minimum required insurance coverage and that the insurance on the vehicle is
maintained. If the MVA cannot verify insurance coverage, it will request the vehicle owner to provide
a Financial Responsibility Filing (FR-19) to verify that adequate liability insurance has been in place
since the vehicle was purchased. e policyholder is entitled to obtain an FR-19 from their insurer
at no charge. If liability insurance cannot be verified, the MVA will fine the vehicle owner for each
day the vehicle was uninsured. A fine of $200 is levied if the vehicle is uninsured for 1 day to 30 days;
there is an additional charge of $7 per day for each day after the 30th day that the vehicle is
uninsured (up to a maximum of $3,500 per year).
If it is established that your vehicle was uninsured for a period of time, this lapse in coverage may
result in an increase in your insurance premium. In addition, you may nd that some insurers will
not insure you or your vehicle if there was a lapse in coverage while you owned the vehicle. Statistics
show those who drive without insurance present a greater risk for future losses than those drivers
who maintain continuous insurance coverage.
DO YOU NEED A COMMERCIAL OR PERSONAL POLICY?
While personal and commercial auto insurance policies provide similar types of coverage, there are
important distinctions. Commercial auto insurance policies typically have higher liability limits
than a personal automobile liability insurance policy. For example, a typical commercial auto policy
may have a liability limit of $1 million. A commercial auto liability insurance policy also may have
provisions that cover rented and other non-owned vehicles, such as employee-owned vehicles that are
driven for company business.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
Several factors should be considered when determining whether a personal or commercial policy is
appropriate. ese include:
• Who owns or leases the vehicle? You or the business as an entity? Who drives the vehicle?
You or your employees?
• How is the vehicle principally used? For transporting people, delivering packages or carrying
hazardous materials?
• Do you allow your employees to take the vehicle home, or is its use restricted to work hours?
Discuss these issues with a licensed insurance producer who is knowledgeable about commercial
and personal auto insurance. Also, consider purchasing collision and comprehensive (coverage
for losses other than collision) coverage to protect your business from losses and damage to
your vehicle. Banks and other nancial institutions with a security interest in your vehicle will
require both comprehensive and collision coverage to protect their interest in the vehicle.
WHAT FACTORS AFFECT THE COST OF YOUR INSURANCE PREMIUMS?
• Type of vehicle. Premiums are linked to the type of vehicle you drive. So if you’re buying or
leasing a new car or truck, check the insurance rates before you make your nal choice.
• Safety devices. If you’re buying or leasing a new vehicle, consider getting one with anti-lock
brakes, front and side airbags, automatic seat belts and daytime running lights; these safety
devices may result in a lower premium.
• Anti-theft devices. Alarm systems or tracking systems that locate your vehicle if stolen may
reduce your premium.
• Garage location. Where you garage your vehicle may impact premiums. If you have access
to an indoor garage or locked parking lot—places that decrease the likelihood of theft—you
may qualify for a lower premium.
• Geographic location. e geographic region in which your business operates may aect
your premium. For example, areas prone to extreme weather—hail, wind storms, hurricanes,
etc.—higher trac patterns or higher risk of theft may have higher insurance rates.
• Driving and claims history. Your personal driving record and the number of claims you have
previously led may aect your ability to obtain insurance in the private market and may
impact the amount of your premium.
• Amount of coverage. e coverage limits you choose may aect the premium; the higher the
coverage amount, the higher your premium. If you’re using your vehicle to conduct business,
you may want to consider a higher liability limit so that the coverage will be sucient to
protect both your business and personal assets if you are sued due to an accident.
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
• Amount of deductible. e cost of your insurance is directly linked to the amount of your
deductible. e deductible is the amount of money that you agree to pay for a loss or claim
before your insurer pays any monies for the remaining amount due to cover the cost of
the claim. For example, if your vehicle incurred $1,000 of damage in an accident and your
deductible is $250, you would pay the rst $250 and your insurer would pay the remaining
$750. e higher your deductible, the lower your premium.
• Insurance history. As discussed above, failing to maintain continuous automobile liability
insurance coverage as required by law can result in a higher premium when new coverage is
sought. An insurer may also refuse to provide coverage if you have had a lapse in coverage.
TIPS AND CONSIDERATIONS CONCERNING COMMERCIAL AUTO INSURANCE
• If your business owns or leases a vehicle, make sure the name of the business is listed on the
policy declaration page as the insured.
• If you are relying on either a personal auto or personal umbrella liability insurance policy
to provide you with protection for your company’s use of vehicles, closely review the policy
language. Many personal insurance policies exclude business-related liability claims.
• If your employees operate a company car, make sure they have good driving records and are
trained properly before you entrust your company vehicle to them. Failure to do so may
expose your company to additional liability. e risk presented by your employees may
exceed the company’s underwriting guidelines and prevent you from getting insurance with
the company you desire.
• Consider increasing insurance on your business vehicle(s) to cover permanently attached
items, such as a generator or a storage unit.
If you cannot obtain commercial auto insurance in the private market, Maryland business owners
may obtain auto liability coverage from the Maryland Automobile Insurance Fund (MAIF). For
more information, call 800-492-7120 or visit www.mymarylandauto.com.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
PROPERTY AND LIABILITY INSURANCE
Property and liability insurance provides businesses with important protection against loss or damage
to property and equipment, including computers. In addition, it protects the business from claims
made by others for damages or injuries to customers, clients or the property of others.
PROPERTY INSURANCE
Property insurance protects small business owners from losses due to
damage to their business property, including the business’ physical space
or equipment. For insurance purposes, business property includes the
physical building in which the business resides, assuming the business
owns the building, as well as the property owned by the business that is
located within the building and other assets of the business. While the
terms of coverage, and the specic property covered, depends upon the
specic language of the policy you obtain, the following types of property
may be considered business property:
• the building or physical plant where the business is located;
• inventory;
• furniture, equipment and supplies;
• machinery;
• computers and other data processing equipment;
• valuable papers, books and documents;
• antiques and artwork;
• televisions, VCRs, DVD players, and satellite dishes;
• signs, fences and outdoor property not attached to a building; or
• intangible items such as trademarks, copyrights and other intellectual property.
ere are three types of property insurance plans:
• Basic form, which provides coverage for losses resulting from a re, lightning, windstorm,
hail and explosion, plus the cost of removing property to protect it from further damage.
• Broad form, which includes the coverages described above, plus extended coverage for other
types of perils, such as a roof collapse due to snow or ice, or broken windows caused by a riot
and civil commotion.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
• Special form, which includes the basic and broad coverages, as well as all direct physical
losses except those conditions specically excluded in the policy.
With property insurance, you can purchase either actual cash value (ACV) or replacement cost
(RC) coverage. ACV insurance reimburses you for the value of lost, damaged or stolen goods after
depreciation is taken into consideration. RC insurance reimburses you the amount it would take to
replace, rebuild or repair damages with materials of similar kind and quality, without any deduction
for depreciation.
BUSINESS INTERRUPTION/
CONTINUATION INSURANCE
Business interruption insurance, also known as business continuation insurance, provides coverage
for expenses associated with running a business, such as payroll and utility bills, when the business
is unable to operate for an extended period of time because of a re, or other type of loss as specied
in the policy. While the policy will specify how such expenses are to be determined and how many
days coverage will be provided, the amount of coverage is typically based on the company’s nancial
records. Business interruption/continuation coverage can be added to a property insurance policy
or purchased as part of a package insurance product. Even if you purchase business interruption
coverage, you should be aware that this type of coverage typically is not triggered until a specied
period of time has passed following a covered loss that results in the interruption of the business.
at time period will be set forth in your policy.
TIPS AND CONSIDERATIONS CONCERNING PROPERTY INSURANCE
• Know the current value of your property. For any type of property insurance, it is important to
have your property values assessed both before you buy the policy and periodically thereafter
to ensure that your coverage amounts are sucient to protect your business. Keep copies of
receipts for equipment, furniture and other valuable items in case your business sustains a loss or
damage, or the business premises are destroyed. Store hard copies of these receipts and/or digital
photos of the property in another location, such as in a bank safe deposit box or on a website
hosted by a photo service, so you can access them following a loss.
• Get a professional appraisal for high-value and specialty items. Before you purchase property
insurance, hire a reputable appraiser to determine the value of high-value and specialty items,
such as antiques and artwork. ese items should be insured separately. It is important that you
specically tell your producer about these specialty items so that the correct coverage will be
provided. ese types of items usually are covered for an agreed-upon amount (value of item is
pre-determined) before a policy is written and a loss has occurred.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
• Keep your insurance policy at an osite location so that, in the event of a loss, you will be
able to retrieve it and review your coverages.
• Obtain coverage even if you lease your business facility or property, or business equipment.
Do not rely on the owner to provide insurance for you. If you lease your building or oces,
or lease business equipment, you should carefully read those contracts to determine whether
you need to obtain separate coverage and the minimum amount of coverage required.
• When you purchase property insurance, read your policy to see what is and is not covered.
You may need to obtain additional coverage to cover property or equipment not otherwise
covered, so you will be protected fully if something happens to your property/equipment or
if someone sues you for damages caused by you or your employee. Contact your insurance
producer if you are unsure whether something is covered or not, and to arrange for coverage
of property not otherwise insured. For example, since ood and sewer backup are not
typically part of a commercial property policy, you may want to obtain a separate policy or
endorsement to cover this type of damage.
• A property insurance policy generally includes a statement specifying the “limit of liability.”
e limit of liability is the maximum amount an insurer will pay for a covered loss. e
policyholder is usually liable for any amount above that limit. Be sure your limit of liability is
sucient to protect you and your business in the event of a loss or claim.
• If you have diculty insuring your building because of its location, the Joint Insurance
Association (JIA) may be able to assist you. e JIA is a private organization comprised
of private insurance carriers that operate in Maryland and is funded by premiums from
property and casualty policies sold in the state. e JIA oers insurance for property located
in Maryland to businesses that are unable to secure coverage in the private marketplace.
Premiums may be higher than insurance obtained through a private insurer, so applicants are
encouraged to seek coverage from regular insurance companies rst. If you are interested in
obtaining insurance through JIA, contact a licensed property/casualty insurance producer, or
contact JIA at 410-539-6808, 800-492-5670, or www.mdjia.org.
• e level of coverage required for business interruption coverage
is directly related to the type and size of business you operate. To
determine the necessary amount of coverage, you should consider
the size of the business, whether it would be possible to continue
operations osite if necessary, and monthly business expenses,
including payroll and benet expenses, as well as overhead, supplies
and other regular business expenses.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
WHAT TO DO AFTER A PROPERTY LOSS
• Immediately contact your insurance company or producer after sustaining property or
automobile damage.
• Carefully read your policy, so you understand what coverage is available to you.
• If you have to relocate temporarily, make sure the insurance company or producer knows
your temporary address and telephone number.
• Take photographs and/or video of the damaged areas. is will help you with your claim and
will assist the insurance company in its investigation of your claim.
• Before you remove any damaged property from the premises, be sure an insurance adjuster or
your producer has seen the damage so a damage-and-loss assessment can be prepared.
• Make only those repairs necessary to prevent any further damage to your business property.
is includes covering roofs, walls or windows with plywood, canvas or other waterproof
material. Do not make permanent repairs without consulting your producer or company
since unauthorized repairs may not be reimbursed.
• Keep all receipts for emergency repairs and for temporary business expenses.
• As soon as you are able, prepare a detailed inventory of all damaged or destroyed property.
Give one copy to the insurance adjuster and keep one copy for your les. Your list should
include a description of the item and quantity (if more than one), date of purchase or
approximate age, cost at the time of purchase, and estimated replacement cost today. Include
as much information as possible.
• If you hire a public adjuster, you should understand that your insurance company may or
may not agree with that person’s estimate of your damage. Your insurance company is not
obligated to accept the damages that are claimed by a public adjuster.
• Be present when your insurance adjuster inspects your property. is will enable you to point
out all areas you believe have been damaged.
• Do not accept an unfair settlement oer. If you cannot reach an agreement, call the insurance
company and be prepared to explain why you believe the oer is insucient or unfair. If you
are still not satised, contact the Maryland Insurance Administration’s Property and Casualty
Complaints section at 410-468-2340 or toll free at 800-492-6116, extension 2340.
• If you think the insurance company’s estimate is too low, you may wish to obtain an estimate
from your own contractor. A contractor may charge a fee for an estimate; but, if that
contractor does the repair work, the fee usually will be credited toward the cost of the repairs.
• If your insurance company denies any part of your claim, be sure to get the denial in writing
and keep all the paperwork they send you.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
• Avoid shoddy repairs and workmanship by using licensed, reputable contractors. Be sure they
secure the appropriate building permits. Beware of contractors requiring a large payment up
front or whose bids are amazingly low. Check with the appropriate licensing agency to make
certain the contractor you are planning to use for the repairs has a valid license.
• You should contact your insurance company and claims adjuster any time you nd additional
damage not previously reported and inspected, or if you have more information concerning
the claim.
LIABILITY INSURANCE
Liability Insurance, also called Commercial General Liability (CGL) insurance, protects your business
against the economic loss and expense associated with claims led against your business for bodily
injury, property damage, injury to reputation caused by slander and libel, and also the harm caused
by false or misleading advertising. Bodily injury claims include claims for damage that results when
someone falls while visiting your business or one of your products falls on the person. It can, depending
on the language of the policy, also include coverage for claims of damage that occurs as a result of your
business operations. For example, if your business serves food, this may include the cost of medical tests
to detect hepatitis because of contamination due to food-handling. Property damage includes property
belonging to someone else that is physically damaged or lost by your business. Whether a particular
loss or expense is covered, will depend on the source of damage and the language of your policy.
For example, damage to business inventory belonging to another person or business while in your
possession, may be a covered loss if it is damaged from an accidental re, but the same damage might
not be covered if the inventory is damaged by ood waters and the policy does not provide coverage for
ood-related damage. e scope of coverage available under your policy will depend upon the policy
and endorsements you select, so be sure to discuss all of your concerns with your insurance producer
and to learn about all of the dierent types of coverages available for purchase.
A CGL policy is advantageous for two reasons. First, the insurer will defend you against any covered
claim at no out-of-pocket cost to you. Second, if your business is found responsible, the insurer will
pay at least part of, and maybe even all of, the damages owed. e amount the insurer will pay depends
upon (1) the amount of damages, and (2) the type of damages sought. When a valid claim is made,
the insurer will pay up to the stated maximum. If the claim for damages is greater than the policy
maximum, you as the policyholder are liable for the balance. Also, while most CGL insurance policies
provide coverage for compensatory and non-compensatory damages, punitive damages are typically
not covered. Compensatory damages include expenses incurred by the claimant as a result of the injury,
such as the cost of medical services and lost wages from missing work, as well as projected future losses
and expenses. Non-compensatory or general damages include non-monetary losses suered by the
injured party, such as “pain and suering” or “mental anguish.” Punitive damages are additional monies
awarded as a penalty and sanction against the defendant as a form of punishment for its actions.
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
OTHER TYPES OF LIABILITY INSURANCE
While a CGL policy provides important coverages, it does not cover all types of risks associated
with operating a business. For example, it does not cover injuries to workers that occur in the
workplace. Nor does it cover losses incurred as a result of errors by professional advisors, such as
a lawyer or an accountant, or a board member. It also does not cover property damage or bodily
injury caused by an automobile, even if it was being operated for business purposes. Such losses
would be covered by the automobile policy discussed previously. Other types of liability policies
are available for purchase to cover these other types of risks. ese are listed below:
• Umbrella Policy. An umbrella liability policy provides extra protection over and above a
standard CGL policy. While the terms of coverage are similar to the underlying liability
policy, an umbrella policy provides additional coverage on top of the underlying liability
policy and will pay, up to its stated limit, when the amount of the claim exceeds the
underlying policy limit. Umbrella policy coverage limits typically are within the range of $1
million to $5 million and are appropriate for businesses and business owners who have large
assets or may be vulnerable to claims and lawsuits.
• Employment Practices Liability (EPL) Coverage. is type of policy covers claims related
to sexual harassment, race- or gender-based discrimination, wrongful termination, failure
to employ or promote, or other employee-related claims. e cost of EPL coverage depends
upon the number of employees, the company’s history as the subject of such claims in
the past, and other risk factors related to the business. A policy with EPL coverage would
provide and pay for the legal costs associated with a company’s defense of a lawsuit related to
employment practices, as well as any damages that may be awarded up to the policy limits.
Punitive damages generally are not covered by an EPL policy. However, some companies may
allow a business to purchase additional coverage for punitive damage protection, although the
cost of the policy will reect this additional coverage. You should talk to your producer about
whether you wish to purchase this coverage for your business and what types of protection
you wish to have, coverage for compensatory damages or compensatory and punitive
damages.
• Professional Liability Insurance. Professional liability insurance, or an errors and omissions
(E&O) policy or a directors and ocers (D&O) policy, provides coverage for damages caused
by a professional advisor or a board member that arises out of the negligence, mistake or
failure to take appropriate action in performing his or her professional duties or operating the
business. e E&O policy would cover damages if, for example, an accountant failed to le a
tax return on time and the business was assessed a penalty as a result. e D&O policy would
cover damages if, for example, a board member failed to perform his legal duties and was sued
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by a shareholder. While professional liability insurance is available
to any type of professional who oers services, including a health
care provider, lawyer, or accountant, only the named insured is
eligible for such coverage. It is important to update policies when,
for example, there is a change in the accountant, in-house counsel,
or membership of the board of directors.
“Malpractice insurance” is a specic type of professional liability
insurance that protects physicians and other licensed health-care
professionals against liability claims associated with bodily injury,
medical expenses and property damage, as well as the cost of
defending lawsuits related to such claims. As with other liability insurance policies, premiums
for professional liability insurance coverage depend upon the type of professional service
provided and its level of risk.
• Workers’ Compensation Insurance. is type of insurance protects a business and its
owner(s) from claims by employees who suer a work-related injury, illness or disease.
Maryland, like all states, requires businesses to carry workers’ compensation insurance for
their employees. Workers’ compensation insurance typically provides the injured employee
with benets to cover medical expenses, a portion of his/her lost wages, rehabilitation
costs if applicable, and permanent partial or permanent total disability. is coverage is
not part of your commercial general-liability insurance policy; you will need to purchase
a separate policy to obtain this type of coverage. Check with the Maryland Workers’
Compensation Commission (WCC) 410-864-5100 or 800-492-0479 or your producer
about the needs of your business. (For more information, see the Workers’ Compensation
section of this brochure.)
• Crime Insurance. is type of policy protects businesses from theft and malicious damage.
• Fidelity Bonds. Fidelity bonds protect businesses from monetary and property losses caused
by the fraudulent acts of specied individuals, usually its employees.
• “E–insurance” or Internet Business Insurance. is type of insurance covers web-based
businesses for damages caused by computer hackers and viruses.
• Cyber Liability Insurance. is type of insurance is customized to t the particular needs of
your business. e policy may cover security breaches where sensitive information is either
hacked or inadvertently disclosed. For example, the policy may pay for the increased expenses
to: 1) provide credit monitoring for consumers in the event of a security breach; 2) repair or
replace business assets damaged as a result of a security breach; or 3) operate the business if
the security breach causes an interruption.
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TIPS AND CONSIDERATIONS CONCERNING LIABILITY INSURANCE
• Liability insurance premiums typically are based on a business’ sales and payroll estimates
provided prior to policy inception. At the end of the policy term, your business may be
audited to ensure that the proper premium was charged. If the actual amounts turn out to be
higher after the policy has been issued, you may be required to pay an additional premium.
Also, if the amounts are less than estimated, you may be eligible for a refund.
• Other factors that inuence the amount of your liability insurance premium include the
type of business you have and the types of risk generally associated with such a business.
For example, a toy manufacturer may pay $3 per $1,000 of sales. us, on $10 million of
sales, the premium would be $30,000. A company that manufactures a less risky product
or engages in a less risky business, such as a orist, may pay $1.50 per $1,000 of sales, or
$15,000.
• Insurance companies evaluate a business’ liability risk based on several factors, including:
• the number of claims led within an industry or probability of a claim for a similar type of
company;
• the nancial stability and longevity of a business;
• state laws;
• business products and/or operation; and
• the business’ approach to handling and preventing potential risks.
If you have solid, documented safety practices and procedures in place, it could result in a lower
premium and policy discounts, because such practices lower the risk of claims. Let your insurance
producer and insurance company know of any such practices and procedures.
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BUSINESS OWNERS POLICY:
A PACKAGE SOLUTION
Many small business owners purchase a business package policy (BOP). A BOP typically includes
liability insurance, property insurance, business interruption/continuation insurance and crime
coverage. A BOP packages various types of coverages into one policy, so, for small businesses, it is
often a less costly option than purchasing several separate policies. Many insurers customize BOPs
for specic types of businesses.
You should be aware that a BOP does not cover claims of professional liability (claims arising from
allegedly wrongful practice by professionals), auto insurance, workers’ compensation, health or
disability insurance—all of which require separate policies to be purchased.
HOME-BASED BUSINESS INSURANCE
Home-based businesses—like all businesses—should be properly insured to protect the business’
assets and its owners against certain risks. Often, home-based businesses are underinsured—a fact
the business owner usually discovers after an incident or loss occurs. en the business owner learns
that the insurance he/she has is inadequate or insucient to address the type or amount of loss the
business is facing. Talk to an insurance producer to be sure that you have
the necessary coverages in place to protect yourself and your business
against a loss or claim.
TYPES OF INSURANCE TO CONSIDER
Property and liability insurance is important to home-based businesses,
because it protects against loss or damage to business property and
equipment, such as computers. It also provides protection against claims
due to accidents or injuries to customers, clients or others who may visit
your home to conduct business.
Many home-based business owners believe their homeowners or renters insurance policy is adequate
to cover their home-based business. However, that coverage may not exist or may not be sucient.
For example, most homeowners’ insurance policies specically exclude coverage for claims arising
out of the business activities or limit the amount of coverage for damage or loss of business property
to $2,500 in the home and $250 away from their home. ese limits may be insucient if a re
were to destroy your home oce and all of its contents, including the business’ inventory. us, it
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is important to purchase the proper type of policy, as well as sucient amounts of coverage under
the policy to protect yourself and your business. Meet with a producer to discuss your business and
obtain advice as to the types of insurance policies you may want to consider purchasing.
TIPS AND CONSIDERATIONS FOR REDUCING BUSINESS RISK
As a small business owner, you can take steps to minimize risk in the workplace, thereby helping to
lower your insurance premiums. Here are some tips that could benet your business, employees,
customers and clients:
• Install re and security alarms.
• Plan and train employees for an emergency on the premises, such as res and evacuations.
• Have employees keep wallets and other personal items in a secure place. Keep the business’
cash and other valuables in a safe.
• If employees work with machinery, provide goggles, gloves and other recommended safety
gear to help prevent injuries.
• Keep oce space in good physical condition. Maintain carpeting and railing on stairs.
Make sure telephone and computer wiring is in good working condition and does not create
any hazards.
• If your employees operate company cars, ensure they have clean driving records and
proper training.
TIPS AND CONSIDERATIONS FOR LOWERING PROPERTY AND LIABILITY
INSURANCE COSTS
• Review all insurance policies each year, and note any changes that may aect your coverage
costs. For example, your premiums could be impacted by the addition or reduction of
employees, client product oerings or inventory; alterations to your building or equipment;
or changed state regulations.
• Find out how plans dier to ensure you are purchasing the best policy for your particular
business at a competitive price.
• Claim a tax deduction for your premiums on re, casualty and burglary insurance.
• Avoid purchasing overlapping policies. Carefully read the terms to make sure you are not
covered for the same item in two separate policies. is type of policy examination also helps
you ensure that you are not missing crucial coverage in other areas.
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WORKERS’ COMPENSATION INSURANCE
All Maryland employers are required to maintain workers’ compensation insurance policy for their
employees. Failure to obtain or maintain a workers’ compensation insurance policy will expose your
business to both civil and criminal liability.
A workers’ compensation insurance policy protects a business and its owner(s) from claims by
employees who experience a work-related injury, illness, or disease—either sustained on business
premises or due to business operations. is type of coverage is “no-fault,” meaning that if the
injured employee’s injury, illness or disease arose out of his or her employment, and it was accidental,
then the injured employee will receive benets regardless of fault. If however, an employee purposely
injures himself (for example, by deliberately jumping o a roof ), then the injury would not be
covered even if the incident occurred during working hours and at the jobsite.
Workers’ compensation insurance policies typically provide benets to an injured employee
for medical expenses, a portion of lost wages, rehabilitation costs and any permanent partial or
permanent total disability the injured worker may sustain. In exchange for such compensation, the
employee forfeits the right to sue the employer in court for any damages related to this injury.
You will need to purchase a separate workers’ compensation policy to obtain this type of coverage.
Check with the Workers’ Compensation Commission at www.wcc.state.md.us, 410-864-5100 or
800-492-0479, or your producer to see what is required for your small business. If this is the rst
time you are purchasing workers’ compensation insurance, your premium will depend on your
payroll, the types of jobs employees perform (classication) and the type of business or industry you
are operating. After a few years, your premiums may be based on the actual experience of
your company.
Employers should be honest and exercise diligence in classifying individuals who perform work
for their companies as employees. Under the Insurance Article, it is a fraudulent insurance act to
knowingly or willfully make a false or fraudulent statement or representation in, or with reference
to, an insurance application. An employer who misclassies individuals who perform work for
their companies may also be in violation of other state laws, including the Insurance Article,
and may be subject to additional civil penalties and/or criminal prosecution under those laws. If
you encounter any diculty purchasing workers’ compensation insurance in the private market,
Chesapeake Employers Insurance Company may be able to underwrite coverage for your business.
Chesapeake Employers Insurance Company can be contacted at 410-494-2000, 800-264-4943
or at www.ceiwc.com.
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TIPS AND CONSIDERATIONS RELATED TO WORKERS’
COMPENSATION INSURANCE
Take steps to minimize risk in the workplace, thereby lowering the chances of a worker getting
injured. For example:
• If employees operate machinery, provide goggles, gloves and other recommended safety gear
to help prevent accidents.
• Keep oce space in good physical condition by maintaining carpeting and stair railings, and
ensuring that telephone and computer wiring is in good working condition.
e U.S. Department of Labor’s Occupational Safety & Health Administration (OSHA) oers
specic information by industry type and provides other helpful resources to small businesses on
how to comply with safety requirements that can limit work injuries. To learn more about OSHA’s
guidance to small businesses, visit the OSHA website at www.osha.gov/dcsp/smallbusiness/index.html.
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OTHER TYPES OF
COVERAGE TO CONSIDER
FOR YOUR BUSINESS
FLOOD INSURANCE
If your business could be damaged by rising water, you should consider buying ood insurance,
because property insurance policies generally do not cover damage caused by rising waters. Even if
your building/business is not in a ood zone, it may be at risk for ooding. Flood insurance is an
optional coverage oered through the federal government and some private companies. It may be
purchased by contacting your insurance producer.
When deciding whether to purchase federal ood insurance, you should be aware of these
important facts:
• ere are two types of coverage available under the National Flood Insurance Program:
(1) structural coverage for walls, oors, insulation, furnace and items that are attached
permanently to the insured structure, and (2) contents coverage for the business’ personal
property. ese coverages do not come together automatically, but must be purchased
separately.
• ere is a 30-day waiting period for a new or modied ood insurance policy to become
eective, unless the lender requires that ood insurance be purchased in connection with a
mortgage loan.
If the lender requires this coverage, then there is no waiting period.
• e standard ood insurance policy covers direct losses caused by a ood, less an insurance
deductible (usually $1,000). You may buy a policy that covers ood damage to both the
structure and contents, or a policy that covers damage to only one. A business may need only
one type of coverage if, for example, it does not own the building in which it is located, and
the lease agreement does not require it to insure the premises. By law, the maximum allowable
commercial property limit for a small business is $500,000.
To learn more about ood insurance for your business, talk with your insurance advisor.
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EARTHQUAKE INSURANCE
While most people associate earthquakes with California, Maryland has recorded 68 earthquakes
since 1758. Since 1986, 45 have occurred, most of which have been in the Columbia area of Howard
County. Others have struck areas of Baltimore City, Baltimore County, Cecil County, Harford
County and Montgomery County.
Business insurance policies do not cover damage from earthquakes. Instead, a business would
need an earthquake insurance policy. Coverage is available either in the form of an endorsement
or as a separate policy for small business owners. Deductibles for earthquake coverage are usually a
percentage of the limit of liability, rather than a dollar amount. Unlike ood insurance, earthquake
coverage is available from private insurance companies.
SURETY BONDS
A surety bond protects the party contracting for a particular service (the obligee) from a default on the
contract by the service provider (the principal). For example, if the principal defaults by failing to fund
a mortgage loan, the company issuing the surety bond will pay the obligee the amount owed under
the contract. en, the surety company can seek recourse against the principal for reimbursement
of expenses incurred in performing the obligation; this is known as “surety’s right of exoneration.”
Depending upon the type of business, Maryland law may require your business, or one with which
you contract, to obtain a surety bond. Often, various types of construction and home improvement
or repair contractors are required to have surety bonds as a condition of holding a license. Mortgage
lenders and insurance companies also are required by law to maintain surety bonds.
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INSURANCE FOR
YOUR EMPLOYEES
HEALTH INSURANCE FOR SMALL BUSINESSES
Providing health insurance for employees—by far the single most expensive benet oered by
employers—is one of the greatest challenges many small businesses face today. As business owners
know, health insurance is extremely important to most employees and is, therefore, a very powerful
benet in recruiting and retaining the best workers. Cost and availability of health insurance are the
key issues.
Employers have a number of options if they decide to oer employer-based health care coverage.
One of the best ways to fully understand all of these options can be to meet with a trusted insurance
advisor/broker. Insurance brokers authorized by the Maryland Health Benet Exchange (MHBE)
can assist small businesses with direct enrollment in qualied health plans certied by MHBE’s
Small Business Health Options Program (SHOP). ese authorized brokers can also assist you
in determining whether you are eligible for a tax credit, which is only available if you select a plan
certied by SHOP. For more information on SHOP, go to the SHOP Direct Enrollment page at
www.marylandhbe.com/carriers-and-shop-administration/shop-administrators/.
TIPS AND CONSIDERATIONS CONCERNING GROUP HEALTH INSURANCE
e following are common terms used in describing health insurance, and the requirements that
follow (i.e. Guaranteed Issue through Adjusted Community Rating) apply only to insurers and
HMOs with respect to their participation in the small employer market:
Guaranteed Issue – is means all eligible employer groups who apply for health care coverage
and that meet certain conditions are automatically accepted by the insurance carrier. No one can be
excluded from or denied coverage due to a medical condition.
Guaranteed Renewal – is requires insurance carriers to renew all groups that continue to pay
premiums. A group’s coverage cannot be canceled because an employee or an employee’s family
member is sick. No medical underwriting is permitted.
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No Pre-Existing Condition Limitations – is means that your insurance carrier cannot deny you
coverage for a particular medical condition that existed prior to the eective date of coverage under
that health plan.
Adjusted Community Rating – Premiums can only be modied based on age, tobacco usage, family
size, and geographic location of the business. Insurance carriers cannot vary their rates based
on health status.
To help you choose which health insurance policy best ts the needs of your employees and your
business’s nancial resources, consider these important factors.
• Before purchasing any insurance, interview several licensed producers who specialize
in serving the health insurance needs of small businesses. Insurance brokers who are
authorized by the MHBE can assist small businesses with direct enrollment in qualied
health plans certied by SHOP and can also help determine eligibility for tax credits.
- When reviewing health insurance options, compare the costs of equivalent coverage from
several insurers to be sure you’re getting the best deal.
- Check the IRS website to see if you are eligible for the Small Business Health Care Tax
credit. You can learn more on the IRS website, www.irs.gov/aordable-care-act/employers/
small-business-health-care-tax-credit-and-the-shop-marketplace.
- Ask about premium increases over the past ve years.
- Talk to other small business owners to nd out about their experiences with dierent
kinds of health plans and insurers.
- Health insurance is complex; don’t hesitate to ask questions before you decide on a health
plan. If you fail to get the answers you need from one insurer, contact others.
- If you shop for insurance online, make sure your online source has approved Internet
privacy protection from an organization like TRUSTe.
• Understand the factors that may aect the cost of your small group health premiums.
Carriers may not determine your premium based on the claims experience or health status of
your employees. e claims experience of all of the carrier’s small businesses will be “pooled.”
e carrier will determine the “community rate” based on this pool.
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Some health insurance cost factors are clearly outside of your control; other cost factors can
be managed. For example:
- e type of health product you select. For example, HMOs tend to have higher
premium rates than PPOs.
- e specic benets design you select. For example, you can choose the following:
• e level of the deductible –Generally speaking, the higher the deductible, the
lower the premiums.
• e level of co-payments – Selecting a PPO or POS health product with higher
co-payments (i.e., the out-of-pocket amount the employee must pay toward a doctor
visit or medical services) can reduce premiums.
- e amount of health insurance costs you transfer to your employees.
• Many businesses ask their employees to bear a portion of the cost of their health
insurance premiums for themselves and their dependents.
- Educate your employees about your health plan coverage and health care.
e more they understand exactly what is and is not covered and follow the right
procedures, the better you’ll be able to manage your premiums.
• Be sure your employees understand provisions in your plan that pertain to the need
for pre-admission certication before entering a hospital or using an emergency room.
• Encourage employees to ask their doctors about fees and the cost of procedures and
to check their doctor and hospital bills to be sure there are no errors.
• When appropriate, they should seek second opinions before complicated or expensive
procedures or surgery.
• Encourage employees to engage in healthy habits. Provide information about
exercise, weight loss, smoking cessation, etc.
- Do some other research on the insurer oering the health plan you’re considering.
Cost is not the only factor you should consider.
• Ask about the insurance company’s customer service policies, whether there’s a
tollfree number and what its grievance procedures are.
• Find out how many small businesses they insure in your state, and ask for references
for small rms in a similar line of business.
• Look into the complaint history of the insurer you’re considering. You can nd that
out by accessing the National Association of Insurance Commissioner’s Consumer
Information Source (CIS) complaint database at www.insureuonline.org.
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- Take advantage of the tax benets available to your company and your employees.
• Businesses can generally deduct 100 percent of the premiums they pay to qualifying
health plans for their employees. Be sure to discuss this matter with your accountant
or tax advisor.
• Consider establishing exible spending accounts (FSAs) for employees. ese
special savings accounts allow employees to make pre-tax contributions to a exible
spending account. When they incur qualied, out-of-pocket health care expenses,
such as overthe-counter medication or co-pays, they can seek reimbursement. A
certied public accountant or tax lawyer can advise you of the tax benets and legal
requirements for establishing such an account.
- Always take the time to protect your business against scams by fake health insurance
companies.
• Before you purchase any group health plan, make sure the insurer oering the plan
is a legitimate company licensed to sell health insurance in your state. It’s very easy
to protect yourself and your employees – just call the MIA to make certain that the
insurer is licensed to sell the product you are interested in purchasing.
• Be cautious particularly if one insurer oers you a health plan that’s signicantly less
expensive than other plans with comparable benets.
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GROUP DISABILITY INSURANCE
As a business owner, you may want to consider oering disability insurance to your employees. is
type of coverage protects employees if they become disabled and unable to work. ere are two
types of disability insurance. Short-term disability insurance covers a portion of the policyholder’s
salary when faced with a disability that prevents the employee from being able to work for a short
period. ese periods typically cover disabilities lasting three to six months, and may require that the
employee be unable to work for a specied time period before qualifying for coverage. Short-term
disability coverage may, for example, be available to an employee who has undergone an operation
and is restricted medically from working for 12 weeks following the surgery. Long-term disability
coverage typically begins after the policyholder is disabled and unable to work for at least six months.
It can extend for a specied number of years or until the insured retires or reaches the age of 65,
depending on the policy selected. Whether it is a short-term or long-term policy, the amount of the
benet, the eligibility requirements and the maximum period of eligibility for benets depends upon
the language of the policy.
TIPS AND CONSIDERATIONS CONCERNING GROUP DISABILITY INSURANCE
• Some business owners purchase a group disability plan that may include short-term and
longterm disability insurance coverage, or packages whereby the employer pays the premiums
and the employees share costs. Rates for group plans generally are less expensive than individually
purchased policies. e benets payout from such policies can be taxable to the employee if the
employer pays the premiums. Benets from policies paid by the employee are tax-free.
• If group disability coverage is not an option, a business owner may choose to purchase
individual long-term disability coverage for key employees, or provide voluntary
employeepaid coverage that can be deducted from the participating employee’s paycheck.
• Business owners may want to consider purchasing a disability policy for the owner that covers
business overhead. is type of coverage ensures that a business can continue to function
while the owner is recovering from a disability and that standard business expenses, such as
payroll, utilities, rent, etc., continue to be paid. However, the business owner’s salary is not
covered.
• Some businesses choose to purchase long-term disability insurance for key employees and
name the business as the beneciary. By doing this, if a key person is disabled and unable to
perform the usual duties of the job, the company can use the disability payouts to cover costs
until the key person is able to return to work or a replacement can be hired.
• In some cases, a business may choose to provide disability insurance as a benet or perquisite
to its key employees, and in those cases, the employee would be named as the beneciary.
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GROUP LIFE INSURANCE
Most group life insurance is sold on a term basis. Term life insurance pays a death benet if the
policyholder passes away within a specied time period (the term of the policy). Group life insurance
policies generally are “guaranteed issue,” meaning that employees don’t need to undergo a medical
examination to be eligible. An employee who has a serious medical condition may still be a part of
the group, as long as he or she is still an active worker. However, employees out on disability leave
are not eligible for group life insurance until they return to work, unless they went on leave after the
policy was issued.
Premiums for term life insurance policies have decreased markedly during the past decade due to the
fact that Americans are living longer on average. Group life insurance can be part of an employee-
benet plan that is paid for by the employer, or a voluntary oering whereby the employee pays for
the coverage.
Group life insurance policies tend to be less expensive than those purchased individually. is is
because many group policies are only eective while the employee remains employed at the company
through which the policy is oered. However, this may not always be the case.
To gure out a group rate, the insurance company usually will consider the following factors about
a business:
• number of employees within the group;
• average age of employees;
• ratio of female to male (based on the statistic that women tend to live longer than men);
• number of smokers; and
• risk factors associated with the business.
Based on the business risk, for example, a marketing rm would probably have a lower group rate
than a roong company for equivalent coverage.
For more information about life insurance, refer to the MIA’s guide entitled A Consumer Guide to
Life Insurance at www.insurance.maryland.gov or call the MIA at 800-492-6116.
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TIPS AND CONSIDERATIONS CONCERNING GROUP LIFE INSURANCE
• If you decide to oer group life insurance to employees, shop around for the best rates and
packages. Dierent companies oer products at dierent rates, and depending upon your
company’s needs, one company’s prices may be better than another.
• Purchasing all of your group packages (health, disability, etc.) from one company/producer
will make it easier to track policies and make payments.
• Regularly review your group plans as your business grows. Examine how your group life
insurance needs and premiums may change as a result of added employees or new capabilities
your company oers, and make changes to your policies and/or benet packages as necessary.
• If you’re going to provide workers with voluntary group life insurance, check whether the
policy you’re oering allows them to continue coverage should they decide to change jobs.
Also, see if there are additional stipulations in the policy that can make it more exible for
the employee, such as a waiver of premiums when a worker is on disability leave and may not
have the funds to pay for the policy during that time.
• For policies paid by a business owner, the benet often can be equivalent to a full year’s
salary, an amount that may not be sucient for most people. Ask your producer whether it
is possible for an employee to directly purchase additional coverage or purchase it through
an employer-based contribution plan. ese types of policies are viewed as an added benet
or “supplemental” to other life coverage an employee may already have independently or
through your company. Purchasing additional coverage outside of what is oered through the
group policy likely will require that the employee undergo a medical exam to determine the
level of insurability based on his or her health. However, a voluntary life insurance policy can
provide signicantly more coverage, depending on the amount of money an employee wants
to spend individually for that type of policy.
KEY PERSON LIFE INSURANCE
Within a small company, typically there are some key people who are critical to the success of the
business. ese individuals may be limited to the business’ founders or partners, or dened more
broadly to include other employees responsible for running a critical aspect of the business, such
as the senior marketing or sales manager, chief engineer or software developer in the case of a
technology company. e death of any of these key people would likely have a serious impact on the
business’ bottom line. erefore, many small rms choose to purchase Key Person Life Insurance
policies to protect the company. As the policy owner, the company is the beneciary and receives the
proceeds when the insured key employee dies. It is important to remember that the company must
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have an insurable interest in the person it wishes to insure. As a general rule, as long as the person
is responsible for a critical aspect of the business, the requirement will be met. e payout can help
the company by providing cash to weather the loss and continue operations until a new employee
can be hired and trained to carry out the functions of the deceased. If the deceased employee had an
ownership interest in the company, the death benet also provides the company with the funding to
buy out the deceased employee’s heirs so that control of the company is not lost.
In some cases, a small business seeking a loan from a bank or trying to raise capital from outside
investors may be required by the lender or investor to carry life insurance for its partners. e bank
even may require that the small business provide a collateral assignment agreement that gives the
bank rst rights to the policy proceeds to cover outstanding loans due in the event of one of the
owners’ death.
TYPES OF KEY PERSON POLICIES
Like individual life insurance policies, Key Person Life Insurance policies may be purchased as term
life or permanent life policies.
• Term Life Insurance covers the insured for a term of one or more years. It pays a death benet
only if the insured dies within that term. Term insurance generally oers the most coverage
for your premium dollar. However, it does not build up cash value. It may not be renewable
at the end of the term or may cost considerably more to continue.
• Permanent Life Insurance, also known as Whole Life, Universal Life and Variable Life,
typically includes both a death benet and cash value. It is not limited to a term. Premiums
tend to be higher than for term life insurance because of the cash value element.
TIPS AND CONSIDERATIONS CONCERNING KEY PERSON LIFE INSURANCE
A number of factors can aect life insurance premiums. ese include:
• the age of the insured and his/her overall health. Life insurance companies typically ask about
the insured’s medical history, request access to medical records and even obtain blood and
urine samples for testing.
• pre-existing and/or chronic health problems, such as diabetes, heart disease or cancer. ese
conditions may prevent a person from obtaining life insurance or can place him/her in a
high-risk classication, subject to higher premiums.
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
• poor health habits, such as smoking and excessive drinking. Insurance companies may
consider these behaviors and look back to see if the individual engaged in such behavior over
the past ve years or even longer.
• engagement in dangerous hobbies, such as skydiving, skiing or rock climbing.
• the insured’s driving record, in terms of accidents, DWI/DUI citations, claims and tickets.
e better his/her driving record, the better rates he/she may receive for life insurance.
• the insured’s geographic area. Life insurance companies have access to regional data that
documents mortality rates and life expectancy, and they use that data to calculate the rates
they oer.
Key Person Life Insurance may be purchased when the company is formed. Going without this
insurance leaves the company at risk, and opens the possibility that the key people could later
develop health problems that would make insuring them more expensive. Sometimes it is necessary
to purchase Key Person Life Insurance later, or add employees to the policy. In either case, in
purchasing Key Person Life Insurance, consider which individuals in your company are critical to its
nancial success and what monetary contribution each key person makes to the company each year.
is will help you decide for which employees policies are needed and what size policy to purchase.
A company is not permitted to purchase key person life insurance on all of its employees. Instead,
since the company is the beneciary under a key person life insurance policy, Maryland law requires
that this type of coverage be purchased only if the company has lawful and substantial economic
interest in the life of the key employee.
Several factors should be considered when determining the amount of a key person’s life insurance
coverage. One is to utilize a multiple of that individual’s annual salary; for example, two to ve times
his or her current salary. However, the actual amount of coverage some companies need may be
signicantly higher. For example, if funds will be used to buy out the deceased’s share of the business,
you may want to ask your accountant to provide a projected value of each owner’s share and factor
that information into determining the amount of the policy. Other considerations in determining
the amount of coverage include:
• How much would it cost to replace the key person, both in terms of salary and training costs?
• How much does the key person contribute to the company’s bottom line on an annual basis?
• How many years would it take to get a replacement performing at the same level as the key
person?
• What level of premiums can the company aord?
As with all insurance, shop around and compare rates for comparable coverage from a variety of
insurers.
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
CONTACT INFORMATION
FOR MARYLAND
BUSINESSES
STATE AGENCIES
CHESAPEAKE EMPLOYERS INSURANCE COMPANY
Chesapeake Employers Insurance Company, formerly IWIF, has specialized in providing workers’
compensation insurance to Maryland businesses since 1914.
8722 Loch Raven Boulevard, Towson, Maryland 21286
410-494-2000
800-264-4943
www.ceiwc.com
JOINT INSURANCE ASSOCIATION (JIA)
e Maryland Joint Insurance Association (JIA) was originally founded in response to the
requirements of the federal legislation called Fair Access to Insurance Requirements. For those
individuals and businesses unable to obtain essential property insurance on dwellings, business
property or homeowners through the competitive property/casualty insurance marketplace, the JIA
can provide insurance coverage on properties located only within Maryland.
3290 N. Ridge Road, Suite 210, Ellicott City, Maryland 21043
410-539-6808
800-492-5670
www.mdjia.org
MARYLAND AUTOMOBILE INSURANCE FUND (MAIF)
e Maryland Automobile Insurance Fund (MAIF) was created by the Maryland State Legislature
in 1972 for the purpose of providing automobile liability insurance for those residents of Maryland
who are unable to obtain it elsewhere in the private insurance market.
1215 East Fort Avenue, Suite 300, Baltimore, MD 21230
410-269-1680
800-492-7120
www.mymarylandauto.com
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
MARYLAND DEPARTMENT OF COMMERCE
e Maryland Department of Commerce’s mission is to attract new businesses, stimulate private
investment and create jobs, encourage the expansion and retention of existing companies, and provide
businesses in Maryland with workforce training and nancial assistance. e Maryland Department of
Commerce promotes the state’s many economic advantages and markets local products and services at
home and abroad to spur development, international trade and tourism. ey are a major economic
generator for the state. ey also support the arts, lm production, sports and other special events.
World Trade Center
401 E. Pratt Street, Baltimore, MD 21202
410-767-6300
888-ChooseMD (888-246-6736)
www.commerce.maryland.gov
MARYLAND DEPARTMENT OF DISABILITIES
e Department of Disabilities evaluates programs and services for Maryland residents with
disabilities. e department also helps Marylanders nd public and private agencies that provide
particular services. You can contact the department at:
217 E. Redwood Street, Suite 1300, Baltimore, MD 21202
410-767-3660 (Voice)
800-637-4113 (Voice/TTY)
www.mdod.maryland.gov
MARYLAND INSURANCE ADMINISTRATION (MIA)
e Maryland Insurance Administration (MIA) is the state agency that regulates the business of
insurance in the Maryland. If you are having a problem related to insurance, the MIA will try to help
you solve that problem.
200 St. Paul Place, Suite 2700, Baltimore, MD 21202
410-468-2000
800-492-6116
www.insurance.maryland.gov
MARYLAND LIFE & HEALTH INSURANCE GUARANTY CORPORATION
e Life & Health Guaranty Corporation (LHGC) provides limited protection, as set forth in the
Maryland Guaranty Corporation Act, to consumers who have policies or contracts with companies
that are members of the LHGC. Contact them at:
6210 Guardian Gateway, Suite 195 APG, Aberdeen, MD 21005
410-248-0407
www.mdlifega.org
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
SMALL BUSINESS HEALTH OPTIONS PROGRAM (SHOP)
e Small Business Health Options Program (SHOP) helps Maryland small businesses and
nonprot organizations provide health insurance coverage to their employees. You can sign up
through the SHOP any time of year. e SHOP is the only place where small businesses may enroll
to qualify for a health care tax credit from the IRS to help lower the cost of coverage for
their employees.
BenetMall, Maryland Health Connection’s SHOP Administrator
800-452-4559
www.benetmall.com/Our-Products/Insurance
www.marylandhealthconnection.gov
WORKERS’ COMPENSATION COMMISSION (WCC)
e Maryland Workers’ Compensation Commission seeks to secure the equitable and timely
administration of the provisions of the Maryland Workers’ Compensation Law on behalf of its
customers, the injured workers and their employers, by providing an ecient and eective forum for
the resolution of individual claims.
10 E. Baltimore Street, Baltimore, MD 21202
410-864-5100
800-492-0479
www.wcc.state.md.us
MARYLAND DEPARTMENT OF HEALTH (MDH)
e Department of Health (MDH) oversees numerous boards, commissions and advisory groups
relating to both private and public health issues. is includes Maryland Medicaid and the Maryland
Children’s Health Insurance Program, as well as the professional licensing boards for physicians,
nurses and other medical personnel. A full listing of the boards and commissions that MDH oversees
is available by contacting MDH at:
201 W. Preston Street, Baltimore, MD 21201
410-767-6500
877-463-3464
www.health.maryland.gov
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
e following is a limited listing of the oces within MDH:
Behavorial Health Administration – is agency is responsible for assisting people on Medicaid
and people with limited incomes that are not on Medicaid to obtain quality mental health care.
Contact them at:
Spring Grove Hospital Center, Dix Building
55 Wade Avenue, Catonsville, MD 21228
410-402-8300
410-402-8600
http://bha.health.maryland.gov
Health Care Financing (HCF) – HCF administers Maryland’s medical assistance programs,
including Maryland Medicaid and Maryland Children’s Health Program. You can contact HCF at:
201 W. Preston Street, Baltimore, MD 21201
410-767-5343
Health Professional Boards and Commissions – MDH encompasses various boards that oversee
the licensing of health care providers, including dentists and physicians. For a list of specic boards
and contact information, visit MDH’s website. Consumers also may le complaints about providers,
and obtain information about the licensing status of a particular provider by contacting the
appropriate licensing board. Contact them at:
201 W. Pratt Street, Baltimore, MD 21201
410-764-4700
http://health.maryland.gov/pages/boards.aspx
Health Services Cost Review Commission (HSCRC) – e HSCRC is responsible for setting the
rates that Maryland hospitals may charge. ey also publish the Consumer’s Guide to Maryland
Hospitals. Contact them at:
4160 Patterson Avenue, Baltimore MD 21215
410-764-2605
888-287–3229
www.hscrc.maryland.gov
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
Maryland Commission on Kidney Disease (MDCKD) – Provides reimbursement for approved
services required as a direct result of end-stage renal disease (ESRD). Applications may be obtained
from the aliated dialysis or transplant facility, or by calling the MDCKD. Completed applications
and all required documentation should be submitted to the following address:
4201 Patterson Avenue, Baltimore, MD 21215
410-764-4799
866-253-8461
http://health.maryland.gov/mdckd
Maryland Health Care Commission (MHCC) – Responsible for establishing quality and
performance standards for HMOs, nursing homes, ambulatory surgery centers and hospitals. You
can contact MHCC at:
4160 Patterson Avenue, Baltimore, Maryland 21215
410-764-3460
877-245-1762
www.mhcc.maryland.gov
Maryland Medicaid – is program is responsible for providing access to health care services to low-
income residents of Maryland. Services are provided through three programs—Maryland Medicaid
Program, Maryland Children’s Health Insurance Program and Maryland Medicaid Pharmacy
Program. For more information, contact your local Department of Social Services or your local
health department. Or call the MDH Recipient Relations Hotline at:
410-767-5800
800-492-5231
http://mmcp.health.maryland.gov
Maryland Medicaid Pharmacy Program (MPP) – Maryland residents have several programs
available to assist them to obtain prescription medication and supplies. To learn more, contact the
Maryland Medicaid Pharmacy Plan at:
201 W. Preston Street, Room 408/409, Baltimore, MD 21201
800-492-5231, Option 3
http://mmcp.health.maryland.gov
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
Maryland Prevention and Health Promotion Administration – Dedicated to improving the
health of Marylanders by preventing the transmission of infectious diseases, helping impacted people
live longer, healthier lives, ensuring food safety, and protecting individuals and communities from
environmental health hazards. is is accomplished by working in partnership with local health
departments, providers, community-based organizations, and public and private sector agencies to
provide public health leadership in the prevention, control, monitoring, and treatment of infectious
diseases and environmental health hazards, and regulating food manufacturing facilities to ensure
food safety.
201 W. Preston Street, Baltimore, MD 21201
410-767-5300
877-463-3464
http://phpa.health.maryland.gov
Oce of Health Care Quality – is oce is responsible for licensing and regulating hospitals and
health-related institutions in Maryland. It also investigates quality of care complaints led against
health maintenance organizations. Contact them at:
7120 Samuel Morse Drive, Second Floor, Columbia, MD 21046
410-402-8015 or 877-402-8218
http://health.maryland.gov/ohcq/Pages/Home.aspx
FEDERAL AGENCIES
CENTERS FOR MEDICARE & MEDICAID SERVICES (CMS)
e Centers for Medicare & Medicaid Services (CMS) is responsible for administering the Medicare
program and working with the state to administer Medicaid, the State Children’s Health Insurance
Program, and the health insurance portability standards. Contact them at:
7500 Security Boulevard, Baltimore, MD 21244-1850
410-786-3000
877-267-2323
www.cms.gov
Medicare hotline – 800-MEDICARE
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A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM
Federal employees who have completed their plan’s appeal process and would like the decision
reviewed, may contact the Oce of Personnel Management at:
1900 E Street, NW, Washington, DC 20415-1000
202-606-1800
800-877-8339 (TTY)
www.opm.gov
UNITED STATES DEPARTMENT OF LABOR
If your employer provides health coverage through a self-insured plan, you should contact your
employer to learn how to appeal any decision with which you disagree. If you still are not satised
with the decision, you may contact the U.S. Department of Labor at:
200 Constitution Avenue, NW, Washington, DC 20210
866-444-3272
202-693-8700 (Maryland District Oce)
www.dol.gov/ebsa
U.S. SMALL BUSINESS ADMINISTRATION (SBA)
e U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of
the federal government to aid, counsel, assist and protect the interests of small business concerns,
to preserve free competitive enterprise and to maintain and strengthen the overall economy of our
nation. e SBA helps Americans start, build and grow businesses. rough an extensive network
of eld oces and partnerships with public and private organizations, SBA delivers its services to
people throughout the United States, Puerto Rico, the U.S. Virgin Islands and Guam.
409 3rd Street, SW, Washington, DC 20416
800-827-5722
410-962-6195 (Baltimore District Oce)
www.sba.gov
send e-mails to: [email protected]v
A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE
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Maryland Insurance Administration • 800-492-6116 • www.insurance.maryland.gov
NOTES:
MIA-CO-1 (7/24)
200 St. Paul Place, Suite 2700
Baltimore, MD 21202
410-468-2000
800-492-6116
800-735-2258 TTY
www.insurance.maryland.gov
www.facebook.com/MdInsuranceAdmin
www.twitter.com/MD_Insurance
www.instagram.com/marylandinsuranceadmin
is consumer guide should be used for educational purposes only. It is not intended to
provide legal advice or opinions regarding coverage under a specic policy or contract; nor
should it be construed as an endorsement of any product, service, person, or organization
mentioned in this guide.
is publication has been produced by the Maryland Insurance Administration (MIA) to
provide consumers with general information about insurance-related issues and/or state
programs and services. is publication may contain copyrighted material which was used
with permission of the copyright owner. Publication herein does not authorize any use or
appropriation of such copyrighted material without consent of the owner.
All publications issued by the MIA are available free of charge on the MIA’s website or
by request. e publication may be reproduced in its entirety without further permission
of the MIA provided the text and format are not altered or amended in any way, and no
fee is assessed for the publication or duplication thereof. e MIA’s name and contact
information must remain clearly visible, and no other name, including that of the company
or agent reproducing the publication, may appear anywhere in the reproduction. Partial
reproductions are not permitted without the prior written consent of the MIA.
People with disabilities may request this document in an alternative format. Requests
should be submitted in writing to the Chief, Communications and Public Engagement at
the address listed below.
INSURANCE ADMINISTRATION
