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Specialty Insurance Basics

Max Freedman
Max Freedman

Find the specialty insurance for your business needs.

Small businesses have abundant insurance needs, but even the most highly recommended business insurance policies don't cover everything. Worse yet, when you're paying a lot of money for all that insurance, it may feel like adding insult to injury to undergo a serious event and not have your insurance cover it. That's where specialty insurance comes in – and it's rarely anywhere close to expensive as your ordinary business coverage.

What is specialty insurance?

Specialty insurance plans are made specifically for businesses that need unusual coverage. These business accounts may involve high-risk holdings or feature objects that are not usually covered under standard business insurance policies. As an example, guns and antiques are two items that require specialty insurance in order for the investment to be protected adequately.

Did you know?Did you know? Specialty insurance is intended to cover businesses with nontraditional needs. The construction, environmental, healthcare and energy industries are examples of specialty insurance industries.

Who needs specialty insurance?

Any type of business that serves clients who engage in high-risk behavior will have to research specialty insurance plans. For instance, a skydiving company may be considered very high-risk and be subject to higher incidences of liability claims. Other businesses that typically take out specialty insurance coverage are construction companies and contractors. Builders are frequently sued, so specialty insurance is necessary to negate the risk. [See our Contractor's Guide to Insurance.]

Many insurance providers offer specialty insurance plans to businesses in certain industries. For instance, Liberty Mutual has specialty options for the healthcare, environmental, real estate and energy industries. Underwriting is more flexible with this type of coverage, since nontraditional coverage is necessary.

Does specialty insurance protect against lawsuits?

Like other types of insurance plans, specialty insurance offers protection against lawsuits. If a business is sued and a judgment made against it, it needs to recover financially. Many issues a business faces are covered under a specialty policy called errors and omissions, or E&O. With E&O, the company is protected against negligence lawsuits. The policy will have limits, but it traditionally covers judgments, court fees and legal fees.

How much does specialty insurance cost?

A common misconception is that specialty insurance is not affordable. Many rates are surprisingly competitive, depending on your specific needs. Always research insurance agents before choosing a provider. If your business has unusual insurance requirements, find a referral to companies that have experience in that type of specialized coverage.

TipTip: Quotes for specialty insurance depend on your industry and your company's risk of being sued. You can add an umbrella policy to increase the maximum payouts of your plan.

Examples of specialty insurance policies

Specialty insurance is necessary for items that your ordinary homeowners or automobile insurance doesn't cover. The following types of specialty insurance can help fill in the gaps:

  • Flood coverage. Commercial property insurance often lacks flood insurance, so this specialty insurance may be worthwhile if your region is prone to flooding.
  • Identity theft insurance. Identity theft can be costly, especially if your company's bank accounts are compromised. Identity theft insurance can help you cover those costs.
  • Motorcycle insurance. Many auto policies that you may take out for your company vehicle fleet won't cover motorcycles. To make up for this, you'll need commercial motorcycle insurance.
  • Boat insurance. If your business involves boats – let's say you run a boat touring business or a mini-cruise line – you'll need boat insurance to cover most of your risks.
  • Travel insurance. When you plan travel for work, there's always the risk that you ultimately won't be able to get on the plane. In this case, travel insurance covers the amount you spent on your trip. It also covers lost baggage or overseas medical emergencies.
  • Title insurance. If you buy commercial real estate and there's a defect in your title, you could face substantial financial losses. Title insurance covers these losses.
  • Commercial renters insurance. Whereas commercial property insurance covers buildings that you own, commercial renters insurance offers coverage if you rent your business property.
  • Ocean marine insurance. This specialty insurance category is mandatory if your business owns or operates sea vessels that dock or offload in American ports. It should cover any claims that fall under the Longshoremen's and Jones Acts.
  • Cyber liability insurance. As the frequency of cyberattacks on small businesses increases, cyber liability insurance can help them cover the accompanying financial losses. It can also cover your legal costs if customers sue you over data breaches.
  • Directors and officers (D&O) insurance. D&O insurance protects you if you face lawsuits alleging wrongdoings in your management of your business.

Other cases of specialty insurance include insurance for unique items, such as for actors who insure their body parts that are considered their best assets and moneymakers. Specialty insurance for business can also include coverage for your entire inventory in case of a fire or theft.

What to consider when choosing specialty insurance

You should take these steps to make the most of specialty insurance:

1. Understand the different types of specialty insurance.

Specialty insurance isn't intended to be a one-size-fits-all policy; the underwriting will be specific to your company's industry and needs. For instance, construction and healthcare businesses both need specialty insurance but will have very different coverage inclusions.

2. Start with basic information on insurance for special needs.

A key step is confirming that the policies you already have don't cover your specialty needs. Even if they don't, you may not need an entirely new policy. In some cases, the insurer may be able to add special inclusions to your standard policy.

3. Check out various specialty insurance companies.

Research multiple specialty insurance providers to see the variety of policies they carry. Seek out a specialty insurance company that answers your questions thoroughly. Review their experience in the industry and their records with rating agencies like the Better Business Bureau.

As you search for specialty insurance plans, do your best to work only with agents who can vet companies and collect quotes. Many agents collect commissions from insurance providers and don't require any fees from clients.

When you review policy inclusions, calculate whether the amounts will be adequate protection for your assets against judgments. Speak to insurance providers about the option for an umbrella policy. An umbrella policy has a minimal annual cost and pays out claims when you've exhausted your initial coverage.

4. Look at the latest specialty insurance coverage and industry news and information.

Insurance coverage changes at a breakneck speed. As you search for your plan, you should stay up to date with information on insurance for special needs. Find out what specialty insurance other providers are offering and what trends are affecting the industry. With this information at hand, you can bargain with service providers and get the best deal for your budget.

5. Compare quotes from different companies (and use them against each other).

When you're pricing specialty insurance, ask for a quote from your current insurance provider. If a competitor gives you a lower quote for the same service, take that back to your current provider to see if it can match the lower cost.

Image Credit: andrei_r / Getty Images
Max Freedman
Max Freedman
business.com Contributing Writer
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He's also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.