Definition: An insurance policy expressly designed to offer a guarantee of protection in the event of specific circumstances
Your business will require its own set of special insurance
coverages for the risks inherent in your industry. Sometimes these
can be added as endorsements to your policy, or you can buy them
separately. Here are a few of the different types of specialty
coverage you may need:
Care, Custody and Control
This is a must for businesses in service industries, particularly
those with customer goods in their control anytime during the
business transaction. Should an accident happen, the insurance
company would reimburse you and your customer. This is especially
useful to businesses that provide services such as framing
pictures, furniture repair, bicycle assembly, dry cleaning and so
Basically, if you have a customer’s goods in your control at any
time during the business transaction, you’re liable for the full
value should an accident happen. You’re held liable even for the
most insignificant handling of the customer’s property–holding and
losing athletic shoes while your customer is roller skating is
considered an accident.
This clause should be inserted into a standard insurance property
or fire insurance policy. For an extra premium, you can insure the
extra expenses of obtaining temporary quarters, relocation and
This specialized insurance reimburses the business owner for future
profits lost and fixed charges as a result of damages due to perils
specifically accounted for in the policy. Weather damage is the
most common cause. Other causes (e.g., a labor strike or material
shortage) are not covered. The inclusions (e.g., tornado,
hurricane) and exclusions (e.g., mudslide or tidal wave), differ,
depending on your geographic location.
Predicting a company’s profitability at a particular point in
the future can be tricky. If the company was operating at a loss,
then only the fixed expenses that it incurred may be reimbursed.
However, if your company is operating at a profit, then good
records (which underscores the importance of keeping duplicate
records at another site) will support your case. If all the records
have been destroyed in a fire, the previous year’s tax records can
Business-interruption coverage is particularly crucial for
restaurants, as they risk complete loss of income in the event of
fire while still being obligated to make rental and loan
There are even more specialized provisions with
business-interruption insurance. Under the terms of an extended
period of indemnity, the period of loss is defined as the period
necessary to return to normal business operation. Otherwise, the
payments are only made until the business can physically reopen
(even if in a makeshift pattern).
Peak season endorsements, which are even more specialized, cover
those service industries that make all their money during a
particular season. If your company is located in a snow belt, a
specialized form of business-interruption insurance can provide
funds for a temporary source of heat until a new boiler arrives.
Depending on the provisions you insert, the coverage may also take
care of the costs of the new machine.
Unlike business-interruption insurance, which covers future
profits, profit insurance covers the loss of goods already
manufactured but destroyed before they could be sold. This
specialized coverage is aimed at manufacturers.
If your business extends credit to another party, person,
partnership, or corporation, you could encounter losses stemming
- Closure of a financial institution
- Death or physical disability
- Destruction of accounting records
- Political instability in a foreign country
The two major classifications for credit insurance are:
1. General coverage, which applies to those losses
incurred during the one-year policy caused from sales made during
the year prior to the starting date.
2. Forward coverage, which covers the insured for losses
resulting from accounts that were created by sales made during the
General policies account for the lion’s share of the credit
policies in force. They cover all debtors falling into given
classes of credit ratings on a blanket basis. The policy specifies
dollar limits on debtors according to classifications set by Dun
& Bradstreet credit ratings. Various levels of blanket coverage
can be assigned depending on the size of the company. Automatic
coverage on unrated accounts can also be provided.
Money and Securities Insurance
You may need additional insurance to cover those peak cash holding
periods during the business day such as closing, after lunch, or
payday. Check to see if your policy covers money in transit, money
or securities on the premises during business hours and after
hours, and money at home (when you’re just too tired to go to the
Businesses have the option of purchasing a comprehensive policy
insuring breakage of plate glass, neon signs, and showcases from
any source except fire or nuclear reaction. This includes weather,
riots, vehicles, or sonic boom. Determine whether this coverage
includes damage to stock by broken glass. Some policies include the
costs of replacing lettering and other ornamentation.
Electronic equipment can be insured for fire, theft, malicious
damage, accidental damage, mechanical breakdown, or electrical
breakdown. A separate electronic data-processing (EDP) policy can
cover hardware as well as software. Should fire occur in the
computer room, the standard property insurance policy might pay you
the price of replacing a blank roll of computer tape-an EDP policy
could compensate you for the cost of reconstructing the data. These
items and coverage are above and beyond the normal scope of
business property insurance unless you have a comprehensive
A power interruption endorsement is available on a machinery
contract to provide coverage for losses from interruption of
electricity, gas, heat, or other energy from public utilities. This
is critical for those businesses in the perishable food industry or
specialized sectors such as an ice warehouse.
Rain insurance is designed to cover losses at a certain percentage,
for example 60 percent of the gross revenues on the last day not
affected by rainfall. Swap meets, carnivals, auctions, and sporting
events would consider this coverage.
In the same vein, this insurance is needed by businesses such as
bakeries, dairies, and greenhouses that require the absolute
maintenance of a certain temperature to prevent loss of valuable
Transportation insurance indemnifies your materials in transit.
Common carriers like United Parcel Service are liable for most
shipping damages to your goods. They are not liable for
unforeseeable “acts of God” such as floods or lightening.
Land shipments most frequently use an inland transit policy.
This would include a train derailment but exclude a labor strike or
riot. Also excluded are breakage and leakage, however, the common
carrier is generally liable for these damages.
Truck shipments can be covered by a blanket motor-cargo policy.
Federal interstate trucking laws require minimum coverage that may
not offer you full protection.
Fidelity bonds protect the firm from losses incurred by employee
thefts. It is often difficult to establish losses, and only
established losses are reimbursed. These bonds have been used to
cover cash losses rather than merchandise losses, even though it’s
well known that losses from stolen merchandise far exceed those
from cash losses. If applicable to your business, fidelity bonds
should be used more widely to cover losses of both cash and
A surety bond protects your company against losses incurred as a
result of the failure of others to perform on schedule. If you’re
familiar with the construction industry, you know the importance of
this insurance contract. Surety bonds, otherwise known as
performance bonds, guarantee that a person or corporation will
perform the service agreed on. The bond guarantees that you have
the financial capacity to perform your duties, and it also backs
your credit. Because your work is guaranteed, you’re able to
compete and bid on jobs with firms that are considerably larger
than yours. Keep in mind that surety bonds may require extensive
credit information and collateral.
Title insurance is available for a nominal fee and should always be
requested for real estate purchases. In cases in which the title is
not conveyed, even though the purchasers thought they had such a
title, they are reimbursed.
Different than flood insurance, water damage insurance covers risks
from leaking pipes, sprinkler system, backed-up toilets, bursting
water tanks, and a leaking roof.
FAIR Plan Program
The Fair Access to Insurance Requirements (FAIR) Plan was
established by the Federal Housing and Urban Development Act as
riot insurance in the 1960s. You cannot be refused insurance even
if your company is located in a crime-prone, high-violence area.
The FAIR Plan provides coverage for looting, fire, vandalism,
building, glass, and inventory if damage occurs during a group
Other Specialized Packages
Specialized packages include an “errors and omissions rider clause”
for owners and managers who are in the business of giving
professional advice. A director and officer’s liability policy is
available if you serve on the board of directors of a corporation.
A garage owner’s policy covers any damage to vehicles in your care
if you are customizing or repairing automobiles. There is also
“special liquor legal liability” insurance for claims that stem
from auto accidents caused by patrons who drink too much at a
restaurant or tavern. Companies that use or produce chemicals,
drugs, or industrial pollutants are wise to carry specific
endorsements for these hazards. If you or your employees work or
travel overseas, a special worldwide liability policy is available.
This may or may not include kidnap and extortion coverage.