There are many forms of business insurance out there, and it can be difficult to determine which ones your small business needs, let alone what you can afford. The reality is that insurance needs vary from business to business.
This guide will help you decide which types of business insurance are best for your business and are worth the extra expense to reduce your risk of devastating losses due to liability.
General Liability Insurance
General liability is a blanket insurance that covers legal disputes due to accidents, injuries and claims of negligence. These types of policies protect the insured business against expenses related to claims concerning bodily injury and property damage caused by your business operations. This is an important and pervasive form of insurance that nearly all small business owners and contractors should have.
Property insurance protects your valuable business property, such as real estate, equipment, inventory and machinery. It covers the risk of damage and loss due to fire, theft and certain forms of weather damage. 100% coverage is ideal, but if that’s not financially feasible, determine what would ruin your business in the case that it’s destroyed, stolen or damaged and get coverage up to at least that amount.
If the region in which your business operates has a much higher risk of natural disasters that are not normally covered under a standard property insurance policy, such as earthquakes or floods, you may consider purchasing specific insurance to cover the potential damages from such an incident (e.g., Flood Insurance).
Bundle It with a BOP
Some insurance providers offer bundles of Liability Insurance and Property Insurance, called Business Owners Policies (or BOP) at a discounted rate. For business owners with a critical interest in their property, this is an easy way to reduce the price of both forms of protection.
Product Liability Insurance
Businesses that manufacture, distribute or sell products may be liable for the safety of users of those products. Extremely expensive claims can sometimes result as a result of production or design flaws, as well as improper warnings and instructions. Product liability insurance protects the insured from the costs that may be incurred when found liable when the products cause injury or bodily harm.
The amount of product liability insurance may vary depending on the potential danger associated with your products; for example a clothing store would have significantly less risk than an appliance store.
Professional Liability Insurance
Professional Liability Insurance (also called Errors and Omissions Insurance) is an important insurance option for service providers. It protects doctors, lawyers, consultants and other professionals who provide advice from the heavy cost of defense against and liability for negligence claims. Some professions are required to carry this insurance - such as physicians who are required to purchase malpractice insurance in certain states.
Home-Based Business Insurance
Home-based business owners commonly assume that homeowner’s insurance will cover some degree of their business liability. Depending on the circumstance, some homeowner’s policies offer riders in addition to regular home insurance, but these only go so far. A home-based business owner may consider purchasing additional policies to cover other general and professional liability risks, as well as the potential for loss of income if their home-based office is damaged.
Workers’ Compensation Insurance
Workers’ compensation insurance is legally required by almost all states (with the exception of Texas) for any business with employees. It protects your company from financial liability for the injuries incurred by employees on the job, as well as the loss of income due to disability. It does not apply to independent contractors.
It’s important that a business owner strongly consider purchasing life insurance in consideration of their loved ones and their company in the case that they die unexpectedly. Different forms of life insurance have the capacity to protect your family from your business loan obligations, and cover the costs of lost skills or connections made by the previous owner, as well as finding their replacement.
Business Interruption Insurance
Also called Business Income Insurance, this insurance covers the loss of revenue while your facilities are closed or being restructured after a disaster. It is supplemental to Property Insurance, which covers the cost of damaged property, but not the loss of income associated with a fire or break-in. This may be useful for retail stores or brick and mortar businesses that depend on operating in one physical location to stay afloat.
If you have any further questions or concerns, don't hesitate to consult with an insurance agent.