Congratulations on starting a small business!
Now that you’ve got your business up and running, it’s time to protect your business from potential risks like lawsuits from unexpected accidents or injuries on the property, damage, fire, theft, and other unexpected operational issues.
There are varying policies available that cover specific types of business-related risks so you can select coverage based on business and legal requirements for your industry. Seeking advice from a licensed insurance broker can assist you in finding the ideal insurance products, but here is a beginner’s guide to small business insurance to help you get started.
What is Small Business Insurance?
Small business insurance is an insurance policy that provides financial protection against risks and potential threats in exchange for a premium charged by an insurance provider. The ideal insurance coverage will protect small businesses from lawsuits, property damage, worker compensation claims, cyber and other threats, and operational risks. You want to be sure to cover all scenarios that pertain to your industry.
And if you’re wondering if your small business needs insurance, the answer is a definitive “yes!” Getting insurance is not as complicated or expensive as you might expect. No matter how careful a business is, life happens. Should your business be held liable for claims of injuries or damages, without insurance, these incidents could lead to hefty legal fees, and settlements.
Types of Insurance For Small Businesses
There are many types of small business insurance coverages that can protect your business from financial and physical harm. Each policy insures against different types of risks, so you may consider purchasing more than one policy to fully protect your business. Rest assured, an insurance expert can assist you with choosing the right policies for your business, so you’re protected against risks without paying for unnecessary coverage.
Once you learn about these varying types of small business insurance, you will start to see what business needs are covered.
General Liability Insurance
General Liability Insurance is a necessity for any small business as it covers a wide variety of legal claims such as bodily injury, personal injury, and property damage. Oftentimes, businesses face a claim made by someone not affiliated with the company claiming that the business caused them harm or they got injured on the property. This insurance would help with the costs of legal counsel and any resulting settlements. General liability insurance also covers the type of property damage that happens on a client’s property while your employees are performing a service. This insurance even covers the reputation of a business because of advertising injury, slander, libel, copyright infringement, and more. Personal Injury coverage is for non-physical injuries like false arrest, wrongful eviction, malicious prosecution, and more.
Professional Liability Insurance
Professional liability insurance, also referred to as professional indemnity insurance and commonly known as “errors and omissions” (E&O) insurance protects providers of professional services including medical, legal, accounting, and consulting services from claims of loss and negligence related to services they provide. Liability insurance covers customer lawsuits and legal judgments over accusations of unsatisfactory work. Malpractice insurance covers claims in the medical, legal, and consulting fields.
Commercial Property Insurance
Just as your homeowner’s insurance covers your physical home, commercial property insurance covers your business property from fire, smoke, vandalism, and damage from most natural disasters. This insurance policy is not optional, but instead mandatory if you own or lease commercial property. Commercial property insurance covers claims for the physical building, business equipment like computers, machinery, and tools, product inventory, and office furniture. Most commercial property insurance policies don’t cover flood damage or damage from earthquakes, so you’ll have to purchase add-on policies to cover those risks.
Business Owner’s Policy (BOP)
The Business Owner’s Policy (BOP) combines general liability coverage and commercial property insurance into one comprehensive policy. You’ll be relieved to know that the combined policy costs less than buying the two separate policies. A BOP is a smart way to improve your overall business insurance coverage protecting you from multiple risks.
Product Liability Insurance
If your business involves selling products, you will need product liability insurance to protect your business from claims that your products caused injury or property damage. This insurance can cover legal fees and any settlements incurred so it’s an essential safeguard for businesses that produce, distribute, wholesale, or sell retail products to cover potential customer-related claims.
Business Interruption Insurance
While property insurance covers the damaged physical parts of a business property, business interruption insurance, also referred to as business income insurance, can cover financial obligations despite lost business income should operations be ceased due to a policy-covered property damage. This insurance replaces the lost income so you can pay ongoing expenses like employee payroll, property rent, utility bills, and taxes.
Workers’ Compensation Insurance
Mandatory by most states for businesses with one or more employee, workers’ compensation insurance protects a small business when an employee falls ill or gets hurt on the job. This insurance, also known as workers’ comp or workman’s comp, covers a portion of the employee’s lost wages, medical expenses, and disability benefits. One note, when an employee accepts the workers’ compensation benefits after making a claim, the person legally relinquishes the rights to sue the employer for further compensation.
Small Business Health Insurance
Small business health insurance helps cover employee medical bills for businesses with between 2 and 50 full-time employees. Also known as group health insurance, these insurance plans provide appreciated incentives to attract and retain employees. Stipulations for small business health insurance is that full-time employees must work 30+ hours per week and insurance enrollment must be at least 70% of the employees on staff.
Commercial Auto Insurance
If your business requires the use of vehicles, you’ll need commercial auto insurance to cover business owned or leased trucks, vans, and cars from damage and collisions. This special insurance that a general business insurance policy does not include, covers the vehicle in addition to the drivers, passengers, equipment, and business products, as the policy’s liability covers bodily injury, property damage, medical expenses, and repair costs.
Commercial Umbrella
Commercial umbrella insurance adds an extra layer of protection beyond any of the liability policies you select. As an “umbrella” spares you from raindrops falling on your head, the umbrella policy covers situations such as a settlement that is more than your general liability, by covering the remaining balance due of the settlement on your behalf. A commercial umbrella policy is typically important for small businesses like construction and transportation, that come with higher risk levels. It enhances insurance coverage when combined with general liability and commercial auto insurance policies.
Directors and Officers (D&O)
Directors and officers liability insurance, also known as D&O, protects the personal assets of corporate directors and officers, their spouses, and other executives if the small business is sued by an employee, vendor, customer, creditor, investor, or other parties for actions the executives take while managing a company. D&O insurance covers the costs of defending your company and its key executives as well as settlements and resulting damages.
Cyber Liability Insurance
If your small business stores a large volume of important, sensitive customer data, you will need cyber liability insurance. This insurance policy protects small business owners against claims due to data breaches and cyber-attacks while covering losses from tech-related disruptions.
How to Choose the Right Insurance for Your Business
With so many small business insurance policy types, options, and add-ons, selecting the right coverage can be challenging. Before you shop for policies, consider the types of business risks your small business may face and how much financial protection you will need.
Here is some criteria to consider before selecting a small business policy:
Assess your risks for comprehensive coverage: Every business comes with a set of unique risks. Consider any injuries, damage, accidents, weather-related natural disasters, or potential lawsuits that could affect your business. This will determine what add-on policies your small business may need to cover risks and ensure that you’re adequately covered for all of them.
Review legal requirements: Find out which types of policies are legally required for your business such as workers’ compensation or commercial property coverage. Business insurance requirements depend on the risks, the state laws, and through your professional or business licenses and contractual obligations.
Compare policies and providers: Compare policies, coverage options, and premiums from potential insurance providers before you rush to acquire small business insurance. You can either shop online or call various companies to get free insurance quotes.
Tailor coverage to your needs: Review potential small business policies carefully to make sure they address your risks, without adding unnecessary, costly coverage.
Consult experts or industry colleagues: In addition to reaching out to licensed insurance agents, you could also speak with others in your specific industry for small business insurance advice. It’s an effective way to ensure that you select the right policy and coverage options to meet your specific business needs.
How Much Does Small Business Insurance Cost?
As with any insurance policy, the costs associated with small business insurance depends on several business factors.
Small business insurance cost factors:
:: Location – Areas with higher risks of theft, flooding, danger, injuries, etc., will incur higher business insurance rates.
:: Insurance coverage type – Policy coverage varies depending on whether you’re looking to cover general liability, commercial property, health insurance, and other types.
:: Business size – Large business properties with a large number of employees would incur higher insurance rates than smaller businesses.
:: Industry – The type of work you perform will dictate rates. For example, a construction company would pay a higher rate as the risk for workers’ comp is higher than companies with desk jobs.
:: Number of vehicles, equipment, and tools necessary to run the business.
:: Past insurance claims can also affect your cost of coverage.
Protecting Your Business’s Future
Contemplate this question …
“What happens if I don’t have insurance for my small business and I get sued or a claim is made for damages or injury?”
You now know that if you’re not insured, you’ll be forced to pay settlements and claims out of your own pocket and business funds for any lawsuits, employee injuries, and damages.
Small business insurance is often more affordable than you think. Before you shop for small business insurance, consider the business risks you face and how much financial protection the business will require. Starting with basic coverage is better than remaining unprotected. Rest assured, as the business grows and changes, coverage can be adjusted.
Don’t leave your business and employees vulnerable to unexpected claims and associated costs by being under protected. It’s often easier and more affordable to get the proper insurance than you might think.
FAQ
Do I really need Business Insurance, even if I’m just a small operation?
Yes! Every business, no matter the size, should get insurance to cover many potential liabilities that come with operating a company. You’ll want to protect both your business operations and employees with the right types of insurance and coverage.
How much does Business Insurance cost?
There are many factors that affect the cost of the insurance including location, business size, industry, coverage type and amount of equipment used for operations.
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The information provided on this website is for general informational and educational purposes only and should not be considered legal, financial, or insurance advice. While we strive to keep content accurate and up to date, insurance laws, policies, and regulations can vary by state and may change over time.
Nothing on this site constitutes professional advice or a recommendation of any specific insurance product, provider, or strategy. You should consult with a licensed insurance agent, financial advisor, or legal professional regarding your individual situation before making any decisions.
