Getting insurance for a small business is often one of the last items on a small business owner’s to-do list. Preparing for the unexpected is a necessity, however, whether you run a home-based business or an entire corporation.
Small business insurance that covers your business protects you from lawsuits, natural disasters, accidents, injuries, property damage, and illness. It can be the difference between surviving a crisis and financial ruin.
While this article provides an overview of the majority of types of small business insurance, your best bet will be to sit down with your insurance agent. He or she can explain what types of insurance are required and policy options that are optional based on the type of business you run and where you operate.
Types of Insurance for a Small Business
Business property insurance coverage safeguards you against the loss of property and inventory from theft, loss, or damage. Often called commercial property insurance, a property insurance policy covers all of your assets and may include the building, if you own it. Replacement cost or cash value policies are available at varying rates.
Some insurance companies exclude business assets from homeowner’s or renter’s insurance policies. If you plan on running your business from home, check with your agent. You may need to extend your existing policy or purchase a new commercial option for your home business assets.
Liability insurance helps protect your business if someone alleges that your product or service caused them harm. There are several types of liability insurance.
General Liability: A general liability or umbrella policy is designed to shield you from the costs of legal claims of physical or property damage made against your company and anyone else who was performing duties in a company capacity. The costs of appeals, loss of income due to court appearances, and other related expenses are typically covered under a general liability policy. Some types of businesses are considered low-risk by insurance companies and will pay lower premiums than those considered higher-risk.
Professional Liability: A professional liability policy protects your business from financial loss due to claims that a service you provided, due to errors or omissions, caused financial harm to someone else. Similar to general liability insurance, legal and related costs are taken care of by your insurance company. Some states require that businesses carry professional liability insurance.
Product Liability: Retail, wholesale, and product manufacturers can be held liable if one of their products physically injures someone. Product liability insurance shields the company from monetary loss due to lawsuits and other legal costs.
Vehicle: All company vehicles and drivers must be covered by vehicle liability insurance. It is likely that each driver will have to meet certain driving standards before being covered, such as having a clean driving record. Contact an insurance agent and inquire about driver requirements in order to obtain the proper coverage.
Workers Compensation: Nearly every state requires that a business with employees have Worker’s Compensation Insurance. Workers Compensation is designed to cover the medical costs and wages if an employee is injured on the job. Most states have a Worker’s Compensation Insurance program or policies may be purchased with commercial insurance carriers.
Workers compensation insurance is fairly black-and-white. However, there are some gray areas in which you would need to speak with your insurance agent. For example, if you are the only employee in your business, you often may elect to “opt-out” of workers comp. But if you hire your spouse, even on a part-time basis, he or she will likely need to be covered. The penalties can be extreme for violating Workers compensation laws so make sure to get it right.
Business Interruption: Business Interruption insurance for a small business protects you from losses resulting from fires, natural disasters, or other catastrophic events that result in your business being shut down for a substantial amount of time.
Bonding: The difference between being insured and being bonded is one of the more frequently asked questions regarding insurance. While insurance focuses primarily on liability issues, A bond typically applies to the performance of a specific job. Bonds allow customers to be reimbursed if a job is not completed because the service provider (i. e. electrician, plumber, etc) left the job. There are also other types of bonds required to bid on government contracts as well as bonds that cover things like employee theft. Again, to make sure you are getting the right coverage, speak to your insurance agent.
Other Types Of Insurance
Other types of insurance for a small business include:
Health Care Insurance: Some states require that business owners who employ more than a specific number of people provide employee health insurance. Check with your state regulatory commission to find out what the current laws are. Commercial insurance companies offer a variety of health care packages to employers. Often, business owners are able to negotiate affordable packages by increasing each employee’s deductible and co-pays. Even if you’re the only employee, if you’re not covered elsewhere, you’ll certainly want to obtain health care coverage for yourself as well.
Home Business: Surprisingly, most home owners insurance policies do not cover home-based business losses. Consult your insurance agent about the policy coverage you need for your business equipment, data, and products or services.
Malpractice: Most hospitals, clinics, and doctors must carry malpractice insurance to guard against substantial monetary loss from patient lawsuits.
Key Person Insurance: Some companies rely heavily on a single person. Key person insurance is similar to a life insurance policy. If the covered key person dies or becomes disabled, the benefits are paid to the company, rather than an individual beneficiary.
It is highly unlikely that your company requires all of the types of insurance for a small business mentioned above. Different businesses need different types and amounts of coverage. A business that transports hazardous material will require more insurance than a home-based gift basket business, for example.
When shopping for an insurance carrier, compare the coverage offered as well as the price. Negotiate to customize the insurance policy to fit your business activities. Purchase enough coverage so that your policy protects you. Be prepared for the unexpected and you won’t lose the business you have worked so hard to build.