When you start your own business, there is an expectation that you have quite a clear understanding of the risks involved. From disputes, disasters, and negligence to theft, accidents, and other scenarios in between.
To put it simply, opening a business is inherently risky so you need some business Insights and analytics.
Nevertheless, many entrepreneurs make the mistake of using their personal insurance for their businesses. This could still lead to many more losses, some of which may catch you off guard. Many business owners advise that you get insurance for areas that you cannot pay for from your own expenses.
When you finally decide to buy your policies, it is good to assess your business’s unique risks. This gives you an idea of the scope of coverage you need. Should you need more assistance, seek out reputable agents who can advise you on the right policies and options.
Selecting these may take some time, and insurance should not be something you should rush into, so spend some time comparing different terms, policies, and rates so that you get the best deal. While this is just the first step, you will get the hang of it in no time at all. You can then revisit your business’ state annually to make sure you are always covered sufficiently.
There’s no such thing as being too prepared. Here’s a guide to understanding insurance for small businesses:
Why You Need Insurance for Your Small Business
Insurance is vital to ensuring that your small business does not experience major losses from having to pay out-of-pocket. Depending on the severity of certain claims that may arise, your business may or may not make it out alive.
Paying for insurance may be costly, but covering your bases ahead of time will be well worth it. You will not only protect your finances, but your business’ integrity for years to come.
Types of Insurance for Small Businesses
There are a number of different types of insurance that today’s small businesses should consider getting. Here are some of the most common kinds of insurance to get you started:
General Liability Insurance
One of the most basic types of insurance on this list is general liability insurance. This type of coverage is applicable for all kinds of businesses, from those with brick-and-mortar shops and even those who operate from their own homes. Having this policy protects you from damages caused by the products and services you offer, or those caused by your employees.
General liability insurance will keep you covered from the property damage, advertising injury, and bodily injury, copyright infringement, and reputational harm caused by these things, and even claims related to slander and libel. It gives you coverage for legal fees, medical bills, court costs, settlements, and judgments, and the like.
Business Owner’s Policy (BOP)
Business owner’s policy (BOP) is a basic type of insurance needed by all small businesses as it combines coverage for all major risks related to liability insurance and business property. Coverage is suitable for events caused by disasters such as fire or even theft. It also includes claims related to property damage, bodily injury, advertising injury, and personal injury.
Usually, you will be able to customize your BOP to accommodate more types of specialized coverage that your business might need. This is a great policy as you can make sure that the package is tailor-fit to your business’ industry and specific needs. As a result, you can even save money by bundling coverage types together.
Commercial Auto Insurance
Commercial auto insurance is recommended if your business owns vehicles. This policy will help protect your company vehicles (e.g. cars, trucks, vans, SUVs) that are used for the transport of products, equipment, and even your employees. It offers protection from collisions and other damage.
In a commercial auto insurance policy, you will have coverage for property damage, bodily injury, personal injury, comprehensive physical damage, and uninsured motorist coverage.
Commercial Property Insurance
Commercial property insurance is needed to protect your business’s physical assets from events such as vandalism, theft, storms, explosions, fire, and burst pipes. Other events like floods and earthquakes may not be part of the coverage in most cases, but depending on your provider, you may be able to add them in.
Physical assets that will be protected include signages, furniture, computers, equipment, land, inventory, company documents, raw materials, and other things that your business needs in order to operate.
Workers’ Compensation Insurance
Workers’ compensation is a requirement in every state, with mandates and regulations also differing on a state level. This policy will take care of fees related to employee injuries, such as medical costs, physical therapy, and lost wages. The cause of injury will be of little importance, for as long as the accident occurs while the employee is on the job.
In the event that the injury is fatal, workers’ comp will give the employee’s family compensation for funeral costs and the like. Depending on where your business operates, you will have to look into the specifics imposed by your particular state. Failure to do so may lead to penalties, fees, or jail time.
Business Income Insurance
Business income insurance, otherwise known as business interruption insurance, is necessary should you experience a halt in your company's operations due to events like floods, fires, and property damage. This policy will aid you in replacing income lost during the interruption, and it can also be used to absorb expenses like payroll, rent, or utility bills.
This insurance policy is particularly helpful for businesses that have physical locations, and are dependent on these stores for their sales and operations.
Professional Liability Insurance
Professional liability insurance, which is sometimes referred to as errors and omissions (E&O) insurance, is a policy that will protect your business from negligence claims. These claims may arise from harm in relation to a business’ failure to deliver or the mistakes that they make. Policies for professional liability insurance are usually customized depending on your industry or needs.
It is often recommended for businesses that deliver professional or creative services. It will absorb legal fees that are incurred due to claims of negligence.
Cyber Liability Insurance
Cyber liability insurance gives businesses coverage for losses that may occur due to data breaches or other cyber-related crimes. You may be able to get first-party coverage, which will handle the out-of-pocket costs from the breach.
On the other hand, third-party coverage may be included to absorb the costs related to settlements or damages from potential suits or claims.
Product Liability Insurance
Product liability insurance is ideal for businesses that sell actual goods. This insurance policy will protect your business from claims that may arise due to property damage or personal injury caused by defective products.
Businesses that manufacture products should definitely consider product liability insurance, as well as those that repair products that are damaged.
Which Types of Coverage Does Your Business Need?
With all the types of insurance there are out there, you may be wondering which policy your small business needs. This will depend on the laws per state, as well as the nature of your business. Most states actually require business owners to have workers’ compensation.
To put things into context, some of the most common types of coverage that small businesses get include general liability, workers’ compensation, commercial auto, and commercial property insurance. You may need to look at your business as a whole and see if there are any other gaps left that these policies do not offer.
Additionally, you can also consult with your chosen insurance provider as they will be able to advise you on what types of coverage you need and also customize your policies so that you also get to save on costs.
Any small business should lay out the types of insurance policies they need from the very beginning. Insurance is an investment, and as a business owner, you have to do what you can to protect your business. This is the most concrete way of doing so.
It will not only protect your business from grave financial losses, but it will also protect your reputation and ability to thrive and grow from any of the claims and cases incurred. You should not have to wait before something significant occurs before securing coverage.
Are you a small business owner with tips on insurance? We’d love to know! Comment below and share some sage advice you were given when you first started out.