Business insurance protects your company from unforeseen financial damages resulting from accidents, natural disasters, property damage, medical expenses, worker compensation claims and more. Trying times come unexpectedly and, as a small business, having a safety net in the form of business insurance coverage can make all the difference in preventing hefty losses and keeping your company afloat.
Types of small business insurance
Finding the right business insurance products depends on factors such as your industry, nature of business, location, and more. For example, limited liability companies (LLC’s) and corporations are inherently afforded some protection from lawsuits. Ensuring your business is adequately protected is important to sustaining your business and avoiding large losses. Here are seven types of business insurance available to choose from.
General Liability Insurance
For: All businesses
General liability coverage shields your business from claims involving third-party bodily injury, property damage and advertising injury. For example, this insurance kicks in to cover medical bills if a customer injures themselves on your premises. The advertising injury coverage is also beneficial to protect your business from copyright infringement, libel, slander, and stolen ideas related to advertising.
Commercial Property Insurance
For: Businesses with physical locations and/or other business properties
Property coverage protects your business’s physical location and other properties which include building, equipment, tools, inventory, furniture and personal property. Home-based businesses benefit more from this type of business insurance coverage than by only having homeowners insurance. Especially during the pandemic where home-based businesses became more common, this insurance offers the right protection for circumstances such as break-ins, fire damage, flooding, and lightning strikes.
Commercial Auto Insurance
For: Businesses that own vehicles, whether for employee use or other business activities
If you or your employees are in a car accident while on the job or using a company vehicle, this insurance helps to cover property damage and medical bills. If your business involves deliveries or requires employees to drive, then this insurance is especially critical. Commercial auto insurance protects your business in the event your employee hits another vehicle or pedestrian, or damages public property such as traffic lights in an auto accident.
Business Income Insurance
For: Insuring against potential damages outside your control
This type of business insurance policy is also known as business interruption insurance. If your business is temporarily shut down due to covered circumstances such as fire, wind damage and theft, this insures your lost revenue. Businesses with monthly or other periodic expenses can benefit from this. Coverage includes your mortgage or rent payments, employees’ payroll, loan and tax payments. Repairs to any damaged property are not covered.
Workers’ Compensation Insurance
For: Businesses with employees
If your employees suffer an injury while on the job, workers’ comp helps cover medical bills, lost wages, disability benefits, death benefits or funeral expenses. For businesses that involve physical labor especially, this insurance can go a long way. Even employees with desk jobs can develop injuries like back pains and carpal tunnel syndrome. Worker compensation insurance also benefits small business owners by helping pay for legal costs if the business faces a lawsuit from injured workers.
Professional Liability Insurance
For: Professional service providers
Also known as errors and omissions insurance, this insurance protects your business from financial loss due to mistakes in professional services provided by your company. Firms that can benefit from this insurance type include accounting, engineering, advertising, marketing, and consultancies. It helps cover claims of negligence, misrepresentation, wrong advice, libel, and slander. Even if your business did not make any mistakes, you may still incur hefty legal defense fees if a client raises a lawsuit against you. Your insurance coverage will help alleviate this financial cost.
Data Breach Insurance
For: Businesses that handle sensitive data
Also called cyber liability insurance, this type of coverage is best for protecting small businesses that keep a database of their clients’ important personal information such as addresses or credit card information. Data breach insurance can protect your business from various technology-related risks including data breaches and hacking. Coverage includes legal fees from lawsuits and public relations costs from managing your reputation if a data breach occurs.
Introduction to business owners policy
While the section above covers many types of specialty insurance to fit your insurance needs, a business owners policy or BOP insurance is a comprehensive package that combines both property and liability coverage.
BOP exists to cater to companies that face similar risks. Small and medium-sized businesses often opt for BOP insurance because it can be tailor-made to add on optional coverages such as data breach insurance and other specific policies. Typically, BOP insurance covers liability and property claims.
The liability coverage offered is the same as that covered by a general liability insurance. This includes customer injury, advertising injury, and property damage. However, your workers are not covered under a BOP insurance and adding on a workers’ comp policy is a sensible move.
The location your business is based at is protected under your BOP insurance. Whether rented, owned or home-based, your insurance offers coverage for the building. Other assets such as cash, inventory, equipment and furniture are also covered. However, certain exclusions may apply and you may opt for add-ons to build a policy that suits you.
What is the average cost of small business insurance?
Packaged insurance policies such as the business owners policy give you better value for money. A business owner's policy costs an average of $84 per month in 2020. Generally, the “safer” or less risky your business is deemed, the lower your insurance will cost. Another smart way to reduce your business insurance cost is to pay the entire total upfront to earn a discount. Overall, there are a number of factors that affect the cost of your small business insurance including your industry, history of claims, risk exposure and number of employees. You may want to reach out to insurance providers, explain your business needs, and have them give you a business insurance quote.
How do I find out what business insurance is required by law?
The federal government mandates every business to have workers’ compensation insurance, disability and unemployment. Depending on where your business is located, state laws can mandate certain insurance requirements. Visit the official website of your state to find out the requirements for your business. Your local Small Business Development Center (SBDC) office can also lend an extra set of eyes to be sure that your business is compliant.
What doesn’t small business insurance cover?
Your business insurance protects you from unexpected losses from a wide range of causes. However, losses due to fraud or what the insurance company defines as your own negligence are not covered. You may opt for an additional insurance called Errors and Omissions (E&O) insurance to cushion you from negligence claims. This may be an added cost, but could be worthwhile if your business provides professional services.
Last word on small business insurance
When setting up your business, business insurance is probably not your first thought, but it definitely deserves a space high up on your checklist of important things to do. Building a small business is hard work and protecting it may save you many years of investment. Get in touch with an experienced insurance agent or broker to discuss your business needs and concerns (we are particularly fond of CoverWallet for new businesses). Be in the know of the coverage you are getting and be aware of what isn’t covered. It is good practice to review your coverage yearly to ensure it stays updated with current market practice and provides the best value.