Common Types of Business Insurance
Any small business, regardless of industry, niche, or location should always take steps to protect itself from the unexpected. Different options are available for small business owners when it comes to insurance, but what are they? What do each of them provide and what kind of insurance do you need for your small business?
Business owners can opt from one to over a dozen different types of insurance. Since some insurances are covered more than others, it’s important to take the time to research, weigh options, and choose wisely to ensure your business is fully covered. After all, you’ve worked hard to start your own business. Whether you own a home-based or a brick-and-mortar store or company providing products or services locally or globally, you need to protect your investment.
Below you’ll find the most common types of business insurance that benefits and protects your small business.
General Liability Insurance
Every business, whether you run a home-based business or large company, should be covered with the general liability insurance policy. Such policies provide coverage and protection for your company against claims of property damage or bodily injuries from services, products, or business operations. (If you operate a home-based business or run your company from someone else’s property, check to make sure that you’re covered against damages to your landlord’s property.)
One of the best cases for having general liability insurance is to protect yourself and your business from “slip and fall” accidents. According to the CDC, average hospital costs for slip and fall accidents might exceed $30,000 per incident. With a maturing ‘Boomer’ generation, incidents of fall injuries and costs are expected to increase.
Note: If you run a home-based business, be aware that your homeowner's insurance does not cover accidents or liability for clients or others who come onto your property to conduct business.
If you have general liability insurance do you also need property insurance? The simple answer is yes. Property insurance provides coverage for buildings (property damage) or personal business equipment, products, supplies, inventory, office equipment, computers, and so forth. Property insurance coverage also protects against theft, vandalism, and fire, including smoke or water damage caused by the fire or efforts to put it out. Another component of property insurance might also include coverage for loss of earning or interruption of business practices.
Property insurance also protects you against claims that you or your employees, either through products or services, have caused bodily injury or any type of property damage to a third party.
Small business owners with employees should also be familiar with workers’ compensation insurance. Workers’ comp (as it’s commonly known) is a type of insurance that provides certain benefits to an employee injured on the job, such as medical and wage replacement. However, workers’ comp is also beneficial for employers, as an employee who opts for worker’s comp is legally restricted from suing the employer over the injury incident.
Workers’ compensation insurance protects employees and employers and is a must if you have W-2 employees. Be aware that fines are applicable for non-compliance. Check with your state Department of Labor for requirements and exemptions.
Employer’s Liability Insurance
Employer’s liability insurance is not quite the same as workers’ compensation insurance but it’s just as important. Employer’s liability insurance is designed to protect an employer from financial losses in the event that an employee or worker experiences an illness or job-related injury that isn’t covered by worker’s compensation. Such insurance can be combined with workers’ compensation insurance for added protection. In many cases, it’s known as the second part of a worker’s compensation policy. As always, read the fine print.
This type of insurance is often recommended because workers’ compensation may not always adequately cover expenses, ramifications from injuries, illness, or death resulting from a job accident or incident. In cases where an employee might feel that the employer is negligent and that negligence caused their injury, they do have the option to sue the employer for punitive damages.
It is recommended that large and small business owners purchase employer’s liability insurance on top of workers’ compensation. Be aware, however, that employer’s liability insurance does have caps on the amounts that are paid out per injury, employee, or illness.
Professional Liability Insurance
Does every small business need professional liability insurance? It depends on what you do and what type of service you provide. Professional liability insurance is also known as “Errors and Omissions insurance” or E&O insurance. This type of insurance policy is designed to protect small businesses in the event you are accused of negligent performance of professional services. Professional liability insurance is a recommended option for any business that provides professional services or gives advice.
Professional liability insurance is beneficial in a personal injury (slander or libel) suit or a case of alleged negligence, and also helps with defense costs. Examples of such a case is a massage therapist accused of causing an injury to a client or a medical billing service employee who might be sued for incorrect coding on an insurance form, or even a public notary accused of notarizing documentation without completing all required fields.
However, it’s also important to be aware that personal liability insurance doesn’t cover property damage, false advertising, bodily injury, or fraudulent or dishonest practices.
Business Owner’s Policy (BOP)
Known as a BOP, business owner’s policies or packages typically offer coverage for numerous types of insurance a business owner might need, such as liability insurance, property insurance, business interruption insurance, vehicle coverage, and insurance against acts of crime. In some cases, small business owners can save money by customizing and/or bundling services in a business owner’s policy.
Depending on the insurance company that offers such policies, coverages may also include against merchandise spoilage or damage and business interruption, but be aware of eligibility criteria and read the fine print. BOPs are also known as “named-peril coverage”, meaning that the policy will only cover for damages that are listed in the policy, such as vandalism, damage caused by Mother Nature, fire, and so forth. Some agencies may also offer “all-risk” coverage.
Note: The Small Business Administration (SBA) urges small to mid-size business owners to perform risk assessments in order to more precisely choose levels of coverage. Ask about vehicle coverage and flood insurance, as well as the potential for add-on coverage components.
Be aware that BOP does not cover workers’ compensation, medical or health insurance, disability insurance, or professional liability.
About Business Auto Insurance
Let’s talk a moment about commercial auto insurance. A common misconception among small business owners is that commercial auto insurance only protects and covers damages to cars, vans, and trucks that are specifically marked with logos and used for transportation of employees, equipment, products, or services.
What about personal vehicles that your employees use for company business? In such cases, non-owned auto liability insurance also protects your company in the event that your employee has inadequate coverage and is involved in an accident. In some cases, non-owned auto liability insurance can be added to a business owner’s policy.
Business automobile insurance helps to cover the cost of replacement or repair of company vehicles (read the fine print on all insurance policies). Any business regardless of size, that uses a vehicle needs commercial auto insurance. In some cases, you can also opt to cover the use of vehicles owned or leased by your business, hired by your business, or employee-owned vehicles that are used for business purposes.
In many cases, again depending on the auto insurance agency, commercial auto insurance offers liability, physical damage, collision, and comprehensive coverage, although exclusions may apply.
Other Types of Small Business Insurance
While the above listed types of business insurance are recommended for most business needs, other types of business insurance are also available. Among them include:
- Insurance policies that provide protection against data breaches and losses. Such policies are commonly called cyber liability insurance or cybersecurity
- Directors and officers insurance is a type of policy designed to protect the officers and/or directors of a company against any actions that might have a negative effect on operations or profitability. For example, if such an individual does something while on the job that triggers legal ramifications, this type of business insurance helps to cover costs and damages in the event of a lawsuit.
- Home-based business insurance - small business owners operating out of their home should be aware that homeowner’s policies do not cover home-based businesses. Consult with your insurance agency in regard to adding additional insurance riders to your policy to cover inventory, equipment, and supplies.
In some cases, home-based business activities can void your home insurance policy. Additional types of insurance required for home-based businesses are based on the type of business or services you provide from your home. Discuss insurance coverage options with your insurance agent.
Don’t take chances on your business, or employees. Business insurance offers small business owners peace of mind in the event of an accident, injury, or natural disaster. Insurance coverage is a must. Consult your local insurance company or agency representative for quotes, requirements for coverage, and always, always be aware of limitations or exclusions.