Which insurance coverage do you need to properly cover your business?
Just like you need a homeowners insurance policy to protect you and your home against loss, business owners need an insurance policy to help protect business assets and prevent a financial loss. Most small business insurers will provide an array of coverage types that can suit your business needs, regardless of whether your business has dozens of employees or is just you.
Below, we explore common types of business insurance and whether or not they could be the right fit for your small business.
Business insurance protects against accidents, lawsuits, natural disasters or other unexpected events that could put your business at risk. While the legal structure of your company is in place to protect your personal assets, the primary purpose of small business insurance is to protect your business assets.
In some cases, small businesses are required to carry certain types of insurance. For example, if your business has employees, the federal government mandates that you carry disability, unemployment and workers’ compensation insurance (except in Texas). Individual states may have separate requirements of their own.
The amount of insurance that you need depends on the type and size of your business. State regulations can also play a part in what you are required to have. In general, a business owners policy (BOP) is a great all-around place to start. It combines general liability with property insurance to more fully cover you than those policy types can individually. Plus, by packaging them together, there is often a savings benefit for the policyholder.
However, depending on the type of business that you have, a business owners policy may not be sufficient. Plus, there are a number of coverage types that — while they may not be required by law — can end up being vitally important to the longevity of your business.
While your LLC will protect your personal assets (very important if you are a homeowner), your business’s assets could still be at risk, necessitating the need for small business insurance. Read more about the individual types of business insurance below.
There are many types of coverage available. Some of these are specific to certain types of businesses, while others are more broad and applicable to a wide array of business owners. Below are some of the more common options offered by insurance companies to serve the unique needs of your small business.
General liability coverage is a must for all small business owners. This covers property damage, bodily injury and personal injury. This is a core component of any business owners policy. Commercial general liability covers you in the event that a third party (outside of your business) sues because of injury or property damage. This could be a customer or a competitor.
Commonly referred to as workers’ comp, this is a form of insurance that supplements the wages of employees if they are injured on the job and cannot return to work for a certain period of time.
Most workers compensation policies cover the following:
Commercial property insurance covers the physical elements of your small business: physical structures, inventory and any other equipment. Property coverage is incredibly important for nearly all small business owners. Even if you rent your space, this coverage is vital for the protection of the property inside. Some policies contain business interruption coverage which can come in handy if your business is unable to do business for a period of time after an accident.
It protects your business property against the following perils:
*Note that most policies have exclusions for earthquakes or floods unless specifically added to your policy.
Also known as errors and omissions insurance, this insurance type protects against lawsuits that arise due to clients who are unsatisfied or otherwise harmed by the services that you provide. Of the types of small business liability offered, this coverage is more closely related to those who provide specific professional services, such as architects or consultants.
Unlike general liability — which covers physical or advertising injury — professional liability covers:
Professional service providers such as lawyers, architects, engineers and others.
Data breach or cyber liability insurance is a must for any business that stores valuable information about employees or customers. This can include credit card details, social security numbers and health information. If you suffer a data breach, this coverage can help you recover.
This coverage is designed to recover from cyberattacks by helping to pay for the following:
Company cars or personal vehicles used for business purposes must be covered under a commercial auto policy. A personal car insurance policy simply won’t cut it. Commercial auto insurance is designed to protect vehicles used by your business, whether they be for deliveries, transporting employees or driving to worksites.
A commercial auto policy often covers the following:
The size and scale of your business will determine how much you pay for small business insurance. However, Progressive notes the average cost of general business liability coverage in 2020 was $46 per month.
A number of factors go into determining how much you’ll pay for small business insurance, including the following:
There are many insurance options for those who run a business out of their home. Because many small businesses start out at home or operate entirely at home — especially in the COVID-19 era — knowing the proper type of coverage to have is crucial.
If your business is conducted entirely online, you may be able to add an endorsement to your current homeowners policy that can cover your needs. This can include businesses run by attorneys or freelancers such as graphic designers or writers. Typically this provides protection for corporate property such as computers and usually offers coverage for personal liability or business interruption depending on the endorsement type.
However, if clients regularly visit your place of business — for instance, a home daycare or a masseuse who operates from home — then an endorsement is not likely to be enough. You’ll need to procure a separate commercial insurance policy to be properly covered.
A great way to cover all your insurance bases and potentially save money is to get a business owners policy, also referred to as a BOP. A BOP allows business owners to put together a number of coverage types under a single policy rather than stringing them together à la carte. By customizing coverage to your business needs, you can simplify your insurance policy and often save money in the process.
Another great way to save money on your small business insurance is to shop around. Insurance rates can fluctuate from year to year, meaning that your rates are almost certain to change as well. What was once the most affordable policy may not be when it comes time to renew. Shop around to get small business insurance quotes to make sure you are getting the best rates. It’s also a good time to see if there are any additional coverage types that you should look into.
Getting insurance coverage for your business doesn’t have to be difficult. Speaking with a knowledgeable agent can help you get the coverage that you need.
