Whether you're starting a business, hiring employees for the first time, or restructuring your business, many factors determine the right insurance for your small business, such as your business structure, activities, location, and whether or not you employ people.
Navigating the complexities of small business insurance laws and best practices can be overwhelming.
There are two primary categories of insurance: employer-provided insurance, which is mandated in all states but Texas, and commercial company insurance, which is only occasionally legally required.
Below is a summary of the types of insurance you may want to consider to safeguard your assets and investments.
This section outlines the types of insurance policies available to small business owners. While these may not be required by law, obtaining sufficient coverage to protect your assets from events such as a partner's death, natural disasters, or lawsuits is advisable. Given the litigious environment today, it's essential to remember that insurance isn't just a means of paying claims when you're found liable—it can also cover defense costs.
Defending yourself alone could be extremely costly, even if you're not found liable.
Additionally, it's a common misconception that forming a corporation or LLC negates the need for business insurance. Although these structures protect personal assets from business liabilities, they are not substitutes for liability insurance, which safeguards your business against losses.
It's also crucial to note that in some cases, state law may require insurance for specific business activities. For instance, if you use a vehicle for business purposes, your state may mandate commercial auto insurance.
Here's a summary of various business insurance policies to consider:
General Liability Insurance
This insurance substantially covers property and bodily injury claims, protecting you against legal issues arising from accidents, injuries, and negligence claims. It may also provide coverage for advertising claims.
Commercial Property Insurance
This covers the loss and damage to company property caused by events like fire, smoke, severe weather, or vandalism. The term 'property' is broad, encompassing lost income, business interruption, buildings, computers, company records, and money. Evaluating your unique needs by speaking with an insurance specialist is important.
Business Owners Policy (BOP)
A BOP includes general liability insurance, property insurance, and business interruption insurance (which covers ongoing expenses if your business experiences a covered loss). This policy is tailored to certain types of businesses and can provide additional coverage at little or no extra cost.
Product Liability Insurance
If you manufacture, distribute, wholesale, or retail a product, this insurance protects you from financial losses due to product defects that could cause injury.
Commercial Auto Insurance
Suppose your business involves vehicle use for business purposes. If you title vehicles in your business's name or employees drive company-owned or personal vehicles for business, a commercial auto policy may be necessary. Liability (which covers other people's bodily injury, medical expenses, lost wages, and property damage) and property damage coverage (which includes comprehensive and collision coverage for your car) are usually included in this policy.
Workers Compensation Insurance
This insurance can cover medical costs in the event of an illness, injury, or death connected to work-related causes if you intend to hire staff. It can also defend you if an employee brings a lawsuit alleging workplace safety violations.
Employers Protective Liability Insurance (EPLI)
If you have employees, EPLI covers issues not covered by workers' compensation, such as sexual harassment, wrongful termination, discrimination, retaliation, and failure to promote.
Professional Liability Insurance
This insurance protects service providers against malpractice, errors, and negligence. You should consider this coverage if your clients rely on your advice or service—whether you're a design professional, architect, realtor, car dealer, consultant, CPA, attorney, or physician.
Builders Risk Insurance
This policy provides property coverage for construction projects, including new homes, remodels, and tenant improvements. The coverage is typically affordable since it only applies during the construction phase.
Inland Marine Insurance
Also known as mobile equipment insurance, this policy covers business property that moves from place to place, such as heavy equipment, tools, and compressors. It can protect any equipment used at multiple locations.
Umbrella Liability
This policy offers additional liability coverage that exceeds the limits of other policies, such as general liability or commercial auto insurance. If you're found liable, your primary policies cover up to their limits, with any remaining amount covered by the umbrella policy.
It's a good idea to talk to an agent or broker about your business insurance needs because various insurance packages are available. Remember that choosing not to purchase insurance doesn't eliminate risk—it just means you're self-insuring and taking on all the risks yourself.