Small business insurance guide
Just as a homeowners insurance policy protects you and your home from loss, business owners require an insurance policy to help protect business assets and prevent financial loss. Most small business insurers will offer a variety of coverage options to meet your needs, whether your company has dozens of employees or just you.
We'll look at some of the most common types of business insurance and whether they're a good fit for your small business.
What is business insurance?
Accidents, lawsuits, natural disasters, and other unanticipated events that could endanger your business are all covered by business insurance. While your company's legal structure is in place to protect your personal assets, the primary purpose of small business insurance is to protect your company's assets.
Small businesses are sometimes required to carry certain types of insurance. For example, if your company employs people, the federal government requires you to carry disability, unemployment and workers compensation insurance (except in Texas). Individual states may have their own requirements.
How much business insurance do I need?
The amount of insurance you require is determined by the nature and size of your business. State regulations may also have an impact on what you must have. A business owners policy (BOP) is a good place to start in general. It combines general liability and property insurance to provide more comprehensive coverage than either policy type can provide on its own. Furthermore, by bundling them together, the policyholder often saves money.
However, depending on the nature of your business, a business owner's policy may not be adequate. Furthermore, there are a variety of coverage types that, while not required by law, can end up being critical to the long-term viability of your business.
Does a limited liability company (LLC) need business insurance?
While your LLC will protect your personal assets (especially if you own a home), the assets of your business may still be at risk, necessitating the need for small business insurance. Read on to learn more about the various types of business insurance.
Types of small business insurance
There are numerous types of insurance available. Some are specific to certain types of businesses, while others are more general and apply to a diverse range of business owners. The options listed below are some of the more common options provided by insurance companies to meet the specific needs of your small business.
General liability insurance
All small business owners must have general liability insurance. This includes property damage, bodily harm, and personal harm. This is an essential part of any business owner's policy. Commercial general liability insurance protects you in the event that a third party (not affiliated with your company) sues you for bodily harm or property damage. This could be a customer or a rival.
What does commercial general liability cover?
- Medical bills incurred as a result of bodily injury
- Injuries from advertising
- Slander or libel
- Property damage caused by the customer
- Settlements in court
- Lawyer's fees
Who needs commercial general liability insurance?
- All business owners: many businesses are required by their state or other involved parties to carry such coverage (landlords, mortgage lenders, etc.)
Workers compensation insurance
Workers' compensation, also known as workers' compensation, is a type of insurance that supplements employees' wages if they are injured on the job and are unable to return to work for an extended period of time.
What does workers' compensation cover?
Most workers' compensation policies include the following coverage:
- Death benefits
- The injured employee's lost wages and medical expenses
- Protection against legal claims made by an employee (except in North Dakota, Ohio, Washington and Wyoming)
Who needs workers' compensation?
- Except for Texas, every state in the United States requires workers' compensation insurance. This coverage, however, is critical and should be carried even if it is not required.
Commercial property insurance
Commercial property insurance protects the physical components of your small business, including physical structures, inventory, and any other equipment. Property insurance is critical for nearly all small business owners. Even if you rent your space, this coverage is essential for the protection of your belongings. Some policies include business interruption coverage, which can be useful if your company is unable to operate for a period of time following an accident.
What does commercial property insurance protect against?
It safeguards your company's assets against the following threats:
- Vandalism
- Thunderstorms*
- Burglary
- Fire
- Explosions
- Pipes burst
*Please keep in mind that most policies exclude earthquakes and floods unless specifically stated otherwise.
Who is eligible for commercial property insurance?
- Business owners who own or rent a commercial property
- Companies with inventory or other stored products
- Businesses that own expensive machinery
Professional liability insurance
Professional liability insurance also known as errors and omissions insurance, protects you from lawsuits that arise as a result of clients who are dissatisfied or otherwise harmed by the services you provide. This coverage is more closely related to those who provide specific professional services, such as architects or consultants, than to those who provide general business liability.
What does professional liability cover?
Professional liability, as opposed to general liability, which covers physical or advertising injury, covers:
- Errors in general
- Contract infringement
- Services that have not been completed or delivered
- Deadlines were missed.
- Claims for negligence
Who needs professional liability coverage?
Lawyers, architects, engineers, and other professionals are examples of professional service providers.
Cyber liability insurance
Any company that stores sensitive information about its employees or customers must have data breach or cyber liability insurance. Credit card information, social security numbers, and health information are examples of this. If you experience a data breach, this coverage can assist you in recovering.
What does cyber liability coverage cover?
This coverage is intended to assist in the recovery from cyberattacks by assisting in the payment of the following:
- Notifying those who may be affected
- Credit monitoring for those who have been affected by the breach
- Lawyer's fees
- Penalties
- Investigating and resolving cybersecurity problems
Who needs cyber liability insurance?
- Any company that deals with sensitive customer or employee data.
Commercial auto insurance
A commercial auto policy must cover company cars or personal vehicles used for business purposes. A personal auto insurance policy will simply not suffice. Commercial auto insurance is intended to protect vehicles used by your company, whether they are used for deliveries, employee transportation, or driving to work sites.
What does it cover?
A commercial auto policy will typically cover the following:
- Accountability (if an employee causes an accident)
- Medical expenses
- Uninsured motorist protection
- Vehicles of the company have been physically damaged.
Who needs commercial auto insurance?
- Basically, if you have a business car or use a personal vehicle for any type of business activity, getting a commercial auto insurance policy is well worth it.
How much does small business insurance cost?
The cost of small business insurance is determined by the size and scope of your company. Progressive, on the other hand, reports that the average cost of general business liability coverage sold through the Progressive Advantage Agency in 2020 is $53 per month.
A number of factors influence the cost of small business insurance, including the following:
- Employees' number
- Industry classification
- Type and location of physical property
- Coverage for business assets and equipment
- Coverage requirements
What if I run a business out of my home?
There are numerous insurance options available to those who operate a home-based business. Because many small businesses begin or operate entirely from home, especially in the COVID-19 era, understanding the proper type of coverage to have is critical.
If you conduct all of your business online, you may be able to add an endorsement to your current homeowners policy that will cover your needs. This can include law firms or freelancers such as graphic designers or writers. Depending on the endorsement type, this typically provides protection for corporate property such as computers as well as coverage for personal liability or business interruption.
If, on the other hand, clients regularly visit your place of business — for example, a home daycare or a massage therapy center run from your home — an endorsement is unlikely to suffice. To be properly covered, you will need to obtain a separate commercial insurance policy.
How to save money on small business insurance
A business owners policy, also known as a BOP, is an excellent way to cover all of your insurance bases while potentially saving money. A BOP enables business owners to bundle a variety of coverage types into a single policy rather than stringing them together ad hoc. You can simplify your insurance policy and often save money by tailoring it to your company's needs.
Shopping around for small business insurance is another excellent way to save money. Insurance rates can change from year to year, which means your rates will almost certainly change as well. When it comes time to renew, what was once the most affordable policy may no longer be. Compare small business insurance quotes to ensure you're getting the best deal. It's also a good time to see if there are any other types of coverage you should look into.