Most small business owners aren’t afraid of risk, but they aren’t reckless either. One way they protect themselves from unforeseen risks is with small business insurance. This insurance is designed to protect their financial assets and physical property from lawsuits, property damage, theft, vandalism, loss of income and injury or illness to their employees.
In addition to the health insurance policies that many small businesses offer their employees, there are other types of commercial insurers that business owners rely on (much like the homeowner insurance policies that people generally rely on to protect their homes and properties) to protect their assets. Those insurances include:
- Business liability insurance
- Product liability insurance
- Professional liability insurance
- Commercial property insurance
- Commercial auto insurance
- Workers Compensation Insurance
A formalized business structure such as an LLC or a Corporation provides some protection for your personal assets in the event of a lawsuit, but it does not protect your assets. Depending on the nature of your business, the type of insurance you need may vary, but these insurance policies provide additional protection by filling in the gaps to protect your assets.
Any company with employees is required by the federal government to have employee insurance, unemployment insurance, and disability insurance. Some states may also require additional insurance, so you should visit your state’s website to find out if there are additional insurance requirements in your state.
Why do I need small business insurance?
While liability insurance is not a requirement no matter how careful you are, accidents do happen and having the right insurance coverage can make a difference in how your business is able to meet those financial needs when they arise. Depending on the nature of your business, it may also be a good idea to have liability cover in addition to a general policy.
Are small businesses required to be insured?
The federal government requires small businesses with employees to have disability insurance, unemployment insurance, and disability insurance. There may also be additional insurance requirements required by the state where you do business. This information should be available on your state’s website.
What is a business owner policy (BOP)?
A business owner’s policy (BOP) combines the basic policies that cover property and liability risks in one package or bundle. These policies are generally aimed at small to medium sized businesses and typically include property, business interruption and liability insurance for businesses that fall into certain categories.
You should consult your insurance agent to determine if a BOP policy makes sense for your business.
What Kind of Small Business Insurance Do I Need?
The insurance needs of a small business can vary, but in addition to the insurance required by the federal government or your state, here’s a brief description of the different types of insurance available for your business, as outlined by the SBA.
Kind of insurance
Type of company
What it is for
This coverage protects against financial loss due to personal injury, property damage, medical expenses, libel, defamation, defensive lawsuits, settlement monies or judgments.
Companies that manufacture, wholesale, distribute and sell a product
This coverage protects against financial loss due to a defective product that causes injury or personal injury.
Companies that provide services to customers
This coverage protects against financial loss due to malpractice, error and negligence.
Commercial real estate
Companies with a significant number of properties and physical assets
This coverage protects your business against loss and damage to company property as a result of a wide variety of events, such as fire, smoke, wind and hail storms, civil disobedience and valalism.
Companies running out of owner’s personal home
Coverage added to homeowners insurance as a rider can provide protection for a small amount of company equipment and liability coverage for third party injuries.
Business owner policy
Most small business owners, but mostly home business owners.
A business owner’s policy is an insurance package that combines all of the typical coverage options in one bundle. They simplify the insurance purchase process and can save you money.
After thinking about the type of business you think is necessary for your business, speak with an insurance agent to compare terms and prices.
What Does Small Business Insurance Cover?
Property damage, lawsuits, lost business income, medical expenses, libel, defamation, settlement fees and judgments can all be covered by the right business insurance. Because the unique risks associated with different companies are not all the same, companies often buy more than one coverage that can be combined into one policy.
For example, the professional liability insurance (or malpractice insurance) that a doctor needs will likely not be the same type of insurance that a plumbing company might need.
To determine the type of insurance that best suits your business’s needs, take these four steps to determine what’s right for you and your business:
- Evaluate your risk. Think about the types of accidents, lawsuits, or other disasters that could cause damage or loss to your business. For example, a Florida company may need insurance in the event of a hurricane, while a similar Oklahoma City company may not need it.
- Find a licensed commercial insurance agent. A commercial insurance agent can help you find a policy that suits your business needs. Keep in mind that they get a commission from the insurance company when they sell you an insurance policy.
- Shop. Prices, terms and benefits can vary widely from company to company. You need to compare rates, terms and benefits from different companies and different agents to make sure you get the best policy at the best possible price.
- Review your insurance needs every year. Your insurance needs are likely to change as your business grows. An annual evaluation is an important part of making sure your business is adequately insured.
What excludes small business insurance?
As mentioned above, many companies choose to combine coverage when creating a policy because not all types of insurance coverage cover the same things. The property damage coverage associated with your corporate liability policy may pay only up to the actual value of the damaged item. You may need to add a motorcyclist with a full replacement cost to your policy to make up for the difference between the actual value and the full replacement cost. This can be especially important if your business is running older equipment.
If your business suffers from a flood or other event that damages a significant portion of your inventory, a general liability policy will cover the cost of the lost inventory, but not the orders the business was unable to fulfill due to the loss of inventory. For this you need cover for business interruptions.
Another example is your company car liability insurance. You need separate auto insurance to protect your business from car claims lawsuits. And, depending on policy, it may or may not involve vandalism on a fleet of commercial vehicles, so be sure to ask. In addition, employees with poor driving behavior may not be covered.
Be sure to discuss all that is and is not covered with your insurance agent to make sure you are getting the right insurance coverage.
How Much Does Small Business Insurance Cost?
While costs can vary depending on the insurance company, the type of insurance and your individual business, Progressive insurance gives us an idea of the average cost (these are estimates only, you will want to talk to your insurance agent for a quote).
$ 85 / month
$ 68 / month
Business owner policy (BOP)
$ 80 / month
$ 62 / month
$ 53 / month
$ 46 / month
$ 46 / month
$ 42 / month
Which business insurance policies offer protection against the coronavirus (COVID-19)?
If your business is suffering from the aftermath of the economic crisis triggered by the COVID-19 pandemic, your property insurance may provide cover for business interruptions. You want to talk to your agent to see if it covers the business interruption caused by the virus. These policies normally cover interruptions due to hurricane, fire, wind damage or theft, but may not apply in this case.
Many insurance companies will review your claim and make a decision on a case-by-case basis.
Some property insurance policies offer the option to reduce or remove the coverage of a building that has been vacant for 60 days or more, but many companies (including The Hartford) have suspended the enforcement of their vacancy conditions for buildings that were not vacant before a state closure order was issued.
Most work accident insurance will continue to cover your employees, even if they work from home.
If you have any questions about commercial insurance for your business, please contact your insurance agent to make sure you have the right policy. This article is not intended as advice on individual insurance needs, but rather as an overview of what is available.
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