Small business insurance provides peace of mind and financial protection to entrepreneurs and small businesses owners by helping them avoid losing their investment and everything they’ve worked so hard to build. Here are some practical tips on how insurance works for small businesses, what kinds of insurance coverage is offered, and how you can get the appropriate coverage for your type of business.
Why you need small business insurance
Every day in this country business owners face certain risks that pose real threats to their business and financial stability.
These risks include:
- Damage to your property due to theft, fire, storms, and/or other natural disasters
- Your products or services cause physical or financial harm to a client and a lawsuit is filed against your business
- A supplier or customer is injured on your premises and files a lawsuit
- An employee files a groundless lawsuit or is injured on the job
- A company vehicle becomes involved in an accident
- Personal data of customers or employees is breached and accidentally released by your company
- A major supplier is not able to deliver essential products, causing your business to suffer financial losses or even close down
Any one of these situations could result in costly repairs, huge legal fees, and/or lost operational time. When you’re covered by small business insurance you do not have to shoulder all these expenses yourself, your insurance company will absorb much of the costs, which allows you to continue operating your business despite the problem.
How small business insurance works
Small business insurance is just like other types of insurance in that you pay a premium for the insurance company’s promise that they will shield you against having to make an enormous payment in the event of a problem in the future.
For example, Property Insurance will protect the assets of your business in the event of a fire destroying your building and equipment. Instead of you having to incur the costs of relocating and replacing all your equipment and supplies, the insurance company will cover those expenses, up to the limit specified on your policy.
The insurance needs of a small business depend to a large extent on its industry, location, customer base and certain other factors. The first step is to find a licensed insurance agent with a good reputation in your community and in your industry. It is vital that your agent be able to analyze your business’ risks and vulnerabilities and make recommendations. The law does require certain types of insurance coverage for small businesses. And business associates, such as landlords and lenders, would require other types of insurance.
A Business Owner’s Policy (BOP) is a popular choice among many small business owners. A BOP bundles Property Insurance and General Liability Insurance together, allowing for a single discounted premium. Workers’ Compensation Insurance protects a business from potential costs should there be workplace illnesses or injuries. This is mandatory in many states. Errors and Omissions Insurance, often called Malpractice or Professional Liability Insurance will protect you in the event a client alleges damages due to your professional work, claiming physical injury or financial losses. You may also want to consider an Umbrella Policy, which is a cost-effective way to expand the coverage on other insurance policies. To protect against data breaches you may want to have in place Cyber Liability Insurance. Small business owners should sit down with their insurance agent at least once a year to review their coverage and make needed adjustments as their business grows.
Product liability insurance protects the business from claims related to the manufacture or sale of products, food, medicines or other goods to the public. It covers the manufacturer’s or seller’s liability for losses or injuries to a buyer, user or bystander caused by a defect or malfunction of the product, and, in some instances, a defective design or a failure to warn. When it is part of a commercial general liability policy, the coverage is sometimes called products-completed operations insurance.
Employment practices liability insurance or “EPLI” is liability insurance that covers certain employment related claims made by employees. For example, if a manager harasses or discriminates against an employee (or is alleged to have done so), EPLI will provide a defense and possibly claim payment on behalf of the business. In today’s world this is critical coverage to have if you have employees or if you have employees working with the public or on site at other businesses. Such coverage can also protect the business owner from meritless claims brought by disgruntled employees. Even though as business owners we strive to be fair and non-discriminatory, old habits die hard, age and gender gaps lead to miscommunication, and EPLI coverage can serve as a last line of defense against employment claims.