Risk management isn’t just for big corporations - small businesses need to ensure they’re properly protected from disastrous situations as well. Having comprehensive insurance coverage is essential for a business of any size - even if you’re a solo entrepreneur working from home.
Figuring out which insurance policies you need can be complex.
But here’s a breakdown of some of the most commonly utilized types of insurance, how they work, and when they might be applicable to your business.
General Liability Insurance
General Liability is the first type of insurance a small business often purchases, as it protects you from third party injury claims. This type of insurance is essential if you own a storefront or office where customers or other external parties visit, as it covers incidents that might happen to them or their property while they are on the premises. For example, if you own a retail shop and a customer slips on a wet floor while shopping, your business could be liable for damages including medical costs. If you have General Liability Insurance, it will help cover litigation costs and settlements.
Commercial Property Insurance
Commercial Property Insurance protects the company’s physical assets, from your office space down to your machinery. If you use any valuable equipment in the course of doing business, this policy is often recommended. It offers coverage in case of a natural disaster, vandalism or theft, and will cover costs related to repairing or replacing property and equipment. Keep in mind that there are particular scenarios which may not be covered, such as flooding or earthquakes, so it’s good to understand policy limitations and determine if you need additional coverage.
One option available to most small business owners is to combine General Liability and Commercial Property coverages through a Business Owner’s Policy, or BOP. With a BOP, small business owners can obtain multiple types of coverage for one affordable price. Additionally, most BOPs also include Business Interruption Insurance, which covers the costs associated with lost income or relocation if your business is halted due to certain unforeseen circumstances, like a fire.
Workers Compensation Insurance
If you have employees, you’ll want to consider Workers Compensation Insurance. Whether you work in an industry with a high risk of injury, like construction, or a low risk industry, like professional services, accidents happen.
With Workers Compensation Insurance, you protect both your employees and your own business. Workers Compensation covers the cost of lost wages and medical expenses when an employee is injured on the job, and reduces the likelihood that an employee would sue the company for negligence.
Most states mandate Workers Compensation for businesses once they reach a certain number of employees, although the exact requirement varies according to region and industry.
Professional Liability Insurance
Professional Liability Insurance is often referred to as Errors & Omissions (E&O) Insurance. Many business owners aren’t clear on the difference between General Liability and Professional Liability, so here’s the breakdown: General Liability protects you from third party injury claims, often due to a physical incident, like slips and falls. Professional Liability protects you in case of mistakes or errors that you may have made inadvertently, which are sub-optimal for your clients.
For example, if you are a consultant and advised a client to pursue a strategy that caused them to lose money or did not achieve specified objectives, the company could hold you liable. Professional Liability Insurance would help to cover the cost of your defense and associated settlements.
Professional Liability is generally recommended if you offer professional services to a client for a fee. It’s a common policy for companies like public relations agencies, law firms and consulting firms.
Commercial Auto Insurance
If you or your employees ever operate a vehicle in the course of doing business, you’ll also want to consider Commercial Auto Insurance or Hired and Non-Owned Auto Insurance, as personal policies may not cover any accidents that occur during work. Even a team member running out to visit a client site in their own car poses a risk. A commercial policy is helpful whether you rent, lease or own vehicles that are used for business, and it will help to protect your company in the case of injury or property damage.