What Type of Insurance Do I Need to Start a Small Business?
What Type of Insurance Do I Need to Start a Small Business?
In the United States, there are about 30.7 million small businesses. Owning a small business requires money, dedication, and time, as any business owner knows.
If something unexpected happened to your business, would it survive? Small businesses may be at risk of surviving without the right insurance. Are you aware of the need for insurance for your small business? Is insurance something you should invest in? If so, what kind? Before we get into the types of insurance, learn why small businesses need insurance.
Keep your employees satisfied and secure
One of the most important priorities of a small business owner is their employees. To keep your current staff and attract new employees, your business should stay current with what benefits other employers offer to their staff. Consider the company benefits you offer as an employer. Health, dental, and life insurance options, funded or co-funded by the company, are necessary to keep your current employee base and attract additional staff. Flex-time, 401K, and remote work options are other perks employers provide. Expanding your team may motivate your current workforce to work harder.
The landlord's insurance won’t cover your business for liability or property coverage. Any commercial lease you sign will require evidence of General Liability insurance from your business, at minimum. Most leases will also require evidence of Workers’ Compensation coverage. Taking out a small business loan to finance the equipment, furniture and fixtures you need to set up shop will require proof of property insurance. Finally, depending on your business type, your client contracts may require proof of several types of insurance with specified limits.
There is no day or time when workplace accidents cannot happen. If you don't have workers' compensation insurance, your small company (and you, frankly) will be on the hook for that employee’s medical bills, lost wages, and any other statutory benefits required in your state. Workers' compensation takes care of an employee who suffers an injury that prevents them from working. Don’t think if you’re business is not required to purchase a Workers’ Compensation policy, that you’re off the hook for the benefits the Work Comp policy would have paid, because you aren’t.
An act of vandalism, theft, fire, or windstorm.
A natural disaster such as a hurricane will not only destroy your business assets but also be the end of the business entity if it is not insured. Without a property insurance policy's financial backing, would your business have enough cash in the bank to recover? A property insurance policy can protect you against many perils, but remember, Floods and Earthquakes are not usually insured under a standard business property policy. This coverage will need to be purchased in addition to a commercial property policy if you are in flood or earthquake-prone areas.
Keeping your business safe from lawsuits
You may leave business quickly without liability insurance if you damage property or hurt someone. If either of these situations occurs, you will face a claim or lawsuit against your company. Legal fees can be costly, even if you win the case. Your business would bear the full cost of being sued by a third-party or a former employee if something goes wrong. An active lawsuit can spell disaster for your small business without liability insurance.
Here are ten types of business insurance every small business needs
Your time, money, and effort go into starting a business. You may have worked hard, but the business’s performance needs to improve. Statistics indicate that businesses typically fail within four years, which is a bleak outlook. Companies fail for many different reasons, don’t let the lack of proper insurance be one of them.
Insurance policies are essential for protecting your company, your employees, and your assets. Businesses have different insurance needs based on the company’s operations, but some types of coverage are essential. The following are the essential types of insurance for businesses:
General Liability Insurance
Businesses need to consider General Liability coverage. General liability claims, on average, incur nearly $1 million per claim, making the annual premium of 5-10% of your sales seem low. With general liability, your company will be covered for injuries and property damage caused by your work. Coverage includes bodily injury, property damage, personal injury, and advertising injury liability to a third party. A general contractor that drops a heavy item at a construction site that damages the finished floor or hurts a visitor to the site would be responsible for payment of the damages resulting. All businesses should have general liability insurance.
Professional Liability Insurance
Insurance covering errors and omissions (E&O) is offered to those who provide professional services to customers. Professional Liability protects against omissions, errors, and negligence claims that result in a financial loss to your client. Malpractice insurance for health practitioners is one of the few types of professional liability that could pay for bodily injury claims. All other industry professional liability policies pay for financial losses suffered by a third party and do not pay for third-party bodily injury and property damage, which General Liability covers.
Commercial Property Insurance
Running a business requires physical property; whether you own a commercial building, furniture, fixtures, equipment, or inventory, it's usually quite expensive. Business property insurance is also where you get business interruption and lost revenue coverage. An expensive purchase should always be protected in case of loss. Fire, smoke damage, wind, hail, vandalism, riot, and lightning are some of the perils that are covered under your commercial property insurance policy.
Home-Based Business Insurance
According to the US Small Business Administration, in 2018, 50% of small businesses were home-based. Today, that percentage must be higher. Many start-up businesses begin from the business owner’s home, but homeowner's insurance policies do not cover the companies within them. Insurance for home-based businesses is explicitly designed to protect those businesses operated out of the owner’s home. These policies will exclude personal liability and property coverage while focusing on covering the office contents and liability from the business operations, which are usually performed outside the home.
Businesses can’t do without workers' compensation, and it’s a necessity. According to the National Academy of Social Insurance 2022 report, based on 2020 data, $58.9 billion was paid out by insurers for Workers’ Compensation benefits in the US. Most states require companies with employees to have workers' compensation insurance (depending on the number of employees), and not without reason. Workers' compensation covers all medical expenses, replacement services, death benefits, and wage loss when one of your employees is injured on the job or becomes ill with an occupational disease. The last thing you want is for your company to pay these statutory benefits out of your bottom line. All states have penalties for evading workers' compensation laws.
Product Liability Insurance
Companies that manufacture, distribute, or sell products require product liability insurance. A product defect could cause harm to a consumer or damage property. Manufacturers, distributors, and even retail shops should have this coverage, which is included in most general liability policies. For example, when a tech device reaches a specific temperature, it will cause a small electrical shock, which could hurt someone or potentially start a fire, incurring significant property losses. Note that if your company needs to recall products from the market to prevent injuries or damage, you will need a Product Recall policy. There is no coverage for product recall expenses under General or Product liability coverage. Protect your company from financial losses incurred by having a defective product requiring recall with Product Liability and Recall insurance.
Directors’ and Officers’ Liability
Though large public companies are familiar with Directors’ & Officers’ Liability and purchase it regularly, private companies rarely think they require it. This coverage can often be packaged with Crime, Fiduciary, and Employment Practices Liability in a Business Management policy. Protect your company's balance sheet and your directors’ and officers’ personal assets with this liability insurance. Directors, Officers, and Board Members are at the top of a company’s organizational structure. These executives often exemplify the company culture while overseeing operations, human resources, finance, and legal divisions. Directors and Officers have many responsibilities; leading the organization is just one of them. This policy is designed to protect those executives’ personal assets (including their spouses and estates) that could be at risk for liability arising from wrongful acts while performing their duties for a company.
Business Income Insurance
Also called Business Interruption, this coverage protects your business from failure. If the business’s structure is damaged by a covered peril making normal operations impossible, you must suspend your operations. Business Income and Extra Expense coverage help you recover by replacing the lost income. When you buy Business Income and Extra Expense insurance, you determine the net income your business will need to survive claims scenarios and insure that amount. The replacement revenue assists the company in meeting ongoing financial obligations such as payroll, mortgage, loans, and other expenses to speed recovery and minimize the loss.
Protect your business today
With this knowledge, you may be motivated to purchase the insurance needed for your business. At InsuranceAdvisor.com, buying business insurance is straightforward. Choose your coverage and request quotes for your business. Contact us today to get the answers you need to knowledgeably choose the coverage your business needs. Start the journey today toward protecting your business tomorrow. Visit us at InsuranceAdvisor.com to request your quote online.