Numerous types of small business insurance exist to protect businesses and their owners from the risks of adverse events. Here’s what to know.
According to The Hartford, 4 out of 10 small businesses will file an insurance claim over a 10-year span.¹ So if you’re in business long-term, the chances of you needing a dependable insurance policy is great. Business insurance protects businesses by mitigating the risks of adverse events. These can range from fire, flood, and accidents in company vehicles to product failures, loss of business income, and more. It’s important for small business owners to invest in insurance coverage to insulate them from the effects of unfortunate situations. Fortunately, numerous types of small business insurance exist to protect businesses of all types and sizes.
This article will explore types of business insurance every small business owner should know about.
What types of small business insurance do you need?
Not all types are relevant to everyone. Relevance depends upon the stage, status, size, and type of business as well as what business assets are at risk. But understanding what’s available and for what business purposes can help you make your best decisions as your business grows. These are some of the most common kinds of professional and commercial insurance coverage for different types of small business.
General liability insurance
This type of small business insurance mitigates the risk of claims of property damage or bodily injury. If a customer or vendor gets injured while they’re on your business’s property, commercial general liability insurance protects the business if they sue you. Insurance coverages include settlements, legal fees, and court costs.
Professional liability insurance
Businesses providing professional services should consider getting this insurance to protect themselves against negligence claims. General liability coverage doesn’t typically apply to these types of claims. People who benefit from carrying this insurance include attorneys, physicians, and accountants.
Commercial property insurance
Business property needs to be protected against natural disasters like floods, fire, high winds, and hail. A company’s building, computers, furniture, inventory, and other business equipment and supplies will be covered by a commercial property insurance policy. Outside, the parking lot, roof, awnings, and other spaces are also protected by this type of property insurance policy.
Commercial auto insurance
A commercial auto insurance policy pays for damage and injuries sustained while operating a vehicle for business use. A business owner shouldn’t assume that a personal policy will cover events involving a vehicle being used for business. Personal auto insurance policies may deny such claims, setting your business up for significant financial losses. Covering vehicles used in your business with an appropriate business auto policy is a smart decision.
Business income insurance
If a small company can’t operate, it will most likely sustain a loss of income. Buying a business income insurance policy protects your business from this situation. With this policy, the company would be protected against certain lost income stemming from being unable to operate. For example, if a car drives into the building, or the roof collapses, business income insurance would address the losses incurred while repairs are made. This insurance policy is also called business interruption insurance.
Product liability insurance
Small businesses that make products can mitigate their risk by carrying this type of policy. If a product ends up being defective or unsafe, it may injure someone or cause property damage. For example, cars have been known to be recalled for deadly defects. And there was a time when a specific type of cell phone battery was prone to catching fire. Product liability insurance covers damages and medical expenses from injuries sustained because of the product.
Errors and omissions (E&O) insurance
Small businesses that provide specific services to clients or other businesses may benefit by covering themselves with an E&O policy. If you make errors, miscalculations, or leave out data or other important information, an E&O policy covers claims that may result. E&O insurance pays out for associated legal defense costs and settlements. It’s a good choice for accountants, technology providers, lawyers, and companies that offer advice or information and data to customers.
Business owners policy
Business owners wanting to bundle several types of insurance into a single package may choose a business owners policy. It includes general liability insurance, business income insurance, and commercial property insurance. This type of policy is usually less expensive than buying all three policies separately.
Unemployment insurance is provided by the state the small business is located in. If an employee loses their job, unemployment insurance provides weekly payments, sometimes called benefits, if the person is eligible. Employees who lose their jobs through no fault of their own (a downturn in the economy, company is cutting hours, it’s the slow season, etc.) can usually qualify for unemployment benefits.
Workers compensation insurance
Companies pay for this type of policy to protect themselves when employees file a workers comp claim against them. Employees who get sick or injured because of their job or work environment can file this type of claim. The policy pays out weekly workers compensation income and covers the employee’s medical care.
Deciding on business insurance
Protecting your business and personal assets are why you need insurance. Small business owners should contact their insurance company and discuss their needs and options with an experienced insurance agent. Weigh the pros and cons of each policy against the cost to your business to settle on solutions that best suit your company.