There are approximately 30.2 million small businesses currently operating in the United States, comprising a shocking 99.9% of all U.S. businesses. Whether you have two employees or two hundred, it’s vital that your business is protected from financial loss; fortunately, small business insurance is designed to do just that. Unfortunately, however, understanding the wide array of insurance options can be overwhelming to the average American. Let’s try to clear up that confusion by answering some of the most frequently asked questions regarding small business insurance.
What Types of Insurance Does My Small Business Need?
In a nutshell, business insurance is designed to help companies protect themselves and their assets from lawsuits, property damage, theft, and employee illness or injury. These liabilities can force a business to file bankruptcy or go through a foreclosure, effectively crippling the business owner. When it comes to securing financial protection, there are three essential types of insurance that all companies should purchase.
Property Insurance: Property insurance provides compensation in the event that the property used for your business is lost or damaged as a result of various common “perils”, such as fire, natural disaster, or theft. Its coverage extends beyond a building or structure to include personal property, which can include office furnishings, inventory, raw materials, machinery, computers, and other items vital to the business operation.
General Liability Insurance: Liability insurance protects companies from the costs of a lawsuit. If a client or customer claims that your business caused them harm (usually as a result of a defective product or an error in service), they may try to sue you. General liability insurance pays the damages if you’re found legally responsible (i.e., liable), as well as attorneys’ fees and any potential medical bills.
Business Interruption Insurance: Catastrophic events can leave businesses in the lurch. If a wildfire or flood devastates your workplace, you’ll be unable to continue doing business. Interruption insurance replaces the income lost due to direct physical loss or damage, as well as the income lost during the rebuilding process.
The specific circumstances of certain businesses mean that additional coverage may need to be purchased. For example, if your company possesses a fleet of vehicles or requires employees to use their own vehicle to travel on company business, commercial auto insurance is recommended; it will pay any costs to third parties resulting from bodily injury or property damage for which your business is legally liable. Other forms of additional coverage include:
Cyber Insurance -- covers damage, liability, and recovery costs in the event that your computer system or electronic data has been compromised
Errors and Omissions Insurance (E&O)/Professional Liability Insurance -- offers protection against businesses that provide advice or services in the event that clients allege negligence, errors, or omission
Employment Practices Liability Insurance (EPLI) -- covers wrongful acts arising from the employment process such as discrimination or harassment
Directors and Officers Liability Insurance (D&O) -- protects the personal assets of corporate directors and officers in the event they are sued for actual or alleged wrongful acts in managing a company
Business Identity Theft Insurance -- offers reimbursement to help cover employee or customer expenses resulting from identity theft
No matter what coverage you choose for your business, the benefits are clear: you are guaranteed financial security should an unexpected or costly event take place. The drawbacks are just as simple: protection against these unexpected and costly events has a price tag. Because the challenges small businesses face are unique to their size and industry, small business owners will want to take the time to truly weigh the risks of not having specific insurance and the costs of ensuring coverage.
What Legal Requirements Must My Business Meet?
The above forms of business insurance are not mandated, meaning businesses aren’t required to purchase them under the law. Rather, they’re heavily recommended; if anything happens that you don’t have coverage for, whether that refers to a natural disaster or a lawsuit, business owners will be forced to pay for everything out-of-pocket. This can understandably be financially devastating.
Business insurance that is legally required refers more to the employee side of the business. There are two forms of insurance that all employers must purchase under federal and state law.
Workers’ Compensation: Workers’ compensation insurance covers the medical costs and lost wages of employees who are injured on the job in exchange for the right of the employee to sue the company. With the exception of Texas, all states require that businesses purchase workers’ compensation insurance.
Unemployment Insurance: Unemployment insurance is federally mandated for companies who pay more than $1,500 in wages per quarter or have at least one employee for at least 20 weeks per year. It covers a percentage of lost wages for employees that have lost their jobs due to no fault of their own.
Because laws can differ based on which state your business is located in and how many employees you have on payroll, it’s vital that business owners understand their local laws. For example, health insurance is mandated for businesses with 50 or more full-time employees, and some states require disability insurance.
How Can I Find the Best Insurance For My Business?
Finding the best insurance for your business can be made easier with the help of an insurance broker. Brokers work for the client, rather than the insurance companies, ensuring that the client’s best interest is always at the center of the experience. Their industry expertise and extensive knowledge mean that insurance brokers can guide small business owners toward the best option for their specific needs, whether that translates to enrollment in a few individual plans or a business owners policy (BOP). BOPs are bundled packages that offer basic insurance coverage under one roof, which can greatly simplify the insurance buying process.
No matter the industry you work in, understanding and obtaining small business insurance can be an overwhelming and confusing experience. Take the time to figure out what truly matters to your company and look into hiring an insurance broker. When you have a goal in mind and an educated partner by your side, you can be sure your business is getting the coverage it needs.