If you’re a small business owner, you might be wondering if you really do need that business insurance coverage. Short answer: you absolutely do!
It’s crucial for your small businesses to have the right protections and insurance plans for your specific needs so that you are prepared for any unexpected, and potentially expensive, events. When you’re choosing your plans, a good practice is to start with the basics and go from there as you decide what kinds of coverage will work best for your unique business.
What Types of Insurance Should You Have as a Small Business Owner?
The three most important types of small business insurance you should have are general liability insurance, commercial property insurance, and workers’ compensation insurance. With these basic needs covered, you’ll be protecting your business’s most foundational assets and setting yourself up for success no matter what curveballs the future may hold.
It’s important to understand the basics of these types of insurance. Let’s break down what each type entails, and why it’s so important for you and your small business.
- General Liability Insurance: This type of insurance protects your business from claims of property damage or injury, as well as claims of libel or slander. If a customer trips and injures themselves in your store, for example, this insurance will pay for their medical bills instead of you having to pay out-of-pocket.
- Commercial Property Insurance: This insurance protects the physical location of your small business, as well as pieces of equipment, tools, inventory and other property. In the case of a fire, flood, storm or other damage, this insurance will help you to replace the essential materials you need to get your business up and running again.
- Workers’ Compensation Insurance: This insurance covers costs like medical care, lost wages and disability benefits if one of your employees experiences a work-related injury or illness. While everyone does their best to avoid these circumstances, being prepared for this type of scenario means that if an accident does occur, you and your employee will receive the protection, treatment and support that you need.
Is Insurance Required If You're A Small Business?
If your small business has any employees, the federal government requires you to have workers’ compensation insurance. Other than that, the legal small business insurance requirements differ from state to state, so it’s important to check your state’s laws.
While it may not be a legal requirement in all states to have business insurance, there are penalties and fines that vary according per state for not having the proper coverage. Setting up your insurance ahead of time means that if a situation does arise, you won’t be surprised by heavy fines, unexpected payout costs or medical bills. Being prepared for an emergency is just as important to the success of your business as hiring talented employees or designing a strong marketing plan.
What Insurance Does A Small Business Need?
The type of insurance that your small business needs depends on what type of work you do, and the needs, risks and activities associated with your unique company. In addition to the types of insurance listed above, here are some other possible types of coverage to consider:
- Product Liability Insurance: If your business manufactures a product that customers purchase, this type of coverage protects you against losses from a defective product that causes injury or harm. For example, if your company manufactures homemade peanut butter and a customer contracts an illness, this insurance would enable you to pay for legal assistance if the customer decided to sue.
- Professional Liability Insurance: If your business provides a service to your customers, this coverage helps to protect against financial loss resulting from malpractice, errors or negligence. For example, if your employee advises a client to make a financial decision that ends up losing them money and the client sues, this policy would help you pay the legal fees.
- Commercial Auto Insurance: If your business requires you or your employees to drive, this policy will cover accidents if you or an employee is at fault. This type of coverage is especially important if your workers drive leased or rented company vehicles, or your employees drive their own cars for their job. An example of this type of business might include food delivery or a taxi service.
- Home-Based Business Insurance: If you run your business out of your own home, you can add this type of coverage to your pre-existing homeowner’s insurance. This policy can protect a small amount of business-related equipment and offer liability coverage for injuries. For example, if a customer injures themselves while coming into your home to purchase your product, this coverage would help pay for associated medical bills.
- Data Breach Insurance: This type of insurance is more important than ever as more small businesses rely on online ordering and customer accounts for financial transactions. If your business collects personally identifiable information (PII) or personal health information (PHI) from your customers, this coverage can help to pay for the mitigation costs in the event of a data breach where customer information is leaked.
One last type of insurance to consider is a business owner’s policy (BOP), which is an insurance package that combines all of the typical coverage options into one. This is a good option for most small business owners, but especially if you have a home-based business. A BOP makes the insurance buying process simpler, and can even save you money by bundling the costs together.
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A Small Business Insurance Summary
It’s important to make sure you and your business are covered in case any of these unexpected and challenging situations come your way. It is hard work to start and operate a small business, and having the right coverage helps to ensure that all the time, energy, effort, and money that you invested in building your company are safe and secure in the event of an accident, a natural disaster, or any other obstacle. Your small business was worth starting, and it is definitely worth protecting.Looking for more exclusive content? Check out what’s trending on the Mployer Advisor blog or read more about small business insurance here.