When something unexpected happens to your small business, having the right insurance can make or break your company’s continued success.
Small business insurance is insurance that protects your company from legal trouble, financial setbacks, and other claims in the event of an accident, lawsuit, or otherwise unexpected event for which you may be liable.
By understanding your coverage options and purchasing the right policies, you can protect your assets and employees against legal claims and other damages. In this post, we explain what small business insurance is, the main types of coverage, and why insurance policies are crucial to your company’s wellbeing.
Every small business should have insurance to help protect it from risks and hazards. To best protect your business, you need to have the right policies in place before disaster strikes.
A small business insurance policy helps protect your business against financial losses, legal claims, and covered perils. Covered perils can include incidents such as theft, fires, storms, or equipment malfunctions.
Most commonly, small business insurance policies include three basic coverage types: business property coverage, general liability coverage and business interruption coverage.
The policies most appropriate for your company depend on how you operate, what your employees do day-to-day, and your industry. Most small businesses should purchase liability insurance, property insurance, and workers compensation insurance.
1. Liability Insurance
Customers may claim they have been harmed by your business due to defective products, service errors, employee negligence or other incidents. Liability insurance pays damages for these types of claims, if your company is found liable, along with other legal defense expenses. It also covers medical bills for people injured by the company or on its property.
Example: If a customer falls and is injured while shopping in your store, liability insurance coverage can pay for their medical bills, up to a set limit based on your policy.
2. Property Insurance
If your business property is lost or damaged by various common perils, such as theft or fire, property insurance compensates some or all of the associated expenses. Property insurance covers your company’s buildings or structures, as well as personal property – office furnishings, materials, inventory, machinery or other items.
Example: If a tornado damages your storefront, this coverage can help replace your windows, signage and infrastructure.
3. Workers Compensation Insurance
Workers compensation insurance covers medical care and replaces a share of lost wages for employees who are injured during employment. Depending on the state(s) you operate in, employers must have workers compensation insurance when there are more than a certain number of employees, often between three and five.
Example: If an employee develops back problems from lifting heavy boxes, workers compensation insurance can help cover their medical treatment costs.
If you’re a small business and looking at insurance options, cost can be a big determining factor in your decision.
The cost of small business insurance depends on the type of business, amount of employees, deductibles or coverage limits, and optional coverage policies. Along with basic liability and commercial property coverage, small business owners often use additional business insurance coverage, including:
If you need help deciding which insurance you need, what coverage is best for your business, or what optional coverage policies are worth opting into, consider using an insurance broker who knows what you need and can get you the best rates.
Start your broker search at Mployer Advisor, a free broker marketplace that allows employers to compare brokers, consultants, and advisors in one place.
Insurance companies often combine multiple coverage types into a package that functions as a single policy. A business owner’s policy (BOP) is the most common policy for small businesses, according to the Insurance Information Institute.
A BOP, or business owner’s policy, combines coverage for major liability and property insurance risks, along with additional coverage types relevant to individual businesses. These policies usually include general liability coverage and commercial property coverage.
For specific risks associated with your business or industry, a BOP can include many additional coverage types. For example, a company reliant on e-commerce can add coverage for lost income and expenses in the event of a debilitating computer virus or cybersecurity breach.
Only small and mid-sized businesses that meet certain criteria are eligible for a BOP. These criteria include the size of the property, the limits of corporate liability, and the type of business. Costs for BOPs vary based on those factors, along with business location, physical infrastructure, financial stability and security systems.
Having business insurance won’t alleviate the risks that come with owning a company. But it will protect your small business’s operations and employees against property damage and legal claims.
Each small business needs an insurance policy to safeguard its operations, but the coverage in these policies will vary for every organization. Small businesses searching for policies must consider additional insurance coverages tailored to your specific operations and needs.
There are plenty more insurance policies you might consider for your company, such as stop-loss insurance, inland marine insurance, and small business health insurance. Insurance brokers, consultants and advisors can help you choose additional coverages that make the most sense for you.
In most cases, you are legally required to purchase certain types of business insurance. Federal government regulations (in the U.S.) require every company with employees to have workers’ compensation, disability, and unemployment insurance. Also, some states will require additional insurance, depending on your business.
For example, a flower shop with a delivery van likely needs commercial auto insurance, and a dental office handling sensitive data online may need cyber liability insurance.
Insurance requirements vary by state, so visit your state’s commerce website and speak with an insurance broker to find out what your business needs.
Importantly, having insufficient policy limits (not purchasing enough insurance) may result in a financial penalty. To avoid these fines, make sure your insurance policies cover all your business’s operations and property.
Every small business needs to follow different rules and regulations when it comes to coverage. But no matter the requirements, small business insurance will surely help protect the company you’ve worked hard to create. Researching coverage terms and prices, along with speaking to the right insurance experts, will tell you what makes the most sense for your business and lead to the best policies.
Smart businesses have good insurance and benefits. The best way to find good insurance and benefits is through a broker, consultant, or advisor who knows what you need and can get you the best rates.
But, how do you know who to hire? With seemingly endless options, you feel under pressure to choose the right one. We believe that transparency, information, and choice leads to better hiring decisions.
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To get started, get matched with a short-list of qualified brokers. Looking for more exclusive content? Check out what’s trending on the Mployer Advisor blog, and read more about small business insurance here.