Especially during your first few years in operation, you’ll want to minimize expenses where you can as a small business owner.
If you’re asking yourself whether you really need business insurance however, the answer is yes. Without proper coverage, you can run the risk of a lawsuit or simply not having the protection you need for different aspects of your business.
The type of company you run will dictate the type of insurance coverage you purchase. Service-based businesses will require different coverage than product-based companies and a home-based business’s needs, etc. Hiring employees, operating commercial vehicles and working with large volumes of data all can affect the kind of insurance you carry.
Consider this a helpful guide for the most common types of business insurance—and which you might need.
Business owner’s policy (BOP)
At a basic level, it’s wise to carry general liability insurance to protect your business from customer claims of property damage and personal injury that occur at your place of business. It’s also smart to carry property insurance, which pays for theft, fire and other damages to your place of business, regardless of whether you own or rent.
Many commercial insurance carriers will package both kinds of coverage into what’s known as a business owner’s policy, or, BOP. “A business owner’s policy will take care of a majority of your needs if you’re a brick-and-mortar, mom-and-pop shop,” says Ashley Hunter, managing director of HM Risk Group, an insurance and risk management firm based in New York City.
BOPs often start at about $500 a year, depending on your business size, location and coverage needed, Hunter says. Many will also include business interruption insurance, (aka business income insurance), which pays lost revenue and operating expenses should a disaster or another major event halt a company’s operations.
Other business liability insurance
If you make, sell or distribute physical products, product liability insurance can protect your company from claims against your design, manufacturing and marketing methods. But this coverage doesn’t just benefit makers, wholesalers and storefronts—restaurant owners should also consider this policy since it offers protection if a customer gets food poisoning.
For service providers like architects, engineers and consultants, professional liability insurance can offer protection against lawsuits arising from advice, ideas, designs and other deliverables. This type of coverage is sometimes referred to as professional indemnity insurance or errors and omissions (E&O) insurance.
“Often, people think of insurance as protection against physical or bodily damage,” says Laura Troyani, founder and principal of PlanBeyond, a marketing research and strategy agency based in Seattle. “However, service businesses like mine can deal with issues of clients not believing services were rendered correctly or in good faith, or that services may have in some way harmed their relationship with their end customers.”
Insurance for employers
If you have employees, you’ll need additional insurance coverage. For instance, most states require employers to carry workers’ compensation insurance, which pays wages and medical benefits to employees injured on the job.
More small business owners are also purchasing employment practices liability insurance (EPLI). This type of policy covers discrimination, harassment, wrongful termination and other employee claims of wrongdoing on the part of the employer.
Matthew Ross, co-owner and chief operating officer of the e-commerce platforms RIZKNOWS and The Slumber Yard, recently purchased EPLI coverage for his business. “Although we strive to maintain a healthy and fair working environment, we just felt in today’s day and age, you can never be too careful,” explained Ross, who employs 12 people. “Ultimately, we wanted more protection given the seemingly increased volume of employment-related lawsuits that are publicized today.”
Commercial auto insurance
Businesses that own and operate cars, trucks or trailers need insurance on those vehicles. A commercial auto policy will protect your vehicles and drivers in the event of an accident, theft or weather damage. Should an accident occur, drivers can get their medical fees reimbursed, regardless of whether they were at fault.
If your business handles large quantities of customer data, you’ll want to look into cybersecurity coverage. This applies to e-commerce, point-of-sale and other transaction-heavy companies.
“A data breach can pretty much bankrupt a small business owner,” Hunter says.
Fortunately, cyber insurance can help pay restoration costs in the event your data is compromised, from notifying customers and providing credit monitoring services to rebuilding your network and paying fines and legal fees.
If you run a business from your home, be sure your renter’s or homeowner’s insurance will cover theft and other damages to your business equipment, Hunter says. Homeowner’s insurance may not cover business assets if you run your company in a detached garage or backyard cottage, she adds, and you may need to purchase business property insurance.
No matter where you set up shop, entrepreneurship exposes you to a certain amount of personal risk. Buying a personal umbrella policy can add an extra layer of protection to your personal assets should your business get hit with a lawsuit. “I think it’s important coverage for any business owner, especially one that’s making enough income or revenue,” Hunter says. “If people assume you make a lot of money, that makes you a target.”
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