What Types Of Insurance You Need For Your Small Business
Do you need business insurance for your small business, and what types of insurance are best for your industry? Find out in this guide.
Starting and running a small business requires countless small decisions. What types of business insurance to sign up for is one of the most important, and talking with an insurance representative is a smart step. Before you do, learn about the types of business insurance available so you can be a smart shopper and choose the types of business insurance you need.
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Do You Need Business Insurance?
The short answer to the question “Do I need business insurance?” is yes. Almost every business, no matter how small, should have some basic insurance.
Why do you need business insurance? For starters, some types of insurance are required by law. Other types of business insurance, while optional, are the key to protecting your business from disaster and financial ruin. With insurance, you can be certain your business will be able to weather unexpected events like a fire, theft, a lawsuit, or an accident.
The cost of business insurance often gives your business a tax write-off, too. You may be able to claim your premiums of deductions. Check with a tax expert to make sure.
Don’t let the sheer volume of insurance providers overwhelm you. If you’re not sure how to get started, take a look at our list of the best business insurance providers. We’ve highlighted some great choices for different types of businesses to help you make the right choice.
Types Of Business Insurance You Might Need
Before we get into the different types of business insurance that are available, let’s talk about three business insurance categories:
- Required Insurance: Local, state, or federal law may require your business to carry certain types of insurance.
- Essential Insurance: You can’t eliminate all risk from your business, but you can take out some common-sense coverage to mitigate risk as much as possible.
- Specialty Policies: Your business may have some characteristics that make an uncommon type of insurance necessary. This could be where you’re physically located, the type of work you do, or something else.
We can start with the required insurance types because there are only a few.
Legally Required Business Insurance
The types of business insurance you may be legally required to carry will depend on your company type, size, and the state you do business in. This is why it’s important to understand federal and state laws and to consult with an insurance professional to ensure that your business is compliant with all mandatory insurance requirements.
- Workers’ Compensation Insurance: This type of coverage safeguards your business from costs or lawsuits stemming from employees’ job-related injuries, illness, or death. Federal law in 49 states (Texas is the only exception) requires businesses with one or more employee to offer workers’ compensation insurance. Workers’ comp policies pay benefits directly to employees who are injured on the job. Read more in our complete guide to workers’ compensation.
- Commercial Auto Insurance: If you own vehicles through your business and you or your employees regularly use these vehicles for work purposes, you must carry commercial auto coverage to protect you and your employees in case of accidents, natural disasters, vandalism, and theft. Be aware that many personal auto insurance plans do not include provisions to cover vehicles used for business.
- Health Insurance: If your business meets certain conditions, you are legally required by the federal government to offer health insurance to employees. Under the Affordable Care Act (ACA), if you have 50 or more employees for 6+ months of the year, you must offer health insurance. Healthcare is a complicated topic, so we recommend you make sure you understand small-business health insurance.
Related: If your business is not legally required to provide health insurance to employees, it’s still an option. And it’s one that can help your business remain competitive for top talent. Another perk of choosing to offer health insurance to your employees is that doing so may make your business eligible for the Small Business Health Care Tax Credit.
7 Essential Types of Business Insurance
Other than the types of coverage listed above, there really are no legal requirements for business insurance. However, operating without some type of business insurance is highly risky. Without the right type of business insurance, you may have to face lawsuits, natural disasters, and other damages on your own, and that could bankrupt your business.
Think of these essential types of business insurance as a kind of a la carte menu. You don’t have to order everything; some types of coverage will make sense for your business and others won’t.
1. General Liability Insurance For Business
Although general liability insurance isn’t required by law, it protects you in the event of a lawsuit or an accident. Can you say there’s absolutely 0% chance anyone ever could slip and fall on your property or suffer harm while using your products?
Claims against your business can come in the form of bodily injury, property damage, personal injury to a customer (including slander or libel), or false advertisement. Without a general liability policy, you’ll have to address those claims entirely on your own.
Don’t let cost be a barrier to obtaining this crucial type of coverage. We’ve put together a list of the best business liability insurance, and some of the options we highlight are surprisingly affordable. With policies available for as low as $11/month, that’s a bargain rate for the peace of mind that general liability insurance delivers.
2. Commercial Property Insurance
This type of insurance includes protection for all the property used to run your business. Commercial property insurance typically covers your building, business products inside your building, and other people’s property while it’s in your care.
Property damage due to theft and some but not all natural disasters also falls into this category. Common exclusions include earthquakes, volcanic eruption, and flood. You can purchase separate coverage for these types of disasters, including flood insurance.
If you rent space for your business, your landlord may require you to carry a renters insurance policy. Commercial renters insurance is often included under commercial property insurance. That could mean renters end up paying for some coverage they don’t need, including the building itself.
Although most insurance companies offer some type of commercial property insurance, only a few offer property insurance aimed at renters. You can find four good and affordable options on our list of the best commercial renters insurance.
3. Business Owners Policy
Many insurers offer a bundle known as a business owners policy or BOP for short. Most BOPs include both general liability and commercial property insurance, but some carriers offer a slightly different combination of policies. So be sure to ask your preferred carrier what their BOP covers.
Any BOPs should offer the bundled policies at a price discount compared to purchasing the policies separately, so they can be a bargain. There’s no set discount, but it’s typically around 10%.
4. Professional Liability Insurance
Professional liability insurance is often referred to as errors and omissions or E&O. It’s sometimes called indemnity or malpractice insurance, too. No matter what you call it, professional liability insurance covers the cost of defending your company in a lawsuit where the claim is that your business caused a financial loss for a client through employee error or failure to perform a service as required through omission.
While this type of insurance may be required for medical and legal businesses, it’s generally optional for small businesses and can be obtained as an add-on to your general liability insurance.
Look into this type of insurance if your business involves giving customers advice, if a customer could claim damages after you misdiagnose a problem or leave out a step, or if an employee error could cost you time, money, and potential customers.
5. Data Breach Insurance
Also known as cyber security insurance, this type of coverage protects your business from the costly after effects of a data breach. If your business takes payments from customers, whether online or in-person, you probably have cybersecurity measures in place. Data breach insurance comes to your assistance if those measures fall short or protecting your own or your customers’ private information.
This policy also gives you access to professionals who can assist you through the legal scrutiny of following data-breach protocol.
6. Business Interruption Insurance
If your business is hit by a disaster like a fire, your commercial property insurance should cover the cost of replacing and repairing inventory and equipment. But what about lost sales and ongoing business expenses that accrue during the time that passes until you can start doing business again?
That’s where business interruption insurance comes in. This type of coverage helps you recoup lost revenue and pay the rent while your business is temporarily unable to operate. If you need to move to a new location because of damage, your business interruption policy may pay for relocation and assist with lost income.
7. Umbrella Insurance
Insurance is in the business of worst-case-scenarios, and even good coverage sometimes leaves you uncomfortably exposed. After all, a lawsuit can be ruinous if the stakes are high enough.
General liability insurance provides a set amount of coverage, but you can’t cover every possibility and a judgment against you could exceed your liability coverage limits. Umbrella insurance extends the ceiling of your general liability coverage. Umbrella policies typically offer a high dollar amount of coverage for a relatively low cost.
Additional Insurance Coverage For Individual Business Types
We’ve covered the business insurance coverage that may be required by law. And we’ve discussed seven types of coverage that all businesses should consider. Now it’s time to drill down into some different business types and identify some specialty insurance policies that apply to certain niches.
How To Choose The Right Type Of Business Insurance
No two small businesses are alike, and no one type of insurance coverage will suit every business. Understanding the options is the best way to make sure you choose the right coverage. Always consult with an insurance professional for the best advice on what type of insurance is right for your business, and make sure you’re following all federal, state, and local legal requirements and mandates.
In the end, choosing the perfect type of business insurance can protect your business from claims, property damage, and other disasters, and can give you peace of mind. That means you can stop worrying and get back to running your business.