Small businesses climbing the ladder of profitability might face situations that can hurt their finances. Mistakes or even accidents can put them in a situation where they have to deal with expensive lawsuits and there could be natural calamities that can wipe out their financial resources. In such situations, it makes sense to have a small business insurance policy or set of coverages. In this guide, we explain everything you need to know about small business insurance.
Is small business insurance necessary?
It could be tempting to skip the coverage if it is not mandated by law. Since most small businesses operate on limited finances, the first thought that comes to mind is to avoid any additional expense. But there are times when you could face circumstances that will expose the business to new opportunities, and this means opening your business to take on new risks. When such risks happen, it makes sense for businesses to have a financial cushion. An insurance policy will protect the business from the unfortunate scenarios that can cost thousands of dollars. Another benefit of having adequate coverage is that it will help bolster your company’s reputation since consumers like to work with businesses that are financially protected.
Types of insurance policies
In the world of insurance, there is no one-size-fits-all policy that will meet your needs. It helps to consider different factors including the industry your business operates in, the nature of the business, the risks the company faces, and the number of employees. Let’s take a look at the different types of insurance policies you may want to consider before you make a decision.
General liability insurance
One of the most important coverages any small business needs, general liability insurance, is also known as business liability coverage. It protects the company against any claims of property damage or bodily injury that arise from the business activities. It can also provide coverage for slander, liber, repetitional damage, or copyright infringement. The business would not receive compensation for the coverage, but the payout would be given to the third party.
Professional liability insurance
As the name suggests, professional liability insurance protects the small business from any work-related claims. It includes misrepresentation, inaccurate advice, and personal injuries like slander or negligence. It covers the legal as well as settlement costs that arise from oversights, mistakes, incomplete work, or costs arising from a breach of contract. While not legally required, professional liability coverage is ideal for small businesses providing advisory services.
Commercial property insurance
Commercial property insurance is designed to reduce the disruption to the day-to-day operations of a small business. It provides compensation for any damages that happen to the building, the equipment, the inventory of products, and the materials the company sells. Many policies also pay out a part of the lost income when damage prevents the business from running its usual operations.
Product liability insurance
Product liability coverage is ideal for the companies that sell products. It protects them from lawsuits from customers who claim injury or losses due to the product. The insurance also covers legal defense costs if the business is found to be at fault.
Commercial auto insurance
Commercial auto insurance is a car insurance policy that is designed for vehicles that are used for business purposes. It offers coverage that is similar to personal auto insurance but mainly covers commercial vans, trucks and company cars. It covers bodily injury liability, personal injury protection, property damage liability, and uninsured motorist coverage. It also includes collision and comprehensive insurance coverage.
Workers’ compensation insurance
One of the most important insurance coverages for any business, workers’’ compensation insurance, pays for the cost of medical care and the lost income for employees who are injured or sick while performing their duties. It also protects the business from any financial liability of having to pay for injuries or illnesses out of pocket.
Business interruption insurance
Designed to protect a company from the financial loss incurred due to the disruption of business operations, business interruption insurance pays for the operating costs when the business shuts down temporarily. It includes the employee salary, taxes, rent, and business loan payments. Many policies also provide coverage for additional expenses related to situations like a temporary relocation.
Cyber insurance
Last, cyber insurance helps protect the business from financial losses that result from cyber incidents such as a data breach, phishing, or ransomware cyber attack. It may also cover risks associated with stolen sensitive information or devices. Small businesses that accept credit cards or collect, process or store customers’ Personally Identifiable Information (PII) would benefit from holding a cyber security insurance policy. It offers first-party coverage and third-party coverage.
Starting and growing a business is hard work. Protect your business and your investment with small business insurance so you can stay the course toward financial success.
