If you own a small business, you need business insurance. Period. But the type you need can vary widely depending on what your business does.
Don’t make the mistake that many young business owners make and assume that they’re protected simply because they’re incorporated. You need small business insurance. You can still be sued. If you think risks to your business are identifiable and avoidable, then you really don’t understand how business works!
Case in point: although my business is a software business, one of my employees unwittingly caused an explosion at a laundromat, and I almost lost my company because of it.
Before you read any further, you should know I’m not an insurance specialist or even a generalist. I’m simply a battle-hardened entrepreneur who has bought insurance over the years, experienced my fair share of claims, and experienced the fanny-saving powers of insurance firsthand.
In this article, I’m offering a few basic insurance tips for small business owners. Even so, the insurance market is always in flux, and you should consult a good, ethical, and educated insurance broker. The broker will ask you questions about your business and help you find the right small business insurance for you.
From liability insurance to health insurance, here are the basic types of small business insurance in layman’s terms:
Commercial General Liability (CGL) Insurance is intended to protect your business from claims resulting from accidents, injuries, and negligence–these could include libel, slander, property damage, or bodily injury. It may also cover the cost of your defense in a lawsuit. Every small business owner should have this type of insurance.
Product Liability Insurance may give you some protection from safety issues if you manufacture, distribute, or even sell a product via retail or wholesale. It could protect your company from financial loss resulting from a product defect that causes an injury.
Professional Liability Insurance, also known as errors and omissions insurance (E&O), may give your business some protection if you commit any malpractice, errors, or are negligent in the delivery of your services to customers.
Commercial Property Insurance is intended to cover damages to business property from events such as fire, smoke, wind, hail, storms, vandalism, crime, civil disobedience, etc. The phrase “business property” can mean a lot of things. It includes not only your physical assets, which are generally considered deductible business expenses such as buildings, equipment, inventory, tools, computers, etc., but may also include your company’s important documents and files, and the financial cost of a business interruption.
Workers’ Compensation Insurance is a requirement if you have employees. It covers the costs involved if an employee experiences any kind of job-related injury. Check with your insurance broker to see if you must purchase it from a state-run program (i.e., North Dakota, Ohio, Washington, and Wyoming), or if you can buy it from your broker.
Unemployment Insurance is also a requirement if you have employees. This insurance program allows employees to collect unemployment if they stop working for your business. Each state has its own state unemployment insurance coverage which is often referred to as SUI or SUTA, and your tax payments are calculated during the payroll process.
Disability Insurance: If your business is located in California, Hawaii, New Jersey, New York, Puerto Rico, or Rhode Island, your business is required to purchase disability insurance for your employees. Check with your insurance broker.
Homeowners Insurance is not intended to cover your business; it’s intended to cover your home. Check with your insurance broker to find out if you can add a rider onto your homeowners policy that may cover some aspects of your home-based business.
Life Insurance is optional insurance that you can purchase to provide cash for your family members and/or business partner(s) if you were to die. It can also provide cash for your business if a key employee dies (e.g., your partner).
Commercial Auto Insurance covers the physical damage and bodily injury caused by accidents involving the vehicles used in your business. Some states require commercial auto insurance for vehicles used in business.
Directors and Officers Insurance (D&O) is liability insurance that is intended to pay for the legal defense for directors or officers of your company against claims that their actions harmed the company.
Employment Practices Liability Insurance (EPLI) is intended to pay the defense costs should you be sued by a current or sometimes even a past employee. Reasons you might be sued include wrongful termination, discrimination, sexual harassment, wage and hour claims, etc.
Cyber Liability (aka data breach) covers a business in situations where sensitive data (e.g., business data, employee data, customer data, etc.) is compromised or stolen, or if a business interruption involving computer systems or files occurs.
Personal Umbrella Insurance is an inexpensive all-purpose policy that may offer a little extra protection to a business owner in a variety of situations. I personally like the idea of having a general, catch-all insurance policy that may provide some coverage in areas where nothing else protects you.
Health Insurance may be required under the Affordable Care Act (ACA) to cover you and your employees. There are many different qualifications that determine the level of coverage you must provide, and the ACA adds another level to the mix. Health care is a complicated can of worms, so you’ll definitely need to consult with an insurance broker.
Again, as a small business owner, you should sit down with your insurance broker (i.e., salesperson or agent) and learn what types of small business insurance policies are needed for your operation.