Running a small business involves a significant investment. Insurance coverage can help minimize your financial risk and is available for every conceivable hazard your business might face. State governments determine business insurance requirements, and, in addition to other types of insurance, most states require businesses with employees to pay for workers’ compensation, unemployment and state disability insurance. In addition, if you own a car or truck and use it for business purposes, you may be required to purchase commercial auto insurance. To determine the exact types of insurance you need, discuss your specific business risks and the types of insurance available with an insurance agent or broker. According to the U.S. Small Business Administration, some of the types of insurance small business owners should consider are:
General Liability Insurance. This type of insurance covers legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
Product Liability Insurance. Companies that manufacture, wholesale, distribute and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm.
Professional Liability Insurance. Business owners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors and negligence in provision of services to your customers.
Commercial Property Insurance. Property insurance covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism. Property insurance policies are available in both all-risk policies, covering a wide-range of incidents and perils, and peril-specific policies.
Home-Based Business Insurance. Homeowners’ insurance policies do not generally cover home-based business losses. You may be able to add riders to your homeowners’ policy to cover normal business risks such as property damage, however, you may need to purchase additional policies to cover such things as general and professional liability.
Additional insurance requirements for employers
Workers’ Compensation Insurance. Businesses with employees are required to carry workers’ compensation insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program. Visit your state’s Workers’ Compensation Office for more information on your state’s program.
Unemployment Insurance Tax. Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state’s workforce agency.
Disability Insurance. Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury.
Tips for buying business insurance
Assess Your Risks. Insurance companies determine the level of risk they’ll accept when issuing policies through a process called underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each underwritten policy carries a premium and a deductible.
Shop Around. The National Federation of Independent Businesses provides information for choosing insurance to help you assess your risks and to make sure you’ve insured every aspect of your business. The extent and costs of coverage vary from company to company. Insurance can be purchased separately or in a package called a business owners’ policy (BOP).
Find a Licensed Agent. Commercial insurance brokers can help you find policies that match your business needs. Brokers receive commissions from insurance companies when they sell policies, so it’s important you find a broker that is reputable, as well as licensed, and is interested in your needs as much as his or her own. State governments regulate the insurance industry and license insurance brokers. Many states provide a directory of licensed agents.
Once you determine the types of business insurance you need, reassess your coverage annually. As your business grows, so do your liabilities, and you don’t want to be caught underinsured should disaster strike.