The unexpected can sideline any small business.
Financial losses from a product defect, data breach, serious illness or work-related automobile accident can force business owners to close their doors if they’re not prepared.
The cost of an unexpected event can be substantial. Hiscox quotes a 2014 study of small business owners, saying the average cost to defend and settle an employee lawsuit was $160,000. Employment litigation is just one type of risk your small business may face.
Many small business owners, however, do not carry insurance. Next Insurance found that 44% of businesses in operation for at least one year have never purchased an insurance policy.
Fortunately, small business insurance can protect from the unexpected. Here are 8 types of insurance policies that can help minimize your risk.
1. General liability insurance
General liability insurance protects you from a number of potential claims by third parties:
- Bodily injury
- Property damage
- Defamation, slander and libel claims
This type of liability policy will cover the cost of your legal defense, judgments and settlement bonds. General liability policies do not cover negligence, or damage to business property.
Every small business should have this type of liability insurance, and this coverage may be required to obtain certain contracts and business licenses.
There are several types of business insurance that address liability.
2. Product liability insurance
If you manufacture, sell or distribute a product that causes injury, the injured party can sue you under product liability laws.
Product liability occurs when a manufacturer or seller puts a defective product into the hands of consumers. The injury may be due to a design flaw, a flaw in the manufacturing process or because the seller fails to provide adequate instructions to the buyer.
This type of liability coverage can protect you if a court determines that you are guilty of causing an injury.
You also need insurance on your business property.
3. Commercial property insurance
This policy insures business-owned property. If a fire, storm or vandalism impacts your business, you may experience damage or the complete loss of valuable equipment, inventory or machinery.
Property insurance can reimburse you for these losses, and you should also carry property insurance if you lease space. Keep in mind that if your business is located in a high-risk area, such as a coastline, you will likely need additional coverage for windstorm and flood insurance. The same rules apply to earthquake insurance in California.
Your insurance needs may also include cyber insurance.
4. Cyber insurance
According to InformationWeek, in response to beefed up security at larger companies, cyber thieves are focusing their efforts on small- and medium-sized businesses.
This insurance coverage can be especially important for small business owners because of the rising costs of recovering from a cyber attack. Cyber insurance coverage may include:
- Indemnity for customer damages.
- The cost of the investigation, including the IT forensic examiners.
- Fees for a public relations firm to address negative publicity regarding the breach.
- Legal fees, customer identity theft monitoring fees, regulatory fines and penalties.
In addition, if your business is interrupted due to a data breach or other attack, the insurance company will cover your lost revenue.
If you manage a home-based type of business, you can get additional coverage to meet your unique business needs.
5. In-home business policy
If you work from your home, your homeowner’s insurance won’t cover business losses.
Homeowner’s insurance is in place to protect your personal assets. Ask your insurance agent about coverage for inventory, equipment and loss of income for your home-based business. An in-home business insurance quote covers theft, liability for injuries, business equipment and loss of important documents.
You many need several types of insurance for vehicles, depending on how many cars, trucks and other vehicles you use in your business.
6. Commercial auto insurance
If you or your employees use an automobile for business purposes, it’s important that you insure vehicles with business insurance policies.
According to the Insurance Information Institute, a personal policy will not provide coverage for a vehicle owned by your business, or for a vehicle used primarily in the business, whether it belongs to you or an employee.
Even if you only use the vehicle occasionally for business purposes, and you or an employee cause a serious accident, the personal policy won’t have the same liability coverage you can get from business insurance. Without proper business coverage, your company may face a lawsuit.
Fully insuring all vehicles used for business purposes can help protect your company from liability.
7. Professional liability insurance
This type of policy will cover your company in case of a negligence claim that stems from an error or a failure to perform your duties, which leads to a client’s financial loss. The policy is also known as errors and omissions insurance, and makes sense for businesses that provide professional services, such as doctors, consultants and lawyers.
8. Business interruption insurance
If a disaster occurs and forces you to close your business because you can’t physically get into the business, make sales calls or manufacture your product, the loss of income can be devastating.
Business interruption insurance reimburses you for lost income while your business is closed, or during its rebuilding after a catastrophic event. Your policy may also cover the cost to reopen your business in a temporary location.
Note, however, that your policy may not start coverage until 48 to 72 hours after the event. Your coverage will also have a time limit on any payments.
Here are several other types of coverage that you may consider:
- Business owner’s policy (BOP): This policy combines general liability and commercial property coverage into one policy, and you may pay less for this combined coverage.
- Worker’s compensation insurance: If you employ workers, most states require this coverage. If an employee is injured on the job, this insurance pays medical expenses and provides income to cover lost wages.
- Other policies: You may also consider disability insurance, life insurance and other types of liability insurance policies.
So, what do you do next?
You work hard to maintain and grow your business, and it would be a shame for a lawsuit or disaster to destroy it.
Talk to industry peers, and ask them about the business insurance that they carry. Contact your insurance agent and find out which policies are right for you. If you plan ahead, you can minimize business risk and move forward with confidence.