Midsize business

Everything you need to know about small business insurance and handling claims

Think your business is too small for business insurance? Think again. No business is too small to get hit by a natural disaster, burglary, or lawsuit. In fact, every year 1 in 3 small businesses experience an event that could have been covered by insurance. Without insurance, it’s on you, the business owner, to cover costly damages, putting the future of your business (and your livelihood) at risk. 

Business insurance protects your business from a variety of risks. Choosing the right insurance coverage can be overwhelming—there are a number of options and providers to choose from. Use this guide to learn more about the most common types of business insurance, where to get it, and how to handle insurance claims.

What is business insurance?

Business insurance protects your business’ financial, intellectual, and physical assets in the event of a natural disaster, lawsuit, theft, injury, or loss of income. It’s a form of risk management for your business that provides financial protection when you need it. 

What kind of business insurance do I need?

Different types of business insurance protect your business in different ways. Let’s take a look at the most common types of business insurance coverage.

1. General liability insurance

General liability insurance, or business liability insurance, includes the basic coverage that all businesses need. This liability policy covers a number of legal disputes with third parties, including:

  • Accidents that cause bodily injury
  • Property damage
  • Defamation
  • Damage suffered due to a defective product
  • Copyright infringement

If you damage someone’s property when you are working in their home or office, general liability insurance can cover the cost to repair or replace it. It also covers you against claims of libel or slander. If you or an employee says or posts something damaging about a client who sues, you’ll be covered by your insurance policy.

General liability insurance also covers medical expenses and lost wages if someone other than you or an employee is injured. If someone slips and falls at your location, or trips on your tools or equipment, general liability can cover you.

This type of insurance does not cover negligence or damage to property owned by the business. You’ll need a separate policy to insure your business property. 

2. Commercial property insurance

Whether you own your building, lease a space, or work from home, commercial property insurance is something every business needs. 

Commercial property insurance protects your business’s physical assets, including real estate, equipment, inventory, and machinery, in the event of financial loss due to theft, vandalism, or a natural disaster. This type of insurance coverage helps cover the cost of repairing or replacing damaged property, so you can continue operating your business. 

It’s important to note that your commercial property insurance may not cover certain natural disasters like flooding or earthquakes unless they’re added to the policy.

3. Business owners policy

Your insurance company may bundle general liability insurance with commercial property insurance at a discounted rate. This is called a “business owners policy” or BOP. A BOP is beneficial for any business that has equipment or inventory or operates a brick-and-mortar location. 

4. Professional liability insurance

Professional liability insurance, also called errors and omissions insurance, protects you against claims made against the professional services you provide. You might be accused of doing something you shouldn’t have (an error) or not doing something you should have (an omission), and a client or vendor could seek damages.

Suppose, for example, a marketing consultant makes some recommendations to a client that should increase sales. The client implements most—but not all—of the consultant’s suggestions, but sales continue to decline. The client sues the consultant, alleging they were negligent in providing their recommendations. The consultant’s professional liability insurance policy could cover their costs to defend and settle the lawsuit.

These days, you can be sued for almost anything, and even if the suit is found to be without merit, you’ll still incur costs to defend yourself. A professional liability insurance policy can cover defense costs, as well as any settlement or judgment.

5. Product liability insurance

Businesses that manufacture, distribute, or sell products may be held liable for the safety of the customers who use the products. Product liability insurance covers risks related to production or design flaws, as well as improper labels, warnings, and instructions. Some product liability coverage is included in a general liability insurance policy, but manufacturing, distributing, and other product-related businesses may need additional coverage. 

Product liability insurance typically helps with costs associated with an injury or property damage claim, including legal fees, settlements paid to the injured party, and medical bills. It does not cover recall costs, inventory losses, or employee injuries. 

Other kinds of insurance coverage

In addition to basic liability and property coverage, there are a few other business insurance products you might need:

  • Cyber liability insurance is a must if you have a website, accept credit cards, or store customer information. It protects your business against the costs related to a data breach or ransomware attack.
  • Workers compensation insurance is required in nearly every state if you have employees. Workers comp pays for medical costs and wages for work-related illnesses or injuries.
  • Commercial auto insurance protects you if an employee has an accident in a company vehicle. If you make deliveries to customers or work at client job sites, you may need this coverage. 
  • Home-based business insurance enhances your homeowner's insurance policy to cover general and professional liability risks, and the potential for loss of business income if the home office is damaged. 
  • Business interruption insurance covers financial losses incurred while your facilities are closed. This policy can pay for a temporary business location so you can continue operating. 
  • Umbrella insurance is extra insurance that provides protection beyond the coverages of existing policies. It covers losses not covered by your other policies. 

You might need additional coverage depending on the type of business you have.

How do I buy small business insurance?

If you’re a QuickBooks customer, insuring your business is simple. QuickBooks Insurance offers insurance policies tailored to your business, so you only pay for the coverage you need. After all, the best insurance policy for your business is one that offers the right coverage at the right price. Get a free insurance quote and start your business coverage in the same day—all backed by the brand that backs you. 

For everyone else, buying business insurance all comes down to choosing a policy and a provider. Easier said than done, but there are a few ways to narrow your search: 

  • Work with an insurance broker to compare coverage options and choose the right provider for your insurance needs. Just keep in mind that brokers work on commission. So look for a broker that specializes in your industry and has your best interests in mind. 
  • Online insurance marketplaces can help you choose providers and compare quotes without having to contact each company individually. These marketplaces partner with a number of insurance solutions. Using an insurance marketplace is a more hands-on approach for business owners who plan to DIY. 
  • If you already have a provider in mind, contact them directly to learn more about their policies, get a quote, and speak to an expert. 

Once you’ve landed on a provider, the final step is to purchase the policy. This step can feel momentous, but it’s just like purchasing any other type of service. Many insurance providers have online portals that you can use to make payments, file claims, or request documents. Be sure to note when payments are due, how to contact customer service or your agent if you need assistance, and how to file a claim. 

And just like that, you’re covered! Breathe a sigh of relief, but don’t walk away just yet. Make sure you reevaluate your coverage periodically to ensure it’s still the right coverage for your business. Changes in operations, like hiring an employee or purchasing real estate, will impact your policy. 

7 tips for handling small business insurance claims

Whatever’s gone wrong, there’s a right way to handle business insurance claims. A misstep during the claims process could result in your claim being delayed or denied altogether. Use these tips to determine when you need to contact your insurance provider and file your claims quickly. 

1. Stop further damage

In the event of damage to your building, inventory, or other business property, you need to protect what’s left from further harm.

  • In the case of fire or falling trees, cover or block any openings right away to prevent further rain or debris damage to the interior of your building. 
  • If flooding occurs, use a pump as soon as possible. Remove undamaged furnishings and equipment.
  • If you experienced a theft or break-in, do what you can to secure the premises and call the police immediately.

2. Call your agent

Some types of business insurance coverage allow you to file a claim online. However, it’s always best to have an insurance company agent handle the claim for you.

AFLAC sales agent Aimee Pfaff explains why. “Clients should always call their agent to file claims. Agents know the process to file claims, and we can review them for accuracy prior to sending to ensure prompt, accurate payment of claims.”

3. Don’t admit liability

It may be tempting to offer up a “mea culpa” if your break room toaster oven started the fire, or your employee ran a stoplight in the company car—but business owners shouldn’t do it. Your insurance policy may explicitly state that if you publicly acknowledge fault, you may default on your coverage.

“You don’t want anyone admitting fault, which is hard because even if you aren’t at fault, we all say we’re sorry automatically,” says Kathy Romonsky, owner of More Choices Insurance Agency. “It is up to the claims department to determine who was at fault and what percentage each party is responsible for.”

Once your side of the claim has been paid, your insurance company may decide to go after the toaster’s manufacturer, or the other party in the automotive accident, for at least partial compensation of the total cost of the claim.

Once you’re reimbursed, you won’t be involved in claims activities. It’s important, however, to stay mum on the issue of who’s at fault.

4. Create a complete inventory list

Prepare a complete inventory of what was stolen, destroyed, or damaged—with receipts and other documentation—as soon as possible. Both your agent and your adjuster will ask for an inventory of what was lost or damaged. If you wait too long, you might forget to include some items.

“All carriers will ask for a detailed list of what was stolen, burned or destroyed,” explains Romonsky. “It is written in the policy whether you will need to produce receipts or records of your inventory.” For this reason, it’s important to keep your computerized inventory records up to date, and backed up on the cloud. 

Your agent can go to bat for you if an adjuster or insurance company makes unreasonable demands, like an unreasonably detailed list of inventory and supplies. If you have a fire and smoke incident in your restaurant, for example, an adjuster may insist on a detailed list of all food items in your walk-in cooler, which would be burdensome, given the constantly changing status of the inventory. Your agent could help negotiate submission of your weekly orders instead, and an approximate value based on the average daily value of your fresh inventory.

Another example might be water damage in a quick-print storefront, where it would be unreasonable to expect the owner to know exactly how many reams of paper were on hand at the time of loss. Your agent can suggest logical alternatives for creating a substantiated inventory so that the adjuster is satisfied and you receive fair compensation, based on your insurance coverage.

5. Get back on your feet as quickly as possible

If your business insurance policy hasn’t paid your claim, it may impact your ability to operate.

If a claim payment is delayed, small business owners should ask the insurance agent about other policies they own. You may have other coverage that can cover some of your costs.

For instance, if the insurance carrier stalls while your company car is in the shop, check your policy to see if you are covered for use of a rental car. If you have this type of coverage, you cannot be penalized for using it after a loss, especially if claims service is slow.

Your business interruption insurance will cover renting things like cash registers, computers, and office furniture, as well as coverage to pay bills if you can’t operate. Take advantage of this coverage to keep your business running, especially if your claim settlement has been held up.

6. Document everything

Always keep careful records of any loss or accident. Create a folder containing police reports, repair estimates, hospital bills, and copies of claim reports.

Document everything in writing. Write a follow-up letter confirming and repeating any telephone conversations with insurance company representatives. Include the date and the names of the people involved in the incident.

A certain amount of patience is required, but if things really seem to be dragging, lean on your agent. An experienced agent can help you cut through red tape, get an adjuster assigned to the case, and speed up various other clerical tasks.

7. Get paid quickly

If you can’t get your claim paid in a timely fashion, “My first recommendation is to call your agent and get them to step in as your advocate,” says Romonsky. “If that doesn’t work, ask for the claims supervisor. If that doesn’t work, call the insurance commissioner’s office because under the Fair Claims Practices laws, [insurance companies] have guidelines they need to follow.”

If you haven’t been using an agent and encounter difficulties getting your claim settled, find a public adjuster online. They are less expensive and more knowledgeable about insurance than many attorneys and will help you navigate the process of getting your claim paid.

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