In the same way that you set up car insurance or health insurance, small businesses also need some coverage in case of an unforeseen event. Business insurance will be the most significant factor that'll determine if a company will continue to operate or fail due to a loss or lawsuit against it.
While some business insurance policies protect every business and organization, others protect specific companies against certain risks. Let's talk about the various types of business insurance available and which one your business needs.
The Different Types of Business Insurance
Business insurance comes in different forms, but you may not need more than just a few of them, especially when you're just starting. Here are some of them:
General Liability Insurance
General liability insurance is an essential insurance type for every company. This insurance protects your business against claims from a third party (such as a vendor, client, or customer) about property damage or bodily injury due to the service or product your business provided.
The insurance covers settlements, lawyers' fees, court costs, and judgments.
Professional Liability Insurance (PLI)
PLI (also known as errors and omission insurance) provides coverage for mistakes or failures that result from professional services. Hence, all professional service providers, including lawyers, architects, contractors, doctors, and others, need this liability insurance since the general liability does not cover it.
Disability insurance protects your employees and guarantees that they'll receive a certain percentage of their salary if they experience any injury or illness that made them unfit for work. For instance, if an employee cannot come to work because they contracted a disease like Covid-19, they are entitled to disability benefits.
Worker's Compensation Insurance
This insurance policy is usually a legal small business insurance requirement, and it provides risk coverage to employees who get sick or injured from doing their job. Because it is typically state-required insurance, you don't want to take it lightly.
Commercial Property Insurance
This insurance is among the most important policies that every small business owner must have. It is one of the business insurance required by law for every business with a physical presence.
The policy covers your business's office space, equipment, furniture, inventory, and other properties against damage or loss.
Commercial Auto Insurance
If your business has a company vehicle, then this insurance is necessary. The insurance covers risks from property damage or bodily injury caused during the use of the company vehicle. For instance, if your company vehicle runs into another car while one of your employees is running an errand for the company, commercial auto insurance can cover the cost that results from the damage.
Business Interruption Insurance
This insurance protects you against financial losses if your company cannot operate because of a covered loss event. It also covers additional costs associated with resuming operations.
Business Owner's Policy (BOP)
A BOP combines all significant insurance policies in one package. It covers basic coverages that the state requires every business owner to have, including vehicle, liability, property, crime, and business interruption insurance.
Tips To Choose The Right Insurance Policy For Your Business
Selecting the right insurance policy for your business will play a role in your business's success. These tips will help business owners choose the right insurance policy for your business:
- Get acquainted with the various available insurance types.
- Find out the state-required insurance that's peculiar to your state, lenders, and clients.
- Honestly, analyze your industry's risks because every industry has its peculiar risks.
- Don't prioritize business insurance charges/prices over the coverage it provides. Ensure that you allocate a substantial percentage of your business budget to getting the right insurance policy.
- Find out the factors that contribute to your insurance cost. Such factors may include your company location, total assets you wish to insure, your company size, etc.
- Remember to factor in your deductibles. A deductible refers to the specific amount of money you must spend before your insurance policy starts paying some or all of your claims.
- It's advisable to buy more insurance than your company needs because a suit may still cost your firm a great deal even if the court dismisses it.
- Ensure you choose a top-rated insurance provider you can trust to handle all your insurance needs. Some of the best small business insurance includes USAA small business insurance, progressive business insurance, and Geico business insurance.
- It's also essential that you read the business policies from your insurance providers carefully, as each provider has its limits, exclusions, deductibles, and exclusions.
- Ask for help when you're not sure what else to do.
Do I Need Liability Insurance?
Every business will benefit significantly from liability insurance. Not only does it protect your business, but it also protects your personal assets against a lawsuit. You'll need liability insurance to protect your business after an injury occurs at your office premises.
If a case then ensues, you'll not have to pay for the expenses out of pocket.
Liability insurance for business will also provide compensation if your products, services, or employees damage someone else's property. However, note that liability insurance does not make provisions for deliberate or illegal conduct.
Liability insurances protect both the policyholder and the third party who might have suffered an injury due to the policy holder's carelessness.
Does Law Require Business Insurance?
Most business insurances are optional, but Some states require you to purchase specific business insurances depending on your business type. For instance, a company with employees may need to buy workers' compensation insurance, while certain professions require professional liability insurance.
Also, according to federal government policy, every business with staff must have unemployment, workers' compensation, and disability insurance.
The Requirements To Qualify For Business Insurance
Each insurance has its specific requirements. For instance, before a business can qualify for a Business Owners Policy, it must operate in a low-risk industry, have less than 100 employees, make at least $1 million annual revenue, have an office space, and require fewer than a year of business interruption insurance.
You can find out more about business insurance requirements by state from insurance providers and other concerned government authorities.
Do All Small Businesses Have Insurance?
All businesses benefit from general liability insurance, but not all of them require professional liability insurance. Also, a sole proprietor may not have workers' compensation insurance since he doesn't have any employees. In the same light, a business that doesn't have a business vehicle may not have commercial auto insurance.
If you're a new business owner and wonder if you need to get insurance for your business, the answer is YES!
Disclaimer: Make sure you consult with your attorney or insurance advisor on any necessary insurance needs for your specific business.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates!Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.