The range of options for small business insurance can be overwhelming. Learn how to choose the right coverage for your small business.
Every small business owner needs to manage risk, and selecting insurance is among the easiest, and best, ways to do that. The right insurance protection helps your venture get off the ground and grow into a successful business.
Finding the right small business insurance is a vital part of any business plan, but the process can be overwhelming – especially for those who’ve never purchased coverage before.
These 10 tips can help you understand your coverage options and find the commercial insurance protection you need at a price that fits your budget. They’ll help you meet legal requirements, minimize your business risks, and save you headaches and money.
- Know the types of business insurance
Your insurance needs will vary based on a number of factors, including your industry, your specialty, and your business assets. Here are the most common business insurance policies you’ll want to consider, and what they cover:
General liability insurance covers liability lawsuits over third-party injuries, third-party property damage, or advertising injuries like defamation or copyright infringement.
Business owner’s policy (BOP) combines general liability insurance with commercial property insurance – usually at a lower cost than when purchased separately.
Commercial property insurance pays to repair or replace stolen, lost, or damaged business property, including your office or workspace, inventory, equipment, and furnishings.
Business interruption insurance may be included in a BOP or commercial property policy, and covers operating costs if your business is forced to temporarily close due to a storm, fire, or other event.
Professional liability insurance is popular among businesses that provide professional services, and is also known as errors and omissions insurance (E&O). It covers lawsuits over work mistakes, oversights, and negligence.
Cyber insurance helps cover the costs of a data breach or other cyber incident at your business, as well as the costs if you’re sued over your client’s data breach.
Workers’ compensation insurance will pay medical expenses and lost wages for work-related injuries or illnesses. Coverage usually includes employer’s liability insurance that protects against employee lawsuits over negligence.
Commercial auto insurance covers medical expenses, property damage, and legal bills if your business vehicle causes an accident.
Hired and non-owned auto insurance (HNOA) can help pay for accidents involving a personal, rental, or leased vehicle that is used for business purposes.
- Consider what insurance may be legally required
Buying business insurance may not just be a good investment for your small business – it may be a necessity. Depending on your industry, your state, your clients, and your lenders, you may be required to carry certain insurance coverage.
For example, if you’re renting a commercial space, your landlord may require you to buy a general liability policy to cover potential third-party lawsuits over claims of bodily injury or property damage. Mortgage lenders often have similar requirements for business property owners.
With few exceptions, businesses with employees must carry workers’ compensation insurance. Regulations vary by state, but most require you to get coverage when you hire your first employee.
Clients may also require that you carry certain coverage before they’ll hire you. The types of insurance policies can vary based on the industry and risks. Examples include:
Any small business that provides a service or offers advice, such as an architect, may be required to carry professional liability coverage.
An IT consultant may be required to purchase workers’ comp insurance.
A construction company’s contract with a client may require that they carry builder’s risk insurance to cover theft or damage to property under construction.
Client contracts may also require you to carry a certain level of coverage, to give clients peace of mind that you’ll cover any financial losses if the worst happens. A very common requirement is to maintain a $1 million general liability insurance policy.
If the requirements of a client contract exceed the limits of your policy, you may want to consider commercial umbrella insurance. An umbrella policy provides additional coverage for liability claims made on general liability, commercial auto, or employer’s liability insurance.
Research the legal obligations for your area and industry to ensure you have proper coverage. An experienced insurance agent can help advise you on the coverage you’re likely to need.
