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Starting and managing a small business often comes with many risks. A customer could fall and hurt themselves at your facilities. An employee could pull their back carrying something heavy. Your business could be the victim of a cyberattack, with sensitive customer information being stolen.
These are just a few examples of risks small business owners face, and there are plenty of others that probably keep you up at night. Luckily, there’s small business insurance that can bring you peace of mind and provide coverage against situations that are usually beyond your control.
But what kind of insurance do you need? What are you obligated to buy? How much insurance do you need? What’s covered and what’s not? These are all common questions small business owners have. Sadly, not having this information is often a barrier to getting insurance, with more than half of all owners saying a lack of awareness of what’s required often prevents them from buying insurance.
Of course, lack of knowledge is not an excuse for not having insurance or being compliant with industry or state regulations. Obtaining the right type of coverage can protect you financially should something go wrong. We’ve put together this small business insurance checklist to help you understand the basic types you might need. Let’s dive in!
General Liability Insurance
General Liability Insurance (GLI), also sometimes called business liability insurance or commercial general liability insurance, is a type of insurance that helps protect a business from claims that the business caused bodily injury or property damage. This isn’t a blanket coverage, though, and there are a few key things to understand:
Third-party bodily injury: GLI covers your business if a customer gets hurt while on your business property. For example, if you own a coffee shop and a customer slips and falls while there, your insurance protects you in case they sue for bodily injury. In situations like these GLI often pays for the customer’s medical bills.
Third-party property damage: If your business requires you or your employees to do work on a customer’s property, then you need protection in case you accidentally cause damage while there. For example, let’s say an employee at your landscaping business accidentally backs a truck up and knocks over a section of fencing. Your insurance will possibly cover the repairs so that you don’t have to pay them out of your own pocket.
Reputational harm: Someone can sue your business for libel (defamatory writing) or slander (defamatory speech) based on something you or your employees said or wrote. If this happens, general liability insurance can help cover your legal costs to defend your business.
Advertising injury: If you use an image on your website, in your advertising, in your physical office, or anywhere connected to your business, and you did not obtain permission to use it, your business can get sued for copyright infringement. A common example of that today is when a business uses a photograph on their website without permission.
Product liability: This type of coverage is essential if your business makes a product. This covers you against claims that your product caused injury or damages (anyone remember lawn darts?). Coverage typically covers both legal costs as well as any costs from settlements or judgements.
It’s important to know that general liability insurance doesn’t cover every kind of claim. For instance, GLI doesn’t cover you against claims for work-related injury or illness sustained by employees, damage to your own business property, or mistakes made in your business’s professional services. These types of claims are typically covered by other types of insurance such as workers’ compensation insurance, commercial property insurance, and professional liability insurance.
Business Owners Policy
Business Owners Policy (BOP) combines two types of insurance into a single policy. It includes Commercial General Liability Insurance, which we discussed above. BOPs also include Commercial Property Insurance, which covers any real estate or other property your business owns. This can include (but is not limited to) buildings or other real estate, tools, equipment, computers, office furniture, and other items your business owns.
It’s important to note that even if you lease your office or store space, you will likely still need Commercial Property Insurance. In fact, most landlords will require it as a condition for leasing. Not only will this cover any damages to the property itself, but any items your business owns that are inside the property against certain damages.
That said, there are some scenarios where BOP or Commercial Property Insurance likely won’t cover you. These include (but aren’t limited to):
Intentionally caused damages
Flooding from an outside source
Damages occurring to business
Vehicle damage
Damage to customer property caused by the customer while at your business
Be sure to read your policies carefully and ask your broker questions for specific scenarios that could arise. Better to know in advance than be sorry later!
Workers’ Compensation
Workers’ Compensation (or just Worker’s Comp) provides benefits to employees who get hurt or sick on the job as a result of work they do. For example, an employee may file a workers’ comp claim if they suffer a torn ligament in their knee due to a repeated motion done at work. When an employee files a claim, they are not allowed to continue to work.
Benefits vary, but typically include partial wage replacement for time missed, as well as reimbursement for medical services and therapy they receive as a result of their injury. Survivor benefits may also be available to an employee’s dependents should they die as a result of a work-related accident. When accepting a workers’ comp claim, employees are typically expected to sign a waiver giving up their rights to sue for additional compensation.
Of all the types of insurance you can get, Workers’ Comp insurance is likely the only one you are required to get. It is obligatory in most states for businesses with employees, but different states have different requirements. Some states also exclude some small businesses under a specified size, so be sure to check with your state’s Workers’ Compensation Board or labor laws to know what your business’s obligations are.
Lastly, it’s important to know that employers can dispute a workers’ comp claim, in which case your state’s Workers Compensation Board will likely be asked to resolve the dispute.
Business Insurance Add-Ons
Depending on the type of business you have and the risks you’re exposed to, there are a number of other types of insurance you may want to consider buying. Here are a few of the more common types of insurance small businesses may need:
Professional Liability Insurance: Sometimes called Errors and Omissions Insurance, this coverage helps protect consulting or professional services businesses from costs associated with defending against a negligence claim made by a client, as well as damages awarded in a civil lawsuit.
Commercial Auto Insurance: If your business operates a fleet of vehicles, then you will need commercial auto insurance. This is similar to personal auto insurance, covering things like liability, property damage, and bodily injury related to an auto accident. It will cover any employees with a valid driver’s license who have been given permission to use the vehicle for work purposes.
Data Breach or Cyber Insurance: This insurance is becoming increasingly important, as the number of cyberattacks has been steadily increasing over the past 10+ years with little sign of diminishing. If your business deals with any sensitive customer data, such as addresses, social security numbers, credit card numbers, etc., it could be the target of a cyberattack. Having this insurance will help cover the costs associated with a data security breach, including identity protection solutions, public relations, legal fees, liability and other expenses.
Equipment Breakdown Coverage: Sometimes referred to as machinery insurance, this insurance covers the cost of physical and financial damage that can result from an equipment breakdown. For example, let’s say you run a café and your cold storage breaks down, causing thousands of dollars in spoilage. If you have this insurance, you might be covered for the cost of both repairing the storage unit as well as the loss of goods that were ruined.
Better Safe than Sorry
Sometimes, it can seem like the cost of insurance is over the top or unnecessary. But consider the alternative: If something does go wrong, you could be on the hook for a significant amount of money if you don’t have the right type of insurance. Even a small mistake could end up costing you thousands in lawyer fees or compensation, or could even sink your business.
Having the right insurance means you can have peace of mind and not worry about things going wrong, so you can focus on more important things like growing your business.
Hiring your first employee? Check out our New Hire Training Checklist and Onboarding Guide.
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