Business insurance is an expense that many small businesses would like to avoid. Coverage can be costly, with no apparent benefits – until that awful day when the unexpected happens. Like the building that houses your office burning down, or someone at a client’s office tripping on your computer case and fracturing their skull, or any number of other unplanned catastrophes.
Fires, accidents, damages to a client’s business are just a few of potential dangers that could cost your small business tens of thousands of dollars or more if you don’t have business insurance. Unfortunately, such events aren’t all that unusual, either An electrical short causes a store in a strip mall to catch fire….a consultant is sued for providing bad advice …. a hair salon on Main Street is damaged when an uninsured motorist jumps the curb and the car plows into the front of the building.
Yet surprisingly, while financial risk and loss is a top concern among small business, findings of a recent poll by InsuranceBee, Inc., show that 29% of small businesses have no business insurance at all. If you fall into that group, your business and possibly your personal assets, could be at risk.
What Type of Insurance Does Your Business Need?
The answer to the question: “it all depends.” There’s no one answer that’s right for all small businesses. Although every business will have some business insurance needs, a small manufacturer is going to have somewhat different needs than a web development firm with five employees, and an environmental testing company’s insurance requirements are likely to be different from those of a home-based virtual assistant.
With that in mind, take a look at a few types of insurance, and some of the factors that will help you understand whether that insurance fits your business needs:
Business Owner Policy (BOP)
A business owner policy is a single policy that many businesses can get that covers several general types of insurance needs. This is the type of policy you need if your small business rents space, if you have employees or customers come to your business location (or if you go to their location), and if you want to protect equipment, inventory, furniture and other items against loss from fire and theft.
Policies vary somewhat based on the insurer and your business needs, but in general they cover these types of losses:
- General Liability Insurance. This insurance covers you in routine situations for bodily injury or property damage to a client or customer. These situations include things like trips and falls, or accidental damage. They are the “oops” minutes your business has, such as when a client’s assistant tripped on your employee’s sample case and broke her ankle, or your salesperson put his caramel latte down on a customer’s desk and then knocked it over onto the customer’s laptop keyboard, causing the computer to stop working.
- Property Insurance. Think fire and theft here. Property insurance covers losses you would incur if a fire destroyed all or part of your business, or your equipment or inventory is stolen from your premises.
- Business Interruption Insurance. The fire that destroys your restaurant’s kitchen may prevent you from reopening for and bringing in income for months, but chances are you’ll still have to continue payment on business loans and other ongoing business expenses. Business interruption insurance is the type of insurance that will help you with these expenses.
- Industry-based coverages. If you’re running certain types of businesses, you may need or want an industry specific insurance package. This might be a BOPs that’s written based on the type of industry you are in, giving additional types of protection against things such as data loss, for example. Or it could be a heaver-duty commercial package. Be sure to ask your insurance provider about such specialty coverages and also be sure to closely read your policy and watch for change notices. It’s not unusual for insurance companies to specifically exclude some types of coverage from these policies.
Home Business Insurance
Most home insurance policies offer little or no protection for a business in your home. So, if you don’t think you need the business owner policy described above, you should at least look into getting an endorsement (an add-on) to your homeowner (or renter) policy to cover your business. An endorsement will cover equipment and inventory up to a set amount, and provide some protection against liability if delivery person or other business visitor is injured on your property. This type of endorsement is relatively inexpensive, but be sure you find out exactly what will be covered, and what the dollar limits of the coverage will be.
Product Liability Insurance
If you manufacture or distribute any kind of material product, and that product causes a physical injury, how would you pay for the financial damages and the legal fees if sued? A general business owner policy typically won’t cover this type of risk. So ask your broker about buying a product liability insurance policy in addition to the general business insurance you buy. It may be available as an add-on to your Business Owner Policy or as a separate policy.
Doctors and lawyers carry thick professional liability insurance policies. Makes sense – who else gets sued more than them?
But other professionals, like accountants, need it, too. It protects you in the event someone sues you for malpractice or errors you or your employees commit as you provide a service to your clients. Again, this is coverage you may need over and above your general business insurance.
SEE ALSO: How to Minimize Law Suits and Legal Fees
Data Breach Insurance
Our modern world has created the necessity for this newer type of insurance. Have you heard of Heartbleed? Or the Target data breach? Things like this happen to small businesses, too, and the associated costs can put you out of business. Data breach insurance can help limit the financial damage to your company if private information you store about employees or clients is stolen.
Key Person Insurance
Does your company’s success highly depend on a particular individual? Maybe that’s you. What would you do if you or that person suddenly died?
That’s where key person insurance comes in. You purchase a life insurance policy for you and other key employees. The policy is for the company, not for you personally.
If someone dies, then you can use the insurance benefits to cover business expenses until a replacement person can be found. If it’s inevitable your company will need to shut down, you can do so slowly and more orderly.
If you’re a sole proprietor, you don’t need this insurance, as it does not cover your family if you die. That’s what life insurance is for.
Worker’s Compensation and Disability Insurance
If you have any employees, you’re required in most states to carry Worker’s Compensation Insurance and Disability (two separate policies). Failure to comply with the laws can result in very steep penalties. To find out about purchasing this insurance and complying with yearly audits that may be required, check with your accountant or your state department of labor. Some payroll services also can help you – for a fee – with getting and paying for workers compensation and disability insurance.
You probably already know about this one. And it’s possible to dedicate a whole series of articles to it. The basics are these: you do not have to offer health insurance to full-time equivalent employees if you have fewer than 50. Once you hit that threshold, though, you do.
And, if you have less than 25 full-time equivalent employees who make less than $50,000 per year on average, you might qualify for a tax credit. For-profit small businesses can take a tax credit up to 50% of their employee premium costs, while tax-exempt employers can get up to 35%. But it’s only available if you go through Healthcare.gov’s Marketplace.
Those are various types of insurance your business may or may not need. What’s important is that now you know what each can cover, so you can make a decision regarding which your company should carry.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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