Not sure what type of insurance you need?
Protecting your business investment with insurance is a critical part of small business ownership. However, finding the best insurance for your needs is not an easy task. The purpose of insurance is to transfer the risk of a loss to an insurance company for a fee. Purchasing insurance minimizes the risks associated with unexpected events, liabilities, and losses that could cost you both time and your hard earned money or even worse, put you totally out of business!
Whether you are starting a business, taking on employees for the first time, or evolving your business structure, there are many variables that determine the right insurance for your small business, including your business structure, business activities, location, whether or not you hire employees, and so on.
Navigating the maze of small business insurance laws and best practices can be confusing.
There are two fundamental types of insurance - commercial business insurance, which is not necessarily required by law, and employer insurance, which is in most states, except Texas.
Below is a summary of the types of insurance you may wish to consider to protect your assets and investments.
Types of Commercial Business Insurance
This section covers the types of insurance policies available to you as a small business owner. Although not necessarily required by law, you would be wise to purchase enough business insurance to protect your assets against events such as the death of a partner, a natural disaster, or lawsuit. In the litigious environment we currently live in, one tip to remember is insurance is not just a remedy to pay a claim when your found to be liable but it can also pay for defense costs.
It may be proven that you weren’t liable, however, to defend yourself on your own could costs thousands.
And it’s a misconception to think that structuring your business as a corporation or LLC limits the need for business insurance. While these business structures do protect the personal assets of the owner from business liabilities, relying on business structure alone to protect your assets is not a substitute for liability insurance, which covers your business from losses.
It’s also important to know that, in certain instances, state law may require that your particular business activity is covered by some form of insurance. For example, if you use a car or truck for business purposes, your state may require that you purchase commercial auto insurance for its use.
Here is a summary of the types of business insurance policies to consider for your small business:
- General Liability Insurance
This insurance broadly covers property and bodily injury claims and provides protection against the legal hassles associated with accidents, injuries and claims of negligence. It can also provide protection advertising claims
- Commercial Property Insurance
This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. The definition of 'property' is broad, and includes lost income, business interruption, buildings, computers, company papers and money. This is definitely one you should talk to an insurance expert about to understand your specific needs.
- Business Owners Policy (BOP)
This policy provides general liability insurance coverage, property insurance coverage and business interruption insurance (pays for ongoing necessary expenses if the business suffers a covered loss). It is specific to certain types of businesses and can provide many additional types of coverages for little or no additional expense.
- Product Liability Insurance
If you manufacture, distribute, wholesale and/or retail a product, this insurance protects against financial loss as a result of a product defect that can cause injury.
- Commercial Auto Insurance
If your business involves the driving of vehicles for business use, your vehicle is titled in the name of your business, your employees drive company owned or their own vehicles for business purposes, you pick up, drop off or deliver goods or people and/or are required to provide any of the following: Waiver of Subrogation, contractual obligations, additional insured, high liability limits, etc., then you most likely need a commercial auto policy. The two main components are liability and property. Liability provides coverage for other parties and includes personal injury, medical payments, loss of earnings and/or damage to their property arising out of auto accident. Property damage coverage can include comprehensive and collision coverage for your own vehicle caused by such things as fire, theft and vandalism.
- Workers Compensation Insurance
If you’re going to hire employees you should consider purchasing this type of insurance. It can provide medical coverage for your employees in case of an on the job injury, sickness and even death. It can also protect you in case of being sued by an employee for things such as not keeping a safe work environment, etc.
- Employers Protective Liability Insurance (EPLI)
If you have employees, this is also recommended because it provides coverage for employers that workers compensation does not. They include sexual harassment, wrongful termination, discrimination, retaliation, failure to promote, negligent evaluation, etc.
- Professional Liability Insurance
If you provide a service to a customer, this insurance can protect against malpractice, errors, and negligence in the providing of those services to your customers. If your customers rely upon what you write or what you say, such as a design professional, architect, realtor, car dealer, salesperson, IT and/or software manufacturer, consultant, CPA, attorney, physician, etc., then you should consider this type of insurance.
- Builders Risk Insurance
This type of insurance provides property coverage for projects that are under construction. This would include new homes, remodels and tenant improvements. This coverage is very reasonably priced as it’s only in effect during the construction phase of the project.
- Inland Marine
This insurance is also known as mobile equipment or contractor’s equipment because it provides coverage for business owned property that is mobile, such as heavy equipment (backhoes, blades, etc.), tools, compressors, etc. Just about any equipment that is taken from one place to another could be covered under this type of policy.
- Umbrella Liability
This policy provides additional liability coverage that is in excess of other specified policies (such as general liability and/or commercial auto liability). When you’re found to be liable, your primary policies pay up to their limits, and any additional amount is paid by the umbrella policy (up to the limit of the umbrella).
Since there are such a wide variety of insurance policies available, always discuss your individual business insurance needs with an insurance agent or broker, and keep in mind that just because you decide not to purchase insurance doesn’t mean the risk has been eliminated, it just means that your self-insuring and taking all the risk of loss on your own.
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