Owning a small business is hard — and knowing what type of insurance to have for that business? Even harder. Having the right insurance will help your business in the long run, especially as you’re trying to help your business grow.
Business insurance helps you cover costs associated with property damage and liability claims, and will prevent you from paying high out-of-pocket costs for damages and potential lawsuits. Essentially, business insurance will protect you financially in the event of a potentially devastating event. But what kind of business insurance should you have?
Every business is different, but the bottom line is this: You need business insurance in one way or another. There are many business insurance varieties available, so there are certain things you need to ask yourself when considering what type of insurance to get. You need to consider: the kind of work you do, what kind of physical property you have (if any), equipment, intellectual property, and your employees and customers.
Below, we get into the basics of business insurance, what you’re required to have, and an overview of some of the top insurance coverages available to you.
Most businesses are required to have a Businessowners' Policy (BOP), which is specifically designed for small businesses. It includes business property and general liability coverages and offers broad coverage for a low premium. In a Businessowners’ Policy, you can customize your specific coverage based on what you specifically need for your business — like coverages for your employees, physical property, etc.
There are dozens of types of insurance policies available, and they may not all apply to your specific business needs. In almost every state, there are basic insurance coverages required for employees to work for you, such as workers’ compensation and unemployment insurance, which we’ll get into later.
When you don’t have business insurance, you’re putting your business at risk of financial devastation. One accident could mean you end up paying thousands — if not more — out of pocket to cover the costs. This could result in closing the doors of your business for good.
Excess liability coverage is a policy issued to provide limits in excess of a general liability policy. For instance: If you submit a claim to your insurance carrier that’s over your underlying liability policy, the excess liability policy will pick up the rest. This type of coverage is an added layer of protection from your primary liability insurance, but it’s important to note that it does not provide additional, separate coverage. All businesses need at least general liability insurance, but depending on your business’s size, you may way to consider excess liability insurance for added protection.
Workers’ Compensation provides wage replacement, rehabilitation costs, and medical benefits to employees who become hurt or sick due to their job. This type of coverage is mandatory for all businesses, and the wage and medical benefits vary depending on what state you’re in. Workers’ Compensation is considered social insurance because it relies on a social contract between you and your employees — in exchange for your coverage of their injury on the job, you are protected from any potential civil lawsuits. This type of insurance is meant to protect both employees and employers, so make sure to look at the requirements in your state.
If your business has a physical location and equipment like computers and inventory, a policy that covers your business in the event of a fire, theft, smoke damage is something to consider. This will help protect you from financial losses in the event of an emergency.
Business income insurance, also called business interruption insurance, covers lost income when you have to stop business suddenly. Some examples include fire, theft, or other emergencies that would cause your business to close temporarily. Business income helps keep you afloat while you repair damages and will help pay your lost income. It serves as an extra layer of protection beyond commercial property insurance.
This type of coverage protects you from fraud and embezzlement by employees. This type of coverage is sometimes referred to as fidelity bond, crime coverage, or crime fidelity. It protects you in the event of fraudulent acts conducted by an employee. These acts can include forgery, credit card fraud, alteration, unauthorized fund transfers, computer fraud, money order fraud, and counterfeit fraud.