When your business thrives, it not only supports your family, but the families of your workers and vendors as well. You contribute to the community and to charitable organizations, and it’s easy to be proud of your accomplishments. But are you prepared if something terrible beyond your control happens, like a flood, fire, theft, or lawsuit? If you don’t have the right insurance, you could end up paying much more than you would if you’d invested in the proper coverage—or even lose everything entirely.
According to the U.S. Small Business Association (SBA), there are two general types of insurance for small businesses. One is commercial business insurance, which is not necessarily required by law but helps protect your assets in the event of a partner’s passing, a disaster, or a lawsuit. The other is employer insurance, which is required by law.
Many insurance requirements vary by industry, state, and size. If you’re not a solopreneur, you’ll need to provide certain kinds of insurance for your employees. Your options, according to the SBA and the National Association of Insurance Commissioners (NAIC), may include:
- General liability insurance: Covers you in the event of accidents, injuries and claims of negligence.
- Product liability insurance: This protects you if there’s a product you’ve manufactured, distributed, or sold that has a defect that could cause an injury.
- Professional liability insurance: Depending on where you live, you may be required to carry this if you work in certain professions, such as medicine. This helps to cover you in case of a malpractice suit, errors, and negligence.
- Commercial property insurance: This kind of insurance covers money lost and damage done to company property resulting from natural disasters, fires, weather, theft, and other events.
- Home-based business insurance: There could be a gap or a crossover if you work from home, since most homeowner policies won’t cover business losses or liability if there’s damage to your workspace. But you might get coverage for property.
- Vehicle insurance: Some personal and commercial auto policies operate in essentially the same way, but commercial policies generally have higher liability issues and sometimes will cover rentals and employees’ cars used for company business. If your business owns or leases a vehicle, make sure the business name is listed on the policy as the principal insured. If you use your personal vehicle to conduct business, consider increasing your liability limits.
- Life insurance: Employers can buy group insurance for their employees and offer it as a benefit, or employees can pay for the premiums. “Key Person” life insurance covers a loss if a critical employee should pass away.
- Workers compensation insurance: Businesses with employees are required to carry coverage through an insurance agency, on a self-insured basis, or through the state workers’ compensation insurance program.
- Unemployment insurance tax: Your state determines unemployment insurance taxes. Visit the U.S. Department of Labor and find the link to your state to learn more.
- Disability insurance: California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island require disability insurance. It’s common for employers in other states to offer it to employees as a benefit.
- Health insurance: Group plans for employees offer all or partial coverage for doctor visits, prescriptions, hospital stays, mental health, and emergency room visits. The Federal Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to offer their employees and their dependents the option to continue membership in your group plan at their own expense after they leave their job.
- Directors and Officers insurance (D&O): This is usually for publicly-traded companies, but private companies are also eligible. Coverage protects directors and officers in the event of a management liability lawsuit, which is not covered under a regular liability plan.
- Data Breach: Large companies spend millions of dollars covering data breaches, and the insurance can help offset those costs so they won’t be passed to consumers.
It may seem dizzying to consider all the above individually. Thankfully, according to the NAIC, bundled packages (“Business Owner’s Policies,” or BOPs) that cover much of the above are often less expensive and can be customized for each business, and even amended as the business grows. However, these typically don’t include commercial auto insurance, workers’ compensation, health or disability insurance, or liability insurance for claims of wrongful professional practices.
The NAIC offers guidelines for small businesses as they do their insurance shopping:
- Understand how your state defines “employee” as it relates to workers’ compensation insurance and what coverage you may be required to carry.
- Before you begin a new “sharing economy” business, make sure you understand all the legal and regulatory requirements. For instance, if you begin earning income from renting out personal property, you may be considered a home-based business for insurance purposes.
- If you lease space, do not rely on your landlord to provide coverage for your business property. The building typically is insured only for the basic structure and common areas.
- If you purchase business interruption coverage (insurance to cover expenses in the event of a business shutdown), make sure you have sufficient funds to tide you over for the first few days. Interruption coverage typically does not kick in for a specified time period after a disruption occurs.