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The Ultimate Guide to Insurance for Small Businesses​

Whether you’re just starting out or you already have an established small business, buying your insurance is a necessary requirement. While the cost of insurance for a small business is important, so is the need to ensure you have adequate coverage in place.

In this guide, we’ll demonstrate the different types of small business insurance, along with answering some of the most frequently asked questions about insurance coverage for your company.

Quick References

Why Small Business Owners Need Insurance

Whatever your sector or annual turnover, there are common, everyday risks you face that you need to protect yourself from. The keyword here is protection. With an investment of capital and, of course, a significant amount of hard work and time, you want to make sure your efforts and your assets are protected. Aside from this, your clients and employees, if you have them, need certain assurances too.

Insurance does provide you with peace of mind, and a financial safety net in the event your company faces legal action. It also ensures that regardless of what unexpected events occur, you can carry on trading following a disaster, and your business will face the least possible disruption.

The Different Types of Small Business Insurance

In this section, we cover the most common small business insurance products you can buy for your company.

General Liability Insurance

A general liability policy will protect you in the event of a third-party claim for financial losses that arise following damage to property, advertising injury, bodily injury, and more. It can also cover any actions of your permanent and temporary workers.

A general liability policy won’t usually cover your personal property, boats, vehicles, or your professional liability. It can be purchased as a single insurance product or as part of a business owner’s policy.

Product Liability Insurance

If your business makes, sells, or distributes products, then buying product liability coverage can give you financial protection in the event that one of your products causes damage to property or injures a third-party. In some cases, it will be covered under your general liability policy, but you might need to pay an extra amount to get the right level of coverage for your individual liabilities.

Professional Liability Insurance

This type of coverage is sometimes referred to as Errors and Omissions, E&O coverage, or professional indemnity coverage. In the event you have legal action brought against you for negligence, this will cover any associated financial costs that result from such claims.  

Regardless of whether you or your business were at fault, you will still need to pay the cost of legal defense. Product liability coverage will not cover employee injuries, intentional wrongdoing, false advertising, or acts that are considered to be illegal.

Small Business Commercial Property Insurance

A business property insurance policy is needed, whether you own a building or not. It provides coverage against a range of perils to the structure of the building, along with covering its contents. These contents can include any office furnishings, inventory, equipment, fencing, business signage, and more.

A covered peril could be fire, theft, natural disaster, accidents, or vandalism, for instance. However, all insurance providers have their own terms, and it’s important to speak with a local insurance agent to find out what coverage you require.

Homeworkers, commercial property owners, and businesses who lease their premises all need to buy commercial property insurance. Similar to general liability insurance, you can also buy this coverage as a standalone policy or as part of a business owner’s policy.

Home-Based Business Insurance

If you are one of the many millions of entrepreneurs who operate a business from home, then you will need to purchase coverage outside of your home insurance policy. Buying a home-based business policy gives you adequate protection for your stock and equipment. Aside from this, should a disaster such as a fire or a flood occur, and this results in you being unable to work, you might also be able to receive coverage for any lost income up to a pre-set limit.

If you buy a home-based business insurance policy, you will not typically get coverage for general liability included. So, if you work from home and visit clients or clients visit you, then you will need to buy coverage to protect you from any third-party claims. Always check with a commercial insurance agent what is covered by your home-based business insurance first before you buy any coverage.   

Data Breach Insurance

It’s easy to believe that malicious attacks only happen to larger corporations, but in recent years, smaller businesses have fallen victim to various tactics that have resulted in a data breach. Because small businesses are perceived to have less money to spend on data security, they are sometimes viewed as easier targets. Even with the tightest security measures in place, there is always a risk of accidental data leaks by employees, lost devices that are compromised, and targeted network attacks. Buying data breach coverage will insure your company data, along with the network and systems of your business.

Should an event occur, this will provide you with the practical and financial support needed to put things right. This includes legal advice, forensic investigations, client communications, ransom payments, damages caused by the hacker, business interruption coverage, PR assistance, and ongoing credit monitoring services for any affected parties.

This type of small business insurance is relevant to any kind of business that uses computer equipment, has a website, or who holds sensitive client data on their servers or systems.

Commercial Umbrella Insurance for Small Businesses

A business umbrella insurance policy gives you additional liability coverage that will extend beyond the limits of your existing liability insurance policies when their payout levels have been maxed-out. It is an insurance safety-net for unplanned or high liability costs.

There is no legal requirement to buy umbrella insurance, but you might be asked by a client, landlord, or bank to have a specific amount of liability coverage in place as part of an agreement. If this is the case, most umbrella insurance policies will start with a lower limit of $1 Million and go upwards from this point.

For instance, if your landlord requires you to have $5 Million in liability coverage, and your general liability policy only gives you $500,000 in coverage. It will be more cost-effective to buy umbrella insurance to top-up your limits, compared with increasing your general liability coverage limits.

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Commercial Auto Insurance for Small Businesses

Regardless of whether you need to insure a single vehicle or a small fleet, if you drive a vehicle for work-related reasons, you will probably need to buy a business auto insurance policy.

Buying commercial auto insurance can cover vehicles that are owned by you, the business, its employees, or those which are leased or hired. You will need coverage for your business liabilities, and you might also want to insure any tools or equipment that you carry in the vehicle too. If your vehicle is used to transport goods or people, or you drive the vehicle for work-related purposes, then buying this coverage can give you peace of mind that your assets are protected in the event of a theft, vandalism, accident, and more.

The cost of your commercial auto insurance will depend on the number of vehicles you want to insure, the types of vehicles, their value, the purpose of your business, and the individual driving records of those who you want to be named on the policy.

Workers Compensation Insurance

The requirements for coverage will vary between states, so it’s important to make sure you know what laws apply to your business. In most states, you are required to pay for any medical expenses of your employees should they incur an injury at work or develop a work-related illness.

If you do not buy the right worker’s compensation insurance for your small business, you could be left having to deal with strict penalties from the state, along with having to cover the costs out of your business or personal funds.

For a small business owner who wants to know whether or not they need to have worker’s compensation coverage, you can view a detailed state comparison for worker’s compensation insurance here. At the time we published this post, Texas is the only state that has no legal requirement in place for business owners to buy this coverage. In all other states, the minimum number of employees you need to have before you’re legally obliged to buy this coverage will range from between 1-5 people.

While the NFIB publish this on a regular basis, always check with a local commercial insurance agent as to whether or not you need to buy this type of insurance for your small business.

Unemployment Insurance for Small Business Owners

There are many different levels of unemployment insurance you can buy. Some offer coverage for sickness, while others will provide you with coverage for injuries and accidents. This is essentially a type of income protection that will pay you money in the event you are unable to work. As an individual, you will be able to protect up to 70% of your gross annual income, and if you receive other benefits from the business, such as company car payments or health insurance, this can also be covered as well.

If you are starting a new business, you might find there are certain exclusions that apply to you, always talk with a commercial insurance agent about whether or not this type of coverage is right for you.

Employer Health Insurance for Small Businesses

In most states, where you have less than 50 employees, you are not legally obligated to offer health insurance to your staff. Nonetheless, most businesses offer this as a way to attract good employees to their business.

As a small business, you might be concerned about the cost of providing an employee health insurance plan. Nowadays, with rising healthcare costs, it’s fairly commonplace for employees and employers to split the cost of health insurance.

Talk with an expert commercial health insurance agent to get practical guidance and a summary of costs for offering health insurance to your staff.

Small Business Life Insurance or Key Person Coverage

Keyman insurance or business life insurance is another type of coverage you might want to consider. It is offered in different levels and could payout should the insured die or become unable to work due to a critical illness. If you a sole business owner with nobody depending on you for work or income, this might not be the most suitable type of life insurance to buy.

However, if you have a business partner, shareholders, or people depend on you to earn a living, then it can offer reassurance to shareholders, and ensure a business continuity plan is in place should the insured pass away. If you seek investment for your business, then you might be asked to buy this coverage before any contracts can be signed.

List of Questions to Ask a Commercial Insurance Agent

Finding a good commercial insurance agent is key to saving you both time and money on your small business insurance. Here are just a few questions you can use to establish which agent is best for your business.

  • Do they offer tailored policies that can be personalized to suit your needs?
  • Will the person you are speaking with handle your day-to-day insurance needs? If not, who will?
  • Are they a local insurance agent or part of a national firm?
  • What is their claims process, and how will they support you in the event you need to lodge an insurance claim?
  • How many insurance companies do they work with?
  • How do they calculate small business insurance costs?
  • How can you contact them for help, phone, email, or in-person?
  • How many clients do they have? Are they mostly corporate, small business, commercial, personal, etc.?

A good small business insurance agent will take the time to get to know you and your business, and they will be able to offer insurance that meets your specific needs, and not sell you out-of-the-box insurance policies that result in you paying extra for coverage that you do not need. Ideally, you want a business insurance agent who will be able to help you if you ever need to make a claim, and who is responsive in the event you need to ask them a question.

In Summary

Commercial insurance for any business can seem a little overwhelming. While we have tried to cover the most common types of insurance, there are also individual levels of coverage offered for each policy, and a range of endorsements to choose from as well. As a small business owner, you need to balance the cost of insurance with the level of risk you face, and that’s not always the easiest of things to do.

A small business insurance agent can help you navigate your choices and options with ease. They can answer any questions directly and will often use multiple insurance companies in order to get you the best price. Not only will you benefit from their experience, but you will also be able to save time and money too.

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