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Navigating the Types of Insurance Your Business May Need

Navigating the Types of Insurance Your Business May Need

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Navigating the Types of Insurance Your Business May Need

Different types of businesses call for different types of insurance. 

So, it’s important to consider what types of coverage your business actually needs to stay protected (and save money!). Having useless policies is a waste of money. But not having the RIGHT policies can end up costing everything down the line. 

So, how do you know what types of business insurance you need for your business? It’s not always easy. But, there are a few things we can do together to help you make the right decisions for your business. 

To help you decide, I’ll start each section with a brief introduction to that specific business insurance. Then, we’ll walk through a few questions to help you decide if it’s something your business needs or not. 

Sound good? Let’s get started!

1. General Liability Insurance

General liability insurance helps pay damages owed and medical expenses for accidents that happen at your place of business. 

It also helps cover property damage and bodily injury claims that occur because you (or your employees) work somewhere other than your place of business. 

And lastly, it covers reputational harm and advertising injury, which involves claims against your business if you interact with intellectual property suits or libel/slander cases. 

Ask yourself these questions:

  1. Do visitors, clients, customers, or vendors visit my place of business?
  2. Does my business frequently perform work on other people’s property? 
  3. Do I (or does someone else) perform advertising and marketing for my business?
  4. Is my business at high risk of hurting or destroying someone else’s reputation?

If you answer “yes” to any of those questions, you should carefully consider investing in general liability insurance. Why? Cases like these are very common and can get very expensive, especially if you have to pay them out of pocket. 

General liability insurance helps cover legal expenses and medical costs if:

  • Someone gets hurt at your business (excluding your employees)
  • You (or your employees) hurt someone or cause damage to their property
  • Your marketing efforts infringe on someone else’s intellectual property
  • Or your business gets sued for libel, slander, or reputational harm

2. Professional Liability Insurance

Professional liability insurance helps cover any damages owed if your professional services or advice result in a financial loss for your clients. This insurance goes by several names depending on the industry you’re in. These names include:

  • Errors and Omissions
  • Malpractice Insurance
  • Professional Indemnity

Regardless of what it’s called, it includes coverage for cases filed against you for negligence, oversight, missed deadlines, or even if a client feels like you didn’t fulfill your professional obligations. 

So, ask yourself:

  1. Does my business provide professional advice, services, or consultations?
  2. Do my services or products affect my clients’ financial, health, or overall wellbeing?
  3. Does missing client deadlines cause significant harm to their business? 
  4. Do I offer professional services other businesses rely on to be successful?
  5. Am I in a high-risk industry like medicine, construction, or law? 

If any of those answers are yes, it’s important to talk to an insurance expert to figure out what professional liability coverage types and limits you need for your business. 

Unless you don’t mind building a defense team and paying damages out of your own pocket (yikes – no thanks!). 

3. Product Liability Insurance

Product liability insurance helps protect your business if your products hurt someone or damage their property. This insurance is a lot more straightforward than some of the others so far. So, you only have to ask yourself one question

  1. Does my business sell physical products?

If so, you should carefully consider buying product liability insurance. You never know how someone will use your products. Manufacturing issues happen all the time, resulting in dangerous products making their way to consumers’ homes. 

Add that to the fact that an average product liability case costs more than $5 million in the US. So, unless you can afford to pay millions of dollars, product liability insurance is a smart way to protect your business from going under. 

4. Business Property Insurance

Business property insurance helps replace damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business. 

Like product liability insurance, business property insurance is pretty straightforward. So, ask yourself these two questions:

  1. Do you rent or own a permanent physical business location? 
  2. Does your business rely on physical business equipment, supplies, or inventory?

For most businesses, the answer is yes. This could be as small as your laptop or as large as a full-scale manufacturing facility full of millions of dollars of heavy machinery. 

Either way, business property insurance helps cover the cost of replacing or repairing your business property in the case of fire, theft, vandalism, burst pipes, an explosion, or other types of catastrophic events (excluding earthquakes and floods). 

5. Business Interruption Insurance

Business interruption insurance helps recover lost revenue from a business property claim that causes your business to temporarily close. It also covers any extra costs that occur from temporary relocation so you can continue running your business. 

It can help you continue to pay your employees during a shutdown and cover bills or taxes due while your business isn’t open. 

It’s important to note that this insurance only covers temporary closures because of covered business property claims on your file. So, it doesn’t include those businesses affected by Covid-19, and most insurers continue to deny coverage for these claims. 

So, do you need it? Ask yourself these questions:

  1. Can you and your business afford to miss out on lost revenue?
  2. Will you be able to pay for temporary relocation if something happens?
  3. Can you still pay your employees if you’re forced to shut down for a while? 

If any of these answers are “no,” you should consider investing in business interruption insurance. Often, this coverage means the difference between shutting your doors for good and temporarily closing your doors. 

6. Business Vehicle Insurance

Business vehicle insurance covers company vehicles and may also include coverage for personal vehicles used for business-related activities. These types of policies usually have higher coverage limits than personal car insurance policies. 

Which can be helpful in situations where your employees (or yourself) drive their personal vehicles for business purposes? 

It’s also important to note that this insurance may be necessary if your business uses, leases, or hires heavy commercial vehicles (i.e., dump trucks, tow trucks, or semi-trucks). 

So, ask yourself:

  1. Does my company own any vehicles?
  2. Does the owner or their employees drive personal vehicles for business-related purposes?
  3. Does my business own, rent, or hire heavy or commercial vehicles?

If you can answer “yes” to any of these questions, business vehicle insurance is a smart move (or may be required by law). Note: these types of policies vary in scope and coverage, so it’s important to talk with an insurance expert to find the right coverage for your business. 

7. Workers Compensation Insurance

Worker’s compensation insurance helps your business cover medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work. 

And in more severe cases, it helps provide disability and additional job training if that employee can’t return to work. Worker’s compensation laws vary from state to state, so it’s important to understand these requirements where you do business. 

Furthermore, ask yourself: 

  1. Does my business have employees?
  2. Are any of these employees not considered owners of my business?
  3. Do I have more employees than my state’s workers comp requirements? 

If any of those answers are yes, you should consider buying a workers’ compensation insurance policy. And in some situations, you may have to (by law). 

Remember: for most small businesses, one work-related accident or injury can be expensive enough to force them to shut their doors for good. So, this is especially important if you’re in a high-risk industry like construction, manufacturing, or any type of manual labor. 

8. Data Breach Insurance

Data breach insurance, also known as cyber liability insurance, protects your business if there is a breach of personal information. 

This policy can help cover your costs to: 

  • Notify clients or customers of the breach
  • Run a public relations campaign to help regain trust and improve your companies reputation
  • Offer credit monitoring services

9. Employment Practices Liability Insurance

Employment practices liability insurance or employers’ liability insurance, protect your company from any employee-related claims.

Claims may include: 

  • Discrimination
  • Sexual harassment
  • Wrongful termination

How to Get Started Finding the Best Policies for Your Business

Now you have more clarity on what types of business insurance your business needs to have. So, now it’s time to talk about how to go about actually getting coverage. While deciding which types of policies you need is difficult, choosing a provider (or providers) is even harder. 

So, I recommend starting with a free policy comparison using Hiscox Insurance. It’s as easy as choosing which types of insurance you want to look at and providing basic information about your business. 

From there, they show you a side-by-side view of the top insurers and policies for your industry and business location. From there, you should also talk with an insurance expert to ensure your business is fully covered. 

So, click here to start your FREE comparison today!

Is it Necessary for Your Small Business to Have insurance?

The federal government requires any business with employees to have workers’ compensation, unemployment, and disability insurance. Each state’s laws regarding insurance vary, and some require additional insurance. 

Additionally, you will be required to foot the bill for any claims against your business if you do not have insurance. Many times, this is enough to put your company out of business.

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

Navigating the Types of Insurance Your Business May Need

Navigating the Types of Insurance Your Business May Need

2 Responses

  1. We appreciate the information you have made available. I currently own my clinical practice as a sole clinician in rural South Dakota. I have an LLC with quarterly taxes and the appropriate insurances. I also sell our son’s art work at craft shows, collect the taxes and forward to the state under his registered business name. Now, we want to start selling firewood from our land, to include bagged mulch with our office on the land, using an established land line for contact. The work would be completed my husband and myself initially. We cut our own firewood, have all the equipment necessary and 90 acres of timber land in the Black Hills of South Dakota. We would like to work at the same level of collecting state taxes on each load of firewood, send the tax to the state and claim the income on our federal taxes. Are we able to start out at this level with a registered business name then grow into an LLC or INC once our son is able to join us? Thank you for your time. Ann and Jack Parsells

    1. Hi Ann & Jack – Thanks for the feedback on our site! I do have to state, this question gets into some legal interpretations and I’m not an attorney, so be sure to verify with a legal professional.

      When you say registered business name, I’m assuming you are talking about a sole proprietorship or partnership. If so, yes you can set up this new firewood business as a sole proprietorship/partnership and later form an LLC or Inc to put it under (you will technically close the individual business and start a new business entity as the LLC/Inc.)

      Something to be aware of is that if your son’s business is under his social security number (or EIN) this isn’t a big problem, but if he is under 18 and it is under you or your husband’s name, and either individual business is sued (the current LLC is protected), you would be on the hook personally.

      Both businesses can be separate for sales tax filing and end-of-year tax filing, but as an individually owned business, they are considered the same legally. Given the potential for getting hurt with the firewood business (and even more so if you have employees), the LLC or Inc. would be a great way to help limit your personal liability.

      Hope this answers your question. Let me know if you have any other questions.
      Thanks!
      Greg

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