Which do you need?

Did you know up to 53% of small businesses combat lawsuits every year? Business lawsuits are much more common than they seem and having the proper small business insurance in place is critical.

At the same time, it can be challenging to know what kind of insurance you need without overpaying for policies and coverage you don’t need.

Two common forms of insurance for small businesses are general liability and business owner policies. These two policies have some overlap, important differences, and exclusions.

Read on for the basics of the coverage and limitations of each policy, average costs for common coverage, and special business situations. You’ll soon be prepared to shop for the best policy for your company!

General Liability Policies

A general liability policy is one of the most basic safeguards for small businesses– it protects them from common mistakes and accidents.

What's covered?

  • Property damage: for when a member of your landscaping crew accidentally breaks a window with a fallen branch
  • Bodily injuries: for when a client slips and falls on wet floors during a house cleaning visit
  • Advertising/personal injuries: if your marketing materials make a false claim against a rival company

General liability insurance covers you when you’re sued, including attorney fees, court fees, and settlement money up to your policy limit. General liability coverage is considered the minimum amount of coverage your business needs, no matter how careful you are as the owner.

Special considerations

General liability insurance offers excellent protection in many common business scenarios. It gives you peace of mind in the case of legal action, but it isn’t always the perfect solution.

General liability insurance doesn’t cover many everyday needs, like workers’ comp or data breaches. You may overpay for additional coverage if you’re eligible to bundle policies within a business owner’s policy.

Business Owner's Policies (BOPs)

A business owner’s policy is the preferred choice for many small business owners. This is because a BOP includes a general liability policy and adds further coverage.

However, BOPs aren’t for everyone or every business. There are restrictions on who can have a policy, including company size and industry risk.

What’s covered?

  • General liability: for property damage, bodily injury, and personal injury
  • Property damage: for when your business equipment is damaged in a fire
  • Business interruption insurance: covers lost income when you can’t complete a job for reasons beyond your control, like if an employee is sick for several weeks

You can often add additional coverage to your business owner’s policy for less money than buying the policies separately.

Common additions

  • Workers’ compensation: if an employee is injured on the job and has medical bills or lost wages from an extended recovery
  • Data breach: if your system is hacked and client information is compromised
  • Professional liability: if your professional advice or services cause damage to your client
  • Commercial auto insurance: covering any vehicles used in your business

A BOP can potentially offer the most customization for the lowest price, but not all businesses are eligible.

Frequently asked questions: special cases

Many people started a new business or side hustle during the pandemic. As a result, you may feel like you don’t fit neatly into typical business categories. Here are a few common special cases.

I’m a freelancer or solo-preneur. Do I need business insurance?

Yes! A business with only one employee (you) still needs business insurance. Even if your production is small right now, you never know when you could face a lawsuit. Talk with a qualified insurance provider to understand the best coverage for your risk and income.

I have a small business in a high-risk industry. What kind of insurance is available to me?

Small businesses in high-risk industries still need general liability coverage and other specialty insurance. For example, an auto repair shop may use garage liability insurance, which includes general liability and other industry-specific risks.

How do I know if my business is high risk?

It may be difficult to know if your business is considered high risk, be it from personal experience or from searching the internet. The best way to understand your available options is to talk with an insurance provider about your business and desired coverage.

Thinking about a general liability or business owner’s policy?

While most businesses aren’t required by their state to have general liability insurance, many choose this coverage because the benefits far outweigh the premium expense. On the other hand, most businesses are required by state law to have workers’ comp insurance, which is a common addition to business owner’s policies.

Remember, every situation is different and not every business is eligible for a BOP. Do your research and speak with a trusted advisor.

Thanks for reading! Please note that this content is intended for educational purposes only. As best practices change regularly, you should refer to your trusted advisor for specific counsel.

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