Owning and running a small business can be one of life’s most fulfilling achievements. Setting your own schedule, being your own boss, and the benefits of canine coworkers are just some of the perks many entrepreneurs look for when going into business for themselves.
But small businesses can also come with big risks and liabilities. Many first-time business owners set out to follow their passion, yet end up wading through a sea of confusing and conflicting information when it comes to details like small business insurance.
There are so many different types of insurance out there: workers’ compensation, business owners’ policies, general liability insurance, errors and omissions coverage, directors and officers—just to name a few! It’s normal to be left asking what each of these are and whether or not you really need them.
Here are some basic facts about two of the most common, and necessary, types of coverage that many small businesses typically need right out of the gate.
General liability insurance, also called business liability insurance, commercial general liability insurance, or simply GL insurance, is a very common coverage that protects businesses from financial loss in the case of claims related to both property damage and bodily injury. General liability insurance helps pay the costs associated with claims if your business is responsible for property damage or bodily harm, and it can help with legal costs to defend your business from such claims if necessary.
Typically, general liability insurance helps pay for costs associated with a claim where a business is responsible for property damage or bodily injury. These costs can include legal fees, settlements, medical bills, and repair costs for damaged property.
Some common examples of claims that general liability insurance might cover include:
Each of these instances, along with many others covered by general liability insurance, can end up being very expensive if your business doesn’t have the right coverage.
Since accidents and mistakes are part of life, almost any business imaginable could benefit from having a general liability insurance policy. It doesn’t matter if you’re a sole proprietor or have employees: general liability insurance is valuable coverage to carry any time you’re conducting business. This is especially true for businesses that have physical locations open to customers or the public.
While general liability insurance isn’t required by law, not having it leaves the business and its owners open to a nearly-limitless amount of liability. The cost of a policy (on average, $53 per month!) is a small price to pay for the protection it affords.
Workers’ compensation insurance is a specific type of insurance coverage required by law for nearly every business, with a few exceptions. The purpose of workers’ comp insurance is to pay for work-related illnesses and injuries that employees may incur during the course of performing their jobs.
A work-related illness or injury could be anything from a chef cutting their finger with a kitchen knife to a farmer losing a limb in a machinery malfunction—among many other examples. If it happens on the job, or because of the job, it’s typically considered a workplace accident or illness. While employees aren’t necessarily tasked with proving that the job is the cause of the illness or injury, employers do have the ability to rebut an employee’s claim if they believe the illness or injury isn’t actually a result of the job.
After establishing that an employee’s condition is work-related, workers’ compensation insurance can cover expenses related to the condition such as medical care, lost wages from time off work while recovering, ongoing care and rehabilitation costs, and even funeral expenses if the condition led to the employee’s death.
It’s also important to know that workers’ comp doesn’t just cover the type of workplace accidents most people immediately picture. It’s not all blood, broken bones, and lost limbs. Workers comp can also cover the types of chronic conditions that develop over time if they are work-related. If your employees sit at a desk all day, you might think workers’ comp is an unnecessary expense. But if bad ergonomics lead to a neck or back issue, an employee is fully within their right to file a workers’ comp claim.
In most states, a business with one employee is required to purchase workers’ comp coverage. However, some states allow small companies with very few employees, or those with only certain types of employees, to be exempt from the requirement. As a general rule, if your business has any employees (excluding independent contractors) you will probably need workers’ comp insurance.
The simple answer is probably. While most businesses are not required by their state to have general liability insurance, most choose this coverage because the benefits far outweigh the premium expense. On the other hand, most businesses are required by their state to have workers’ comp insurance, with a few exceptions.
So while you may not be required to have both—and in some cases, you may not be required to have either—the vast majority of businesses, even small businesses, will opt to carry both coverages to protect themselves from unnecessary risk.
Remember, every situation is different and state workers’ compensation laws are subject to change, so be sure to 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. If you’re a small business owner, learn more about workplace safety or check your workers’ comp rate in 3 minutes.
