The kinds of small business insurance you need depend on the type of business you own. For instance, a roofing company working at dangerous heights has a higher level of risk than an accounting firm whose workers primarily sit at desks. The location of your company also factors in, as small business insurance coverage requirements vary from state to state.
When buying small business insurance, here are some questions to consider:
- Do you have employees?
- Do you offer a service to customers?
- Do you create and sell a product to customers?
- Do you have one or more company vehicles?
The answers to these questions will affect the type and level of coverage you’ll need to properly protect your small business.
What Is the minimum amount of insurance I need?
Typically, the basic coverage for a small business includes general liability insurance, business property insurance, and workers’ compensation insurance. Without at least this level of coverage, you may be required to cover any losses against your company. Commerical auto insurance is also recommended if your company uses company vehicles.
Is there industry-specific insurance I need?
Yes, you may want to buy additional kinds of insurance depending on your industry. This type of coverage will address the unique risks facing your business. For example:
- Sports, fitness, and spa businesses should consider insurance to cover everything from equipment breakdown to tanning bed liability.
- For food and beverage businesses, product recall coverage or insurance to protect losses related to spoilage during transit may be appropriate.
- Businesses in the technology, manufacturing, education, and healthcare fields, which deal with confidential information, should consider data breach coverage.
- Building, landscaping, tree-trimming, and similar businesses may benefit from business income extension for off-premises operations
What other insurance should I consider?
In addition to the basic coverage and industry-specific types of policies explained above, you also may choose to shop for:
Umbrella policies that can provide coverage above your other liability coverages. This type of policy is important in the case of unusually high losses, when the policy limits of one of your other policies may be maxed out.
Specialized liability insurance policies, such as:
- Errors and Omissions (E&O)/Professional Liability Insurance – If your business services involve representing the needs of others, making recommendations, providing advice, designing goods, or delivering clinical care, you could be sued by clients, customers, or patients claiming that you failed to perform your job properly, harming them in some fashion. E&O/professional liability insurance covers these types of suits.
- Business Identity Theft Insurance – As the name suggests, this type of insurance provides legal liability coverage to businesses that are targets of data theft. It also can cover costs to notify customers whose personal identification information may have been compromised and pay for services for identity theft recovery services for those customers.
- Directors and Officers (D&O) Liability Insurance – D&O insurance protects directors and officers of corporations or not-for-profit organizations if there’s a lawsuit alleging that they managed the business or organization without regard for the rights of others. The policy will pay any judgments for which you’re legally liable (up to the policy limit), as well as legal defense costs.
- Employment Practices Liability Insurance (EPLI) – Depending on the policy’s limits, EPLI pays damages for which an employer is legally liable when he or she violates an employee’s civil or other legal rights. This policy also covers legal defense costs, which can be hefty even if there’s been no malice on your part.
- Terrorism Insurance – Since September 11, 2001, terrorism coverage is now typically offered separately from other coverage options. These policies cover losses attributed to acts of terror. Insured by private insurers, terrorism insurance is reinsured by the federal government under the Terrorism Risk and Insurance Act (TRIA), which was passed in 2002. Certain stipulations apply, and policies vary.
Should I buy a package policy?
Your insurance carrier may offer a package policy that combines several different coverages into one single contract. The benefit is that you’ll get a broad variety of coverages at a price that’s typically lower than if the same policies were purchased separately. The most common version of a package policy is the Business Owner Policy (BOP).
A BOP combines general liability insurance and property insurance in one lower-cost policy. The general liability and property coverage provided in a BOP usually also helps cover business income.