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Unlike large corporations, small businesses don't have regulatory practices that will help them measure and mitigate risks. Their resources to resist an unforeseen crisis are also few, so they're potentially one significant incident away from bankruptcy.
However, this doesn't necessarily have to scare small business owners like you. You can still mitigate and avoid the risks by taking measures as early as now. One way to manage your business risks is by getting the appropriate small business insurance.
There are different types of insurance available for small businesses. But which ones are worth getting to protect your company and assets in case of damages or liabilities?
The Importance of Insurance for Small Businesses
One benefit of business insurance is that it generally provides tax deductions. You can deduct your business insurance cost from your federal taxes. Besides this, here are the reasons to get an insurance for your small business:
Most states usually require it
Most states require businesses to have insurance. State laws can help you determine the types of business insurance you need.
For example, most states require business owners like you to get employees' compensation coverage as soon as you hire your first employee. You may also be required to carry business vehicle insurance for commercial automobiles your company owns.
You should still consider getting business insurance even if your state doesn’t require it. A landlord's insurance policy may not cover you if you rent a commercial space. Loan agreements are also likely to ask for proof of insurance. Moreover, some contracts may require insurance to ensure compensation if something goes wrong.
Provides employee protection
Workplace accidents can occur at any time. Without business insurance, you'll pay your employee's compensation out of pocket.
Employees' insurance can cover the workers' medical bills and benefits if they have a long-term disability that prevents them from working due to a workplace accident. This way, you can uphold employee protection and ensure the injured worker's compensation while they're not working.
Establishes your reliability and credibility
Business insurance can establish your company's reliability and credibility by showing contractors and customers that you take risk management seriously. It enables you to communicate that you'll provide adequate protection whichever accident or error occurs.
For instance, if a customer sustains injuries from a slip-and-fall within your business property, your business insurance can cover the medical costs, including treatments from the hardest medical specialties such as neurosurgery and cardiothoracic surgery.
Similarly, if your business is mainly online-based and a security breach occurs, business insurance can protect your customers by covering liabilities and data protection solutions.
Covers legal costs in lawsuits
Small business owners like you can be a target for lawsuits. The customer who suffered bodily injuries within your property can press charges against you. Moreover, clients or customers can sue you if your products or services endanger them.
These lawsuits come with hefty legal costs that could exhaust your personal savings and company funds if you don't have business insurance.
With the right insurance, you can have lawsuit protection that covers legal fees so you won't drain your bank or force your company to close due to bankruptcy.
Recover your business property damages
Like homeowner's insurance covering home repairs or replacements, business insurance can cover your commercial property and equipment damage costs. This policy may also cover losses from natural calamities, fires, thefts, or vandalism.
As such, this insurance coverage won't drain your savings and company funds from costly renovations, replacements, or repairs. Even if the insurance only covers some costs, you don't have to worry about going bankrupt.
Fulfill professional licensing requirements
Business insurance is also beneficial for licensing. For example, professionals like dentists, real estate agents, and accountants may need one to fulfill their states' licensing requirements.
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The Types of Insurance for Your Small Business
Choosing small business insurance depends on your coverage needs, business type, and company size. Here are the types of business insurance that might be suitable for your small business:
Commercial Property
Commercial property insurance covers physical property damages such as fire and theft. Business property insurance also covers your business items, including desks, chairs, workstations, computers, company records, inventory, and supplies. This insurance may include business interruption insurance, which covers your lost income if you temporarily halt operations due to property damage.
General Liability
General liability insurance covers costs for liability claims, such as property damage to others and bodily injuries. This policy also includes coverage for damage to reputation, including libel, slander, and copyright infringement.
Furthermore, it can cover legal fees from lawsuits, including hiring a lawyer and judgments or settlements against your business.
Commercial Auto
Buying commercial auto insurance is essential if your business owns commercial vehicles like trucks, cars, and vans.
Commercial auto insurance has three basic coverages: physical damage, liability, and miscellaneous fees.
- Physical damage covers collisions and non-accident-related damage, such as vandalism, fire, flood, theft, or earthquake
- Liability covers bodily injuries if you're at fault in a collision or motor vehicle accident
- Miscellaneous coverage includes rental reimbursements, auto loans, towing, and labor
Workers' Compensation
Workers' compensation insurance protects employees by covering their medical costs if they sustain injuries or become ill because of their jobs. This policy includes physical therapy, medical care, and compensation for lost income.
Death compensation for the family is also available if an employee dies because of a work-related illness or injury. Most states require a workers' compensation policy, even if you only have one employee.
Cyber Liability
Cyber liability insurance, also called cyber risk or cybersecurity insurance, covers the cost of data breaches and cyber threats. This policy protects sensitive customer data, such as account numbers, credit/debit card numbers, health records, driver's license numbers, and social security numbers.
Cyber liability insurance can also cover ransom payments to retrieve data access, data privacy lawsuits, lost income from network outages, regulatory fees, and public relations to restore reputation.
Inland Marine
Inland marine insurance covers business materials, equipment, tools, or products stored off-site or in transit by land through trucks, trains, or automobiles. These products include electronics, construction materials, contracting equipment, collectibles, and communications and networking tools.
This policy shouldn't be confused with marine insurance, which protects your in-transit business property via water.
Errors & Omissions
Errors and omissions insurance covers your company against claims of inaccuracies in professional services, such as late, inaccurate, or undelivered services.
This policy also covers the following:
- Misrepresentation (false or misleading statements)
- Violation of fair dealing and good faith (sabotaging a party's right to receive the contract benefits)
- Negligence (failure to provide reasonable care)
Medical Malpractice
Investing in medical malpractice insurance is essential if your business manages medical equipment or provides and monitors patient care. This policy is a type of E&O insurance that covers claims of patient injury or death. It can also cover legal fees, judgments, and settlements if someone sues your company.
Short-Term Liability
Short-term liability insurance covers claims for short projects, whether an hour, day, week, or month. It can cover legal costs if you're sued for accidental property damage or bodily injuries.
This insurance is ideal for the following:
- Seasonal businesses
- Projects that provide advice to clients
- Projects that require a specific insurance amount
Considering a business owner policy (BOP) is ideal if you want to save costs. It combines three coverage types in one policy: general liability, commercial property, and business interruption. However, this isn't limited to just three. You can add other insurance types to customize a policy suitable to your business.
Some policies may not cover flood damage, fraud, or wrongful terminations. But wrongful terminations can be covered if you have employment practices liability insurance.
Factors to consider in choosing policies include:
- Your industry
- Payroll size
- Annual revenue
- Location
- Number of employees
- Office building age, condition, and size
- Claims history
- Coverage amount
Investing in different types of small business insurance is essential to secure and protect your assets. Choosing the right policies can be less complex when you understand your company's needs. This way, you can make wise financial decisions that won't break your bank and company funds.