Insurance 101 for Small Business Owners
Operating a small business in the current climate is incredibly challenging. For some, it has sadly been impossible. For many, staying afloat has meant pivoting to other lines of business or re-imagining your current business in new and creative ways.
Regardless of the challenges your business may be facing, securing adequate insurance protection should not be skimmed from your budget. Across all industries, claims remain a real threat during a time when business owners don’t need one more thing to worry about.
Since your plate is already full, here’s a quick list of insurance coverages most small businesses need to operate safely. Even if your business is fully insured, you may want to review your coverage with your insurance agent in light of any changes in operations, COVID requirements, or local, state, or national guidelines. Read our FAQs about COVID and business insurance coverage.
Rather watch our latest webinar, entitled “Navigating the Maze of Insurance to Protect Your Small Business”?
Six Types of Insurance You Should Know About
Professional Liability Insurance
What is it? If you provide a service to a client for a fee, such as an accountant or lawyer, you have the potential to be sued. Also known as errors and omissions or malpractice insurance, this coverage offers protection even in the event that you did not make a mistake but a client believes you did.
Why do I need it? Professional liability is a specialty coverage and is not included in other business owner policies. The cost of defending a claim, whether you are at fault or not, can run into the tens of thousands of dollars. In addition, the negative impact to your reputation and the time away from your business can affect your long-term success. It is also important to know that many potential clients require proof of coverage before signing a contract with a service provider.
General Liability Insurance
What is it? Also known as commercial general liability, this coverage protects your business in the event a client or customer sues you for property damage or bodily injury. For example, if a customer slips and falls on your premises or an employee damages a client or customer’s property, this coverage will offer protection for what is known as third-party claims.
Why do I need it? Most businesses do not have the resources to survive a large liability claim, which can reach upwards of thousands of dollars. Again, as in professional liability coverage, you may need proof of coverage before signing a lease or entering into a client contract. A general liability policy does not cover auto-related accidents or damages, intentional acts, or employee injuries.
Business Owner’s Policy (BOP)
What is it? This coverage is a bundled, multi-peril commercial policy designed specifically for small to medium-sized businesses. It combines business property and business liability insurance under one policy offering broad coverage at an affordable price.
Why do I need it? If your business is damaged by fire, theft, or other disasters or a customer is hurt or injured by your business operations, a BOP will offer protection. Optional endorsements can be added to your policy for an additional premium to offer greater customization.
What is it? A workers’ compensation policy helps provide wage replacement and medical benefits to employees injured on the job. Payouts help cover medical treatment, lost wages, disability, and rehabilitation expenses for injured or ill employees. This coverage will also help cover damages and legal fees in the event of a lawsuit.
Why do I need it? Most businesses are required to carry workers’ compensation insurance. Again, the cost of a claim is usually beyond what most businesses can cover on their own. If you have employees, you should obtain a workers’ compensation policy.
Employment Practices Liability
What is it? This type of insurance covers a variety of employee-related claims that fall outside the realm of general liability and workers’ compensation. For example, wrongful termination, discrimination, or workplace harassment are just a few claims that would be covered under an employment practices liability policy.
Why do I need it? Even small to midsize businesses can be sued for employment practices. The cost of attorney fees, damages, and settlements are usually difficult for a business to handle on their own.
What is it? Cyber liability insurance covers direct and third-party costs associated with a privacy breach. Direct costs include loss of profits and public relations expenses to restore your business reputation. Third-party costs are things like defense fees and settlements you may need to pay to customers.
Why do I need it? With so many services moving online due to the pandemic, the risk of cyberattack has increased… and cybercriminals do not discriminate based on the size of your business or client base. You may have impressive security measures in place to protect your data; however, individual employee actions will always be a risk.
Depending on your business, there are other types of commercial policies you may wish to consider like automobile or bond insurance. A reputable agent can help advise you.
Times are definitely tough for small businesses, but keep in mind there are ways to lower your insurance premiums and still retain or add coverage. Insurance is one tool that may help keep your doors open in the coming months and years.
Dan Tharp is licensed in all states (except Alaska & Hawaii) and is the Vice President of Business Insurance Lines for Pearl Insurance. Dan has been assisting business owners in protecting their operations, customers, and employees for over 30 years. For questions regarding this blog post or any other insurance matter, he can be reached via phone at 800.447.4982 or email at firstname.lastname@example.org.