Launching a new business venture clearly involves a lot of work. This can make it really easy to overlook certain details. One detail that you definitely don’t want to skip is business insurance.
It can be overwhelming thinking about everything you need to consider for your business, we get it. But ensuring that you, your business & your employees are protected are of paramount importance.
Without insurance, you could face major financial losses, which may be enough to shut you down. With that elephant looming in the room, here is everything that we think you need to know about business insurance.
What Is Business Insurance?
Business insurance covers the costs if something goes wrong in your business. Simply put: It acts as a much-needed safety net.
In the event of a lawsuit, injury, or property damage, you have protection. This can help you to recover from a plethora of unexpected problems.
How Does it Work?
Business insurance works just like a lot of other forms of insurance. Your policy includes coverage for specific scenarios, such as a workplace injury or weather-related damage to your property. The amount of coverage & your deductible are two of the biggest factors when determining the cost of policies. The more coverage you need, the more you obviously pay.
The fee that you pay is called your premium. This is the monthly amount that you need to pay to keep your insurance policy active. If something happens, such as a fire or lawsuit, you file a claim. The insurance company reviews your claim. They then cover the damages, up to the amount of your policy and after your deductible. We get that all that is probably common-knowledge, but it doesn’t hurt to reiterate it.
For example, your business suffers $25,000 in damages from a fire. You have a deductible of $5,000 and coverage up to $250,000. The insurer covers the remaining $20,000 after your deductible.
Without this insurance, you’re on the hook for everything. This could be detrimental, especially for a new or struggling business.
Are You Legally Required to Get Business Insurance?
Any business with employees needs several types of insurance under federal and state laws. Certain industries and professions also require product liability or professional liability insurance.
First, consider the federal requirements. If you have employees, you’ll need at least:
Keep in mind.. along with these insurance options, you may need additional coverage.
Most Common Types of Business Insurance
Insurance companies offer many different coverage options no matter your business type. Here are the most common types of business insurance available..
Workers’ Compensation Insurance
Workers’ compensation is a state & federal requirement for businesses with employees. This insurance covers medical expenses and lost wages if an employee is injured on the job. This insurance ensures that your employees receive the care and support they may need. Any business with employees, regardless of size, should definitely carry workers’ compensation.
Unemployment Insurance
Employers need to pay into federal & state unemployment insurance programs. It’s typically paid with your payroll taxes. If you have paid staff, you need to cover this insurance as well. It offers temporary financial assistance for laid-off workers.
Disability Insurance
Federal laws also require businesses to get short-term disability insurance. Long-term disability is also available, but optional and your call.
Both options provide income replacement for disabled employees. They cover debilitating injuries and illnesses that occur away from the workplace.
Commercial Property Insurance
If you don’t have a physical office/location you clearly don’t have to worry about this one! But commercial property insurance protects your physical assets. Along with your building or workspace, commercial insurance covers almost everything inside. This includes tools, equipment, and inventory.
This protects against losses from a variety of causes, such as: Burglary/theft, Lightning, Wind, or Fire.
You’re protected against crime & common natural disasters. Some insurers also offer additional types of coverage, such as flood and hurricane coverage. Even if you rent, you should still consider obtaining some form of commercial property insurance. It can cover the cost of replacing essential equipment and supplies. Which could be major, major costs.
General Liability Insurance
General liability insurance (GLI) helps cover claims against your business related to property damage or injuries. For example, if someone slips and falls at your place of business, you may need to cover the costs. These types of claims can easily exceed $30,000.
Again, this one doesn’t apply if your team is fully remote & you don’t have an office/location. But you’re responsible for any accidents that happen on your property if you have one. This type of insurance can cover medical costs & legal fees for any injuries.
It’s not required by law. But you often need general liability insurance before signing leases or business contracts. You may not be able to work with other businesses without a GLI policy. It can be purchased as a separate policy or as part of a Business Owner’s Policy (BOP).
Professional Liability Insurance
Professional liability insurance is required by states for certain professions. Lawyers, accountants, and doctors may need this type of insurance to protect against claims of negligence or malpractice.
If your business provides specialized services or advice, you likely need professional liability insurance. This insurance can cover your legal defense costs & any settlements or judgements. It basically protects against potential errors or omissions in your work.
Product Liability Insurance
If you sell a product, you should get product liability insurance. This protects against claims that your product caused damage or injuries. Just a single defect could result in a lawsuit. Product liability insurance protects your business from product-related incidents.
For example, if a flaw in the design of your product causes an injury, this type of policy can protect your assets.
Business Owner’s Policy (BOP)
Business owner’s policies typically include multiple types of coverage. They are really intended to provide a complete solution for businesses that need insurance.
The most common option combines general liability insurance and property insurance into one policy. A business owner’s policy (BOP) is also typically customizable. You can add the coverage that you need with this great all-in-one solution.
Commercial Auto Insurance
If your business owns a vehicle or multiple vehicles, the state that you operate in may require you to get commercial auto insurance. This insurance covers liability & damages resulting from accidents involving your business vehicle.
It’s important to remember that you may also need this type of insurance if your employees need to use their personal vehicles for work-related tasks, such as making deliveries.
Health Insurance
Businesses with 50 or more full-time employees need to provide access to health insurance. It’s a requirement under the Affordable Care Act (ACA). Getting health insurance can help attract & retain employees. It also promotes the health of your workers, which cuts down on time off.
Illness-related absences cost an average of $1,685 per employee per year. With health insurance, you may be able to limit this burden. It’s a key component of employee benefits. Any business with a growing workforce should think about adding this type of insurance. Even if you only have a handful of employees right now, it’s still a benefit you should possibly offer to your staff.
Home-Based Business Insurance
Home-based business insurance is typically offered as a rider for standard homeowner policies. It often includes property coverage for your business equipment & supplies.
If you have clients visit your home, you may also want to get liability coverage. This can protect you against lawsuits if someone should slip and fall on your property.
How Do You Choose the Right Business Insurance?
The right business insurance policy can seriously help protect your business. It safeguards against unexpected financial losses. So how do you pick the best policy? Here are a few recommendations to help narrow your options:
- Assess your risks
- Review legal requirements
- Evaluate your assets
- Search for providers
- Choose your deductible
- Review and update your coverage
- Contact an agent or a broker
- Reputation & financial stability
- Coverage options
- Claims process
- Customer support
- Pricing
Assess Your Risks
You should first assess the risks that your business currently faces. This can help you determine which type of protection you need and exactly how much coverage to get. Any business with a physical location is likely to need property insurance. Yet, some businesses may need higher coverage.
Restaurants for instance have a higher risk of fires & other accidents compared to an office building. For this reason, a restaurant may need additional liability coverage. It can help to research common claims in your specific industry. Find out what types of accidents are most likely to occur then go from there..
Review Legal Requirements
Determine what insurance you are legally required to get. Brush up on federal and your specific state laws. If your business has employees, remember to look into workers’ compensation, unemployment insurance, and disability insurance.
Evaluate Your Assets
Consider the value of your business’s physical assets. This includes property, inventory, and equipment. The amount of coverage should be able to cover all of your assets.
Start by determining the total value of these assets, including: Property, Equipment, Inventory, & Intellectual property.
Protecting your assets may require property insurance, liability insurance, and business interruption insurance.
Search for Providers
After assessing your risk, legal requirements, and assets, you can start searching for a suitable insurance provider. Some of the details that you want to assess when comparing insurance companies include:
Learn more about the reputation of the insurance company. Be sure to look at reviews and ratings. You can also check their financial strength. Review scores from AM Best and Standard & Poor’s. A financially strong insurer is more likely to honor claims.
Compare coverage options. Make sure that you select an insurance provider that has the coverage you need. This saves you from ending up with policies from more than one insurer. Which can be annoying in itself.
Explore the claims process for each potential insurer. Having a smooth process is super important for helping you recover quickly from a loss. Along with the claims process, use reviews to look into the quality of customer support. Choose a provider that offers responsive support & clear communication.
Finally, consider the cost. Shop around for the best value. Try to balance cost & coverage. Get quotes from multiple providers. This ensures that you get the coverage you need without having to take out a second mortgage on your home to do so.
Choose Your Deductible
The deductible is how much you pay before the insurance policy covers the rest, up to your coverage amount. Think about how much risk you are willing to personally take on.
If you take a higher deductible, you will pay less in premiums. However, you will also be responsible for a larger portion of the damages if something bad happens. Again, basic insurance stuff but good to know.
Review and Update Your Coverage
After you get an insurance policy, you should make sure that you keep it updated. Update your policy regularly and review it for changes. For example, if the total value of your assets grows, you may need to obtain additional coverage. Make sure that it continues to cover your risks.
Contact an Agent or a Broker
Having an insurance agent or broker can help with everything discussed. You can let them review your business situation & recommend appropriate coverage. It can be very overwhelming handling everything on your own..which is why it can be so helpful to get outside input.
An experienced agent or broker will know what types of insurance are best suited for businesses like yours. They can explain your legal requirements and walk you through the process of picking the right policy.
What Are the Dangers of Not Having Insurance?
Not having insurance can set your business up for serious financial losses. If your business experiences a fire or damage from a natural disaster, you need to cover the costs.
You may not be able to recover financially without the right insurance coverage in place. Customers & employees could also sue your business if you fail to fulfill a contract or if someone is injured at your workplace. State and federal laws require businesses to hold certain types of insurance. You may face fines and jail time for failing to comply.
These issues may also negatively affect your reputation, which is not good at all. This could lead to the loss of customers. Lenders & investors may view your business as risky. This makes it more difficult to get loans or investments.
Without insurance, you also need to pay out of pocket for property damage or theft. These things are covered by various business insurance policies. You can avoid these risks by choosing the right insurance policy. You receive that protection against lawsuits, natural disasters, theft, and more.
Final Thoughts on Business Insurance
If someone files a lawsuit or you suffer losses due to a disaster, insurance can help pay the costs. It’s also a legal requirement for many businesses. If you have employees, you likely need workers’ compensation, disability, and health insurance. Product liability and professional liability are also common.
Many of these options are bundled together as business owner’s policies, simplifying the process of getting the right coverage. For entrepreneurs working out of their homes, you may be able to get by with home-based business insurance. You can often add this to your existing homeowner’s insurance policy.
In the end, business insurance is a smart choice for almost any business owner, even if you’re starting a small operation out of your basement with no employees. Insurance protects your assets. Running a business already comes with many risks, make sure you are protected as much as you can be!
Stephanie
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 100k entrepreneurs to start, run, and grow their businesses.