What Every Business Owner Needs to Know About Business Insurance

Today when small businesses think of insurance, the first thought that might come to mind is the Affordable Health Care Act.  This article will not deal with that – as the type of insurance discussed below will include insurance plans designed to directly protect your small business, regardless of your industry or specialization.  The Small Business Administration (SBA) notes that insurance costs will vary depending on the type of insurance you must purchase (as some state laws may require you to have certain insurance plans) as well as the vendor you use to insure your business, and how much you purchase.  But you may refer to the above hyperlink to learn more.

The following are the types of business insurance one must consider when starting and/or running a business.

General Liability Insurance

This type of insurance is the most important as it covers any legal issues that pertains to accidents, claims of negligence and even property damage and medical expenses.

Commercial Property Insurance

Today many small businesses may have little overhead and some simply operate via the internet.  That said, there are still many small businesses that have a storefront or office and this type of insurance provides for property damage.   This damage may apply to a number of crimes and/or natural disasters from fires to vandalism to even business interruption (for instance, if business stops due to the network being infected with malware).   Property insurance is very important but also complex and list out some different types of property insurance:

• “All-risk policies covering a wide-range of incidents and perils except those noted in the policy.”
• “Peril-specific policies that cover losses from only those perils listed in the policy. Examples of peril-specific policies include fire, flood, crime and business interruption insurance.”

Home-Based Business Insurance

Thanks to the internet, there are a myriad of home-based businesses that have little overhead as they might operate a virtual online business or have a consulting-type of business where one needs merely a phone and internet connection to work.  That said, having an insurance plan is very important. The SBA notes that “…homeowners’ insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may add riders to your homeowners’ policy to cover normal business risks such as property damage.”

Professional Liability Insurance (Errors and Omissions Insurance)

For small businesses that provide services where issues of malpractice and negligence could be issues, this professional liability insurance will protect you in case of litigation.  The SBA notes that some states actually demand that certain small business services (medical, legal, tax and other services) purchase this type of insurance.

Product Liability Insurance

This type of insurance is for specific type of businesses, especially those where a business is responsible for the manufacture or distribution of a product.  The SBA notes the following: “The amount of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far less risk than a small appliance store…”

Insurance is important, but it can also be expensive.  It is helpful to get quotes from multiple carriers to make sure you are getting the lowest rates for the coverage you need. You may also be surprised to learn that many small business lending companies will require a business owner to maintain an in-force insurance policy as a condition to making any business loan.