There is a whole lot to worry about as a small business owner. Finding the right staff, securing the perfect location, getting the best retail software, and determining the type of registered business you’ll have are just a few of the big decisions to make right from the start.
But we get a question a lot about one thing that can make your business run a lot better: Does my business need insurance? In almost all cases, it sure does. And getting the right type(s) of business insurance can help alleviate some of the stresses that come with other big decisions. After all, it’s there to protect your business from having to close down due to unforeseen circumstances.
Unfortunately, too many small businesses are uninsured or are using personal insurance to cover their business. Both cases are far too risky. And with some experts estimating that nearly half of all businesses are uninsured or underinsured, it’s time to double-check and see to it that your business is fully protected.
Table of Contents
- What Is Business Insurance?
- Does My Business Need Insurance?
- What Are the Benefits of Business Insurance?
- Do Different Businesses Need Different Types of Insurance?
- What Are the Most Common Types of Business Insurance?
- How Much Does Business Insurance Cost?
- What Are the Steps to Buying the Best Business Insurance?
Just like any individual insurance – health insurance, car insurance, life insurance, etc. – you likely already have, business insurance is meant to protect your business from different disasters.
In the end, it’s meant to protect you from going bankrupt due to financial or legal claims made against the business. These could be the result of an accident in the store, a lawsuit from a staff member or customer, a natural disaster, property damage, or any other damaging experience.
But there are many different types of business insurance, and the type(s) that you get will depend on the type of business you have, where you’re located, if you have an online store, and much more. In some cases, certain insurance may even be required by law.
The short answer to this is yes. Nearly any business will require some sort of insurance. Some will require a whole lot more than others. Below are some of the most common ways the small businesses are, in many cases, unknowingly at risk:
- Home office use
- Personal vehicle use for work purposes
- Client visits
- Personal, specifically financial information of clients
- Unprotected inventory supplies
- Business equipment
- Commercial vehicles
There are many other areas to consider, but these are a few that many SMB owners need improvement in coverage on.
While trying to avoid stating the obvious, there are some more subtle benefits of getting the right types of business insurance. And for those businesses wondering if, given the name, an LLC is enough to protect you, the answer is no. An LLC is NOT insurance, and your business is still at risk without proper insurance.
- Protects all business assets
- Protects personal assets
- Prevents getting sued
- Follows laws for required insurance
Protect All Business Assets
An LLC protects your personal assets from being taken in the event of a business financial requirement. For instance, if your business is sued for malpractice your home cannot be taken to compensate for any penalties owed.
But your business is still at risk. Without insurance, like general liability insurance, you could be held liable for an accident and incur substantial costs as a result.
Such a claim can mean that any asset of the business can be taken and liquidated to pay for the accident. This might include already liquidated cash, equipment, inventory, raw materials, company vehicles, or real estate.
Additionally, your business is at risk to be sued or incur substantial penalties for not only anything you, the business owner, are directly responsible for but also any mistake or instance of neglect on the part of any of your employees.
Even under an LLC, there are still several circumstances in which your personal assets could be at risk. A LOT of small business owners don’t adequately separate their personal and business assets, expenses, taxes, etc. Often, this is done for tax purposes.
Though it may save you some tax burden in the short term, it may open your personal assets up to seizure in the event of a business lawsuit.
Even if you haven’t done anything wrong, you can still get sued. And getting sued means you’ll need a lawyer. Plus, the time spent settling the lawsuit means time away from work, another added cost.
Getting the right business insurance will help protect you against some of these costs.
We’ll discuss more on this below when we get into the different types of insurance, but there are certain types of insurance that most businesses are required to get.
For businesses with employees, it’s required that workers’ compensation insurance is provided to protect all employees in the event of a workplace accident.
Additionally, unemployment insurance is indirectly required through your payroll taxes. A certain percentage of your business’s taxes are set aside to cover any future unemployment claims.
Finally, in some states, it’s required that any business with employees must have disability insurance. Check with your local government to find out if it is in your state.
Again, the short answer is yes. There are several types of insurance that most businesses will need. But there are also more niche options based on certain industries. For instance, a trucking company will need far different insurance than a vineyard.
We’ll get more into some of the specifics in the next section, but do thorough research about your specific industry to see what types of insurance might be recommended. This resource is a good tool for finding the right policy.
While we don’t have time to cover every single type of policy out there, we will go over several of the most commonly used. The vast majority of businesses won’t need to look beyond this list. But remember, do your research and get in contact with experts before making any decisions.
- Workers’ compensation
- General liability
- Commercial property
- Business interruption
- Professional liability
- Employment practices liability
- Key person
1. Workers’ Compensation Insurance
For businesses that have employees, this type of insurance is often a requirement. In cases where it is required, failure to purchase the coverage can result in steep fines that may even shut a business down.
Workers’ comp is there for any injuries an employee experiences while on the job. The insurance should cover any medical expenses and a portion of any wages lost while they were out of work. This can cover anything from slips and falls to poor desk chairs causing long-term pain.
Businesses can purchase workers’ compensation insurance through private companies, though some states offer state-run options.
This is also typically required for any business that has employees. This is not a type of insurance that can be bought in the private market. Instead, businesses contribute to their unemployment through mandatory federal unemployment taxes (FUTA) and state unemployment taxes (SUTA).
Unemployment tax rates for businesses will depend on how many employees you have, how long you’ve been in business, and your history of employee turnover.
Business owners must register with your local unemployment agency as soon as their first employee is hired. Typically, costs should be calculated by a payroll service or software.
Disability insurance is also required in several states. This insurance guarantees employees a portion of their income during times of illness or injury. While workers’ compensation will cover employees for any job-related injury or illness, this protects them against all else, including pregnancy.
Short-term disability (SDI) insurance usually covers employees for 3-6 months after the accident or illness occurred.
Even if it’s not required by law, providing disability insurance makes you a more desirable employer.
This is not required for any businesses but it is one that is universally recommended to have. General liability protects your store against lawsuits from customers, suppliers, or clients. These might include injuries while on your business’s property, property damage in your parking lot or off-site, injuries sustained while using your product or service, and more.
This type of business insurance is a necessity for businesses that have a higher-risk environment, like landscapers, warehouses, construction businesses, activity centers, etc. The cost of this will vary significantly depending on what type of business you have.
For businesses that have a large inventory, expensive equipment or machinery, owned office space, or other valuable property, commercial property insurance is strongly recommended. Most policies will cover theft, vandalism, fires, flooding, and other accidents. Many, however, do not cover natural disasters.
In some cases of unusually high risk based on location or business type, the business will have to buy additional premium coverage.
This is typically an add-on to any commercial property insurance. Business interruption insurance protects businesses against lost revenue during periods of forced closure.
This type of insurance can protect eCommerce stores, too, during any period that your webstore is down.
Cyber insurance covers any liability that falls on the business for data breaches that involve personal or financial information of customers. This might include usernames and passwords, social security numbers, credit card information, banking account numbers, ID cards, health records, etc.
Cyber insurance is meant to cover all legal fees and expenses involved in the process of dealing with any security breaches. Some insurance policies will also handle notifying customers of the event, restoring personal identities, recovering data, and fixing damaged systems.
This is more commonly referred to as malpractice insurance, or, less commonly, as errors and omissions insurance.
While this is typically associated with doctors and other high-level professional services, there are others who may benefit from it. It can cover work errors, oversights, missed services, late deadlines, incomplete work, contact breaches, and more. Therefore this could apply to nearly every type of professional service, from law firms, to SEO companies.
While a general liability plan will cover physical injury and property damage, this covers any financial losses that a client or customer might incur from your business’s product or service.
This can also be an add-on to general liability coverage or purchased alone. It’s worth considering for any type of retail business that sells physical products.
In most cases, this covers the entire life of the product. It protects your products from the point of its manufacturing to the time they’re out your front doors.
This protects your business from customers suing you for defective products or mislabeled information.
Usually shortened to EPLI, this protects businesses from discrimination and wrongful termination lawsuits. This protects your business from any claim of sexual harassment or racial discrimination.
The cost will depend on your size and turnover rate, but, more importantly, on whether you’ve had any past claims against your business.
Small businesses are most at risk to these types of lawsuits. Without the proper legal protections and robust HR department, SMBs leave themselves vulnerable to costly legal battles.
For businesses with a single owner, this insurance ensures that the business can survive after the owner passes away or becomes incapacitated to serve as the head of the company. Inevitably, the transition will be difficult and lengthy, so this protects the business from lost time and revenue during the shift to new ownership/management.
With key person insurance, the business will receive a one-time payout to keep the operation on its feet during the transition. This payout can be used to train a new leader, pay employees, pay for inventory, or pay down debts.
There is a wide range of costs of business insurance. As we discussed above, the price depends on the type of insurance, the size of your business, the history of past insurance claims, and the industry in which your business resides.
The insurances listed above offer a wide range of options and there are certainly few businesses that have each of them. There are also dozens of other types of insurance available for more niche industries, and this offers a far from an exhaustive list.
Without going into the specific details of cost, it’s best to inquire about getting a quote from individual providers first. Having done so, calculate the percentage of the policy against the overall revenue, profits, payroll, etc. Then look at what an expected payout of an incident might be and determine if purchasing the insurance is worth it or not.
It’s probably best to start with your lawyer, legal team, or at least HR department before making any big decisions for buying insurance plans. You don’t want to be unprotected in the event of something catastrophic, but you also need to be sure that your business is adequately protected. Any small business has numerous vulnerabilities that might ruin operations.
Start by shopping around for policies. Look at different options and try to understand where your business is at risk and how you can protect it. If possible, hire a professional to consult on what you need and what your best course of action is.
To get more advice on business insurance, look beyond this blog. We don’t sell business insurance and we’re not experts. But we are experts when it comes to your point of sale solution. To get advice on that, click below.