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What Insurance Does My Small Business Need?

If you’re a small business owner, you may need several types of insurance to fully protect your business and its assets. In some cases, carrying the proper coverage may even be required by law. You could be looking at millions in legal fees and damages claims if you don’t have the right protection, so it’s important to learn about your options.

There are a number of aspects of your business which can be insured against losses, damages, or lawsuits. With adequate coverage, your business and its assets will be protected should a business partner die, a customer or employee become injured, or your business or its property suffer damage, theft, or fire.

Common Types of Commercial Business Insurance

Below are 12 kinds of commercial insurance available to small business owners. Most are optional for small business though highly recommended. However, depending on the nature and composition of your business, some types are required by law.

  1. General Liability Insurance

This insurance provides legal defense and damages coverage in the event of accidents, injuries, and negligence claims against your business. The coverage is generally broad, protecting you from a wide range of legal actions. General liability is highly recommended, whether you’re a building contractor or a business consultant.

  1. Product Liability Insurance

This insurance protects against a financial loss due to a product defect that causes injury. Any business involved in the manufacture, distribution, wholesale, or retail sale of products needs product liability insurance.

  1. Professional Liability Insurance

Sometimes known as Errors & Omissions Insurance (EOI), this insurance provides coverage against claims of negligence or malpractice for service providers. It provides a business legal defense and damages coverage when accused of a failure to or improperly rendering professional service. This type of coverage goes well beyond general liability coverage, which won’t cover such situations. Professional firms such as lawyers, accountants, consultants, notaries, real estate agents, insurance agents, and hair salons are encouraged to protect themselves with professional liability coverage.

  1. Commercial Property Insurance

This insurance covers everything related to your company property, from loss or damage due to fire, severe weather, and theft to business interruptions, lost income, and company papers. Some items that can be covered under these policies are optional, such as business interruption coverage, so talk to your insurance professional to make sure you get what you need in your policy.

  1. Commercial Auto Insurance

If your business owns a fleet of vehicles to move products and equipment, or transport employees, you’ll need commercial auto insurance to protect you should one of the vehicles be involved in a collision or sustain damage. You may even be able to obtain coverage for your employees using their personal vehicles during the course of their jobs.

  1. Business Owner’s Policy (BOP)

Business Owner’s Policies can be the best choice for the business that needs a combination fo the above coverage. Lumping property, professional, and general liability policy features together can save you money when compared to the costs of individual policies you need.

  1. Data Breach Insurance

If your business deals with sensitive information for your clients, customers, or your own employees, data breach coverage can protect you if your business suffers a digital or physical breach or if private information is accidentally released. Any company that signs nondisclosure agreements with clients maintains customer payment or login info should consider this coverage.

  1. Home-Based Business insurance

Your homeowner’s or renter’s Insurance policy generally won’t protect losses affecting your business equipment or merchandise or from claims by clients, customers, vendors, or employees who are injured at your home. Obtaining this coverage can be essential for businesses which are running out of the home. If your small business doesn’t need full coverage, ask your agent about adding riders to an existing homeowner’s or renter’s policy to protect specific business equipment.

Insurance Requirements for Employers

The above insurance coverage is highly recommended for applicable small businesses, but generally not required by law. The next three types of business insurance are required by state law for any business with employees.

  1. Workers Compensation Insurance

Every business that has employees must carry workers compensation insurance. Different states have different workers compensation programs and you may also be able to self-insure or purchase commercial insurance. The SBA has more information on the state laws governing your business here.

  1. Unemployment Insurance Tax

While not necessarily insurance, unemployment insurance taxes must be paid by any business that has employees. After registering with your state’s workforce agency, you’ll pay the state these taxes to fund the state’s unemployment insurance programs.

  1. Disability Insurance

If you do business in California, Hawaii, New Jersey, New York, Rhode Island, or Puerto Rico, your business must purchase disability insurance. Many businesses in other areas of the country also purchase coverage for their employee benefits packages, though it is not required by law.

Make Sure Your Small Business Is Protected

It’s important to note that your business structure (as either an LLC or LLP) doesn’t wholly protect your business and its assets from certain liabilities. These structures primarily purpose is to legally separate your assets, as the business owner, from those of your company. Your customer and client contracts can also offer some liability protection though, in many circumstances, your contract language won’t be enough to protect you from the most costly kinds of legal action.

The many types of commercial insurance available can help protect your business and its assets in these and other circumstances. Like personal insurance, policies and coverage can vary, so talk to your agent about your business’s specific circumstances to make sure you have the protection you need and that you’re in full compliance with your local laws.