Protect your business from liability
Some basic types of business insurance protect you from liability. The type of liability insurance you need depends on your business and the services you provide.
Let's explore some common types of liability insurance.
Public liability insurance
General liability insurance, also known as commercial or business liability insurance, is basic coverage for various claims, including bodily injury, property damage, personal or advertising injury, medical payments, product completed operations, and damage to premises that are rented to you.
Every small business owner or contractor should have some form of general liability insurance. When purchasing small business insurance and comparing policies, keep in mind that your rates will depend on the specific features of your business.
Business Owners Policy (BOP)
If you want general liability insurance and property coverage, you can bundle them together into a business owner's insurance policy, also known as a BOP. BOP provides liability coverage for customer injury, property damage, and product claims, as well as coverage for commercial premises and movable property.
Many BOPs also include business interruption coverage, which pays for your lost revenue if you close out for a covered claim. This coverage type is ideal for small and medium business owners such as restaurants, retail stores, and wholesalers. Keep in mind that BOP insurance does not cover your employees.
Employment Practice Liability Insurance (EPLI)
Small businesses with employees often benefit from Employment Practices Liability Insurance. This type of insurance protects you if an employee files a lawsuit against you for wrongful discipline or termination, sexual harassment, discrimination, negligent assessment, breach of an employment contract, mismanagement of employee benefits, or inflicted emotional distress.
Some insurance companies offer EPLI as a stand-alone coverage, while others offer it as an endorsement of their BOP. The terms and conditions of your policy will depend on the coverage you choose. The type of your business, the number of employees, and various risk factors all play a role in the cost of an EPLI.
Professional liability insurance
Professional liability insurance, also known as error and omissions (E&O) insurance, protects companies that provide professional services. B2C companies often use E&O coverage to protect against claims that their services have caused customers financial hardship or physical injury.
Medical malpractice insurance for doctors is a common type of professional liability insurance. This type of insurance is also essential for professional service providers such as consultants and financial advisors. Professional liability insurance costs vary by industry and profession. For example, a physician is likely to pay more than a CPA.
Contractors' professional liability insurance
If your business is in the design-build or construction management industry, you are required to purchase some form of contractors' professional liability insurance. This coverage protects professionals against construction errors or losses incurred when designing, engineering, and constructing buildings. It can also protect you from mistakes made by third-party vendors associated with the project.
Directors and Officers Liability (D&O) Insurance
If your company has a board of directors or advisory committee, you'll want to secure a D&O. This insurance protects the assets of directors and officers if they are sued personally for wrongful acts in the management of the company (for example, failure to comply with workplace laws, fraud, theft of intellectual property, misrepresentation of company assets, or misuse of company funds).
Administrative liability insurance
Management liability insurance is a combination of covers used to protect private, public, and not-for-profit companies from various exposures at the board level. It protects against the risks of running a business and is bought by organizations that have a board of directors. A typical management liability insurance package includes coverage for employment practices liability, fiduciary liability, and D&O liability.
Ensure product effectiveness
Product liability insurance provides more protection and security than a standard product warranty or guarantee. This coverage protects your business if the product causes damage or injury to a third party, or if your business faces a lawsuit related to the product. For example, if your product contains a lithium battery that catches fire, injuring the consumer, they can sue you. Product liability insurance covers you in this case.
Editor's Note: Looking for the right liability insurance for your business? Fill out the survey below to have our vendor partners contact you with your needs.
key takeaway
Almost every business can benefit from liability protection, such as a business owner's policy, administrative liability insurance, professional liability insurance, or product liability insurance.
Protect your property and business equipment
Your company's property is essential to your operations, and it can be costly to repair damage to any uninsured property. Different types of property insurance can protect buildings, vehicles, or other equipment. The type of coverage you need depends on the property you own or rent.
Commercial real estate insurance
Commercial property insurance protects your physical assets (building, equipment, inventory, tools, furniture, and personal property) and covers financial losses due to property damage due to fire, theft, or loss.
Property insurance coverage ranges from basic to comprehensive (and price metrics reflect this), although small and medium-sized businesses with physical assets usually need some form of such coverage. Unless you own your commercial property outright (meaning you don't have a foreclosure or mortgage against it), your lender will require you to have this coverage.
Homeowners Insurance
If you have a home business or store business in your home, check for business coverage under homeowners insurance. Homeowners insurance often provides limited coverage (say, $2,500) for business property or equipment stored in your home, and some policies don't cover business property at all.
Those with home businesses should seek more comprehensive business coverage by adopting a homeowner's or home business policy. As with commercial property insurance, the lender will require a homeowners policy until the mortgage is paid off.
Commercial tenants insurance
Commercial tenant insurance is essential for businesses operating one or more leased spaces. It will cover accidents within the space, including fires, floods, accidents, and damage to buildings or property due to natural disasters. This type of insurance covers many things that other policies do, but specifically for rented space.
Personal car insurance
If you are self-employed and drive your personal car for business purposes, you may be covered under personal car insurance. If you own your car, truck, or van and only use it occasionally for business, you may be able to skate through standard personal auto insurance that is for business use. However, if you operate a company-owned vehicle, your vehicle is for private business, or you need higher coverage, you may need a commercial auto insurance policy.
Commercial car insurance
Commercial auto insurance is similar to personal auto insurance; It protects your cars, trucks, or vans in the event of damage, injury, or liability claims. However, commercial auto insurance provides additional coverage, including property and trailer exposure, loading and unloading exposure, rental vehicle coverage, non-owned vehicle coverage, and higher coverage limits.
You'll likely need this type of auto insurance if you have commercial vehicles, dump trucks, tow trucks, snowplows, semi or commercial trailers, vehicles over 10,000 pounds, or vehicles with proven business equipment ( such as toolboxes or ladders).
advice
If your business operates a fleet of vehicles, follow best practices for fleet health and safety compliance to minimize risks.
Business General Expenses (BOE) Insurance
General business expenses insurance, commonly known as business expenses insurance, goes hand in hand with your disability insurance. BoE insurance covers the cost of running your business (based on actual expenses, including utility bills and employee salaries) if you become disabled and can no longer operate your business. However, BoE insurance does not pay your wages (as an employer) when you are out of work.
This type of insurance is a standard purchase for small law firms, medical practices, architecture, and accounting firms.
Protect executives and employees
Your team is one of your company's most important assets. It is crucial to have insurance coverage that will protect you and your employees. The type of insurance you need depends on you and your team (and legal requirements). Learn about the common types of insurance available to protect you and your team.
Workers' compensation
Workers' compensation insurance, also known as workers' comp or workers' comp, covers the medical costs and a portion of lost wages for an employee who has suffered a work-related illness or injury. If the employee accepts a workers' comp benefit, he is giving up his ability to sue your company for illness or injury. This insurance is often required by law.
Disability income insurance
Disability insurance is similar to workers' insurance in that it temporarily covers an employee's lost wages if they are unable to work due to a disability. However, disability insurance will cover injuries or illnesses that occur on or off the job, while workers' comp only covers work-related issues. This type of insurance is sometimes required by law.
Key person insurance
Key people insurance, also known as key man's insurance or key woman's insurance, helps replace lost income due to the death of a key executive in your business. Your business pays the premium while the principal is alive and then collects the death benefit after their death. These benefits can be necessary to keep your business running or to find someone to fill a role.
did you know
When founders die, companies often have difficulty continuing operations. It is essential for entrepreneurs to put in place a business continuity plan so that the business can continue to thrive if the worst should happen.
life insurance
You and any other members of your business can take out a life insurance policy. This is similar to principal person insurance, providing the beneficiary with financial assistance in the event of your death. Having life insurance can give you peace of mind that your death will not burden your family or business partners financially.
Protect your business from disasters
If your business falls victim to an unexpected disaster, you'll want to take out insurance. A single disaster can cost an uninsured company more than the company is worth, resulting in irreparable financial loss and legal claims. To protect your business, you will need a combination of catastrophe insurance.
Business interruption insurance
Business interruption insurance, also known as business income insurance, is one of the most common types of coverage that most small businesses need. In the event of a disaster (such as a fire, flood, theft, building collapse, or civil authority accident) and your business is required to close for a period of time, business interruption insurance will help you cover lost income or operating expenses such as a mortgage or rent, loan payments, taxes, and payroll. Business interruption insurance can be bundled into your BOP.
advice
To rebuild your business after a natural disaster, communicate transparently with customers, and be flexible and compassionate with employees and suppliers.
Comprehensive crime insurance
Crime insurance can protect your business from financial loss due to criminal activity, including computer and money transfer fraud, breach of trust, forgery, and alteration, loss of money and securities, and theft of your customers' property. If you have employees or work with sensitive information, you will need some form of crime insurance. Before purchasing an insurance policy, make sure the provider covers your industry.
insurance card
Small businesses with loans or credit cards can purchase credit insurance, also known as payment protection insurance. Credit insurance ensures that payments will continue in the event of a financial shock (such as death, disability, or unemployment). Unlike disability insurance, credit insurance does not pay the employer; It simply pays the lenders what you owe.
Cyber insurance
In the digital age, protecting your company's technology is essential. Small businesses should seek out cyber insurance to protect against losses caused by cyber-attacks such as ransomware, viruses, and data breaches. Cyber insurance can include data breach insurance (good for helping small businesses recover) and cyber liability insurance (geared toward larger companies that need more coverage).
advice
To recover from a data breach, consider hiring a forensic expert who can find and analyze equipment and data to assess what happened and prevent the breaches from recurring.
Product recall insurance
If your business sends in a defective product and you need to take it back from the market, product recall insurance can help you financially to do so. Such insurance is usually necessary for manufacturers to cover recovery costs related to customer notification, shipping, and disposal.
Inland marine insurance
Small businesses with movable commercial property can purchase inland marine insurance to protect their equipment, products, or materials while they are in transit by truck or train. Although "nautical" means water, this insurance only covers land transportation, as well as property that is temporarily stored by a third party.
Business umbrella insurance
For an extra layer of protection, business owners can look for comprehensive insurance. Commercial umbrella insurance (similar to personal comprehensive insurance, but with higher policy limits) covers the cost of additional liability beyond the basic policy limits, such as your general liability or commercial auto insurance. Although it's often referred to interchangeably with excess liability insurance, comprehensive commercial insurance can sometimes cover claims that the basic policy wouldn't cover otherwise.
Catastrophe insurance
If your business is at risk of floods, hurricanes, earthquakes, or other types of natural disasters, you should take out disaster insurance. These policies are specific to the types of disasters in your area. For example, companies in California should consider earthquake insurance because of the high probability of an earthquake. While these policies can be pricey, they are necessary to protect your business from disasters that are likely to occur in your area.
key takeaway
Protect your business from losses caused by physical and technological disasters through policies such as business interruption insurance and electronic insurance.
Choose a group of types of insurance
No single type of insurance will meet every business's needs - you'll need a range of business insurance plans based on your location, company, and industry. Alex Roje, the partner at Lathrop GPM, said every small business owner must assess their own needs and commitments to develop the suite that best protects their business.
"Consider the types of liabilities or issues that keep you up at night, then sit down with a reputable, experienced insurance broker and discuss a plan to cover them, and to get their assessment of what additional coverage you may need," she said...
Once you've determined the type of coverage you need, choose an insurance plan that's comprehensive (or basic) enough to match your risks and responsibilities. Roggi said pricing shouldn't be the only driver of the insurance products you buy.
"Cheaper is not always the right choice," said Roji. "Maybe you buy a Pinto Edition to cover when you really need a Ferrari, or at least a Toyota."
advice
Compare insurance companies' coverage and costs with our online business insurance quote tool.
How to choose business insurance
Choosing the small business insurance policies your business needs can be a daunting task. Here's how to navigate this world and improve your selection:
1- Calculate your assets. You need to know exactly what your insurance needs to cover.
2- Think about your risks. Every business is subject to a unique set of risks. The company that rents the jet skis has very different risks than the dog groomer, but can be sued if something goes wrong — and both companies have a lot to lose from theft or natural disaster.
3- Consider your responsibilities. Professional services are subject to various types of risks. You are responsible for being an expert when providing these services. This means that honest mistakes or bad advice could get you into legal and financial trouble. It is essential to know your responsibilities and to have adequate coverage to be responsible for them.
4- Compare coverage to cost. Money is always an important consideration. It's tempting to buy minimum coverage to save money on insurance premiums, but inadequate coverage is a serious risk for small businesses. It's worth your time to look at the comprehensive plans, additional coverage, and extra features to see all that might make sense for your circumstances. Ironically, dual coverage rarely costs twice the premium, so it's worth considering.
Kimberly Leonard contributed writing and research to this article. Source interviews were conducted for an earlier version of this article.
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