When you own or run a small business, insurance policies are something you have to think about and handle, even if it is (ideally) an expense you will never use. But if you ever do need to use it, you will surely be happy you have it.
It’s important to understand the different types of small business insurance your business may need. Knowing can not only help you make informed decisions about the right policies for you, but ensure that you don’t pay for damage out of pocket (or have to take on a small business loan to cover those costs).
Here’s an overview of the different types of small business insurance and what you need to know about each.
General liability insurance
Liability insurance (also sometimes called CGL insurance, for comprehensive general liability) protects your business from claims related to bodily injury or property damage caused by your business or employees.
Business insurance selection guide
Choosing the right small business insurance is essential for protecting your assets and ensuring your operations run smoothly in the face of unexpected events. It’s about finding coverage that fits your specific needs and provides peace of mind as you grow. The tool below is designed to guide you through the selection process in a friendly, straightforward manner, helping you secure the perfect insurance plan that safeguards your business’s future.
Say that you own a tire shop, one of your technicians incorrectly installed a tire, and that negligence later caused a car accident for your customer, the driver. That is where your liability insurance would come in, as it not only would cover the cost of the damage, but any bodily injuries as well (up to the policy limit). CGL insurance also typically covers legal defense costs if your business is sued.
Property insurance
Property insurance covers the physical assets of your business, including buildings, equipment, inventory, and so on. It protects against losses caused by events like fire, storms, and theft. If a hurricane damaged your shop, your property insurance would cover repairs.
Property insurance is especially important if your business relies on expensive equipment or stores valuable inventory. And note: Even if you rent your store or office, property insurance would cover the contents inside your building.
Business interruption insurance
Let’s think about that hurricane scenario again. It is quite possible that if your business were in the path of a storm and that storm caused extensive damage to your store, you just might have to close up shop for a while while repairs are being made (ideally, these would be paid for by your property insurance).
As opposed to the property insurance, business interruption insurance can help cover your loss of income during that shutdown, as well as possibly the cost of relocation, if necessary.
Professional liability insurance
Also called errors and omissions (E&O) insurance, professional liability coverage protects service-based businesses from claims of negligence, errors, or omissions that occur in the course of providing professional services.
For example, let’s say that you are a lawyer and an ex-client sues you for malpractice because they didn’t like the outcome of their case. Professional liability insurance would help cover both your legal expenses as well as any damages (again, up to the policy limit).
Many states require that professionals like lawyers, doctors, and accountants carry E&O insurance.
Workers’ compensation insurance
Like professional liability insurance, many states require that if you have employees, even only one, that you have workers’ comp insurance. This insurance covers medical expenses and lost wages for employees injured on the job. Workers’ compensation can also protect your business from lawsuits related to workplace injuries.
And it is no wonder that this sort of insurance is often legally required: The average cost of a workers’ compensation claim (for 2021) was $41,757.
So, what kinds of insurance do you need?
I hate to sound like the lawyer I am, but it depends. It depends on the type of business you have, your risk of damage and lawsuits, and your tolerance of that risk. It is a cost-benefit analysis that you have to go through as a small business owner.
Once you are clear about what sort of insurance you need, it is important to shop around and compare policies. Work with your insurance agent or broker to ensure that you get the right coverage tailored to your business’s needs.
If the time ever comes that you need to use that insurance coverage, you will be happy that you were proactive about it now.