Types of Business Insurance Explained: Which Policies Do You Need?
With so many types of business insurance options, it’s not always easy choosing the right one. But that doesn’t mean that you can afford to put it off. It doesn’t matter if you work from home, an office, or online. All forms of business ventures entail some level of risk, and a potential mishap could result in serious financial consequences.
In this article, we’ll cover all the policies that you should know about and give you a few tips on how to pick the ones that are right for you.
What Is Business Insurance?
Business insurance policies protect business owners, their employees, and their assets from accidents, lawsuits, theft, company or inventory damages, and other problems that might occur. Typically, companies get several different types of protection to cover all of their needs.
While getting the right insurance is important for any business owner, in the event that the business experiences a setback, those with small firms stand to lose more than those that own large enterprises. If you’re new to being your own boss or simply don’t feel capable of accurately assessing the risks that your line of work may entail, you can seek out the help of an insurance broker.
Types of Business Insurance
Below are some insurance types that you should be familiar with.
General Liability Insurance
General liability insurance protects you from a number of different claims, which is why it’s one of the more prevalent purchases among businesses. The amount of coverage varies from insurer to insurer, but in most cases, this policy should help you cover medical expenses and legal fees associated with bodily injury and property damage that occurs at your place of work or due to business operations, which affect your customers or clients.
This type of insurance is also referred to as business liability insurance, and typically, it doesn’t include employee injuries, auto accidents, pollution, faulty workmanship, and damages to your landlord’s property. Luckily, there are other policies that can assist you in dealing with such issues.
Product Liability Insurance
As hard as you try, sometimes your product might not turn out the way you wanted it to and might end up harming someone or damaging their possessions. In case that happens and you end up being sued or having to cover compensation costs, having product liability insurance can save you quite a bit of money.
Getting this business insurance policy is a good idea even if you’re certain that your product won’t malfunction and that it’s absolutely safe. It’s important to remember that your business could be liable even if your product is used incorrectly.
Commercial Property Insurance
Commercial property insurance helps protect your building, equipment, tools, inventory, furniture, and personal property. If a fire damages or destroys your belongings or if someone breaks into your building and steals them, commercial property insurance will cover the repair and replacement costs. Damage caused by earthquakes and floods isn’t included in this policy.
This coverage is essential for small business owners, especially those running their business from home since it usually offers more protection than most home insurance options. Some small business insurance companies allow you to add additional features to your policy, such as temporary storage, accidental damage protection, and important document reproduction.
Workers’ Compensation Insurance
By buying workers’ compensation insurance, you provide wage replacement and medical benefits to employees if they get sick or hurt due to their job. In turn, your employees will not be able to sue you for negligence. The majority of states made this policy mandatory for businesses that have employees.
Workers’ compensation doesn’t apply to non-work-related injuries, which is why you might want to think about providing your workers with health insurance as well. Of course, some businesses don’t have the budget for all these insurance types. Still, you should keep in mind that according to the Affordable Care Act, business owners with more than 50 full-time employees (or the equivalent in part-time employees) must abide by minimum health insurance coverage standards.
Business Income Insurance
Business income insurance, also known as business interruption insurance, is to a certain extent similar to commercial property insurance because it also protects the policyholder from damage to their physical property. The difference between the two business insurance types is that while commercial property coverage helps you deal with repair and replacement expenses, business income protection covers the loss of revenue that a company may suffer after a disaster-related suspension of its operations.
Coverage of this kind lasts during the restoration period, which is usually 30 days long, and you can use it to pay costs such as rent, utility bills, and payroll. The restoration period can usually be extended for an additional fee.
Errors and Omissions Insurance
Errors and omissions insurance is a type of liability insurance for businesses. In the event that a customer files a lawsuit claiming that you or your employees performed inadequate work or were negligent in some way, your insurance company will cover the full costs of the claim. The policy, however, will not be valid if you commit illegal acts or intentionally trick or deceive your customer.
Cyber Liability Insurance
Cyber liability insurance is a relatively new concept, which is why many entrepreneurs don’t even know it exists. Considering that there are many different types of business insurance options today, it’s easy to overlook something that isn’t the norm yet. But that doesn’t change the fact that data breaches are on the rise. Fortunately, a cyber liability policy can help you stave off bankruptcy if you incur financial losses that result from hackers getting a hold of your businesses’ sensitive data.
When choosing data breach coverage, you need to assess as many options as possible since the policies tend to differ greatly depending on the insurance company. Make sure that you buy business insurance that protects both your firm and your customers. Aside from covering the costs of data restoration and loss of income, most policies will also help you pay for identity theft monitoring, affected party notification, and crisis management services.
Commercial Umbrella Insurance
Commercial umbrella insurance isn’t a must-have for your business, but it can be very useful as it compliments your other policies. Namely, when you reach your other liability coverage limits, commercial umbrella insurance takes care of the additional expenses.
This policy is typically very affordable, but it can only be purchased along with other types of business insurance.
Commercial Auto Insurance
If you or your employees drive company-owned vehicles, you should consider purchasing commercial auto insurance. It can be very useful in situations when a vehicle or someone else’s property is damaged or when a driver or pedestrian gets injured.
Keep in mind that it isn’t the same as personal car insurance. Unlike personal car insurance, commercial car insurance covers claims that a third party files because of an accident involving your business vehicles.
How to Get Business Insurance
The process of sifting through different types of insurance can get a little overwhelming when you’re doing it for the very first time. But if you break it down into easy-to-follow steps, you’ll find it much more manageable.
Gather Your Information and Documents
Before you do anything else, you should collect information about your business, such as its location, gross annual sales, number of employees, assets, and other details. Insurance companies will ask to see documents containing this data.
Review Your Business’ Risks
To figure out exactly what types of insurance you need, you’ll have to take a close look at how your business operates. You should ask yourself: Do your employees work with dangerous tools? Do you own your own delivery trucks? Is your business based in an area prone to earthquakes or floods?
Do Your Research
Insurance isn’t the most exciting topic in the world, but the more you know about it, the better you’ll be able to protect your business. We’re not saying that you should become an expert on all types of insurance coverage overnight, but you should at least know your way around the basic terms.
Compare Insurance Offers
You should never settle for the first insurer that you come across. Compare as many offers as you can and pick those that offer a good balance between coverage and price.
Remember to avoid assumptions about what a policy covers. Read it carefully and ask an insurance agent for assistance if you come across anything odd or unclear.
Plan For the Future
As your business grows, your insurance needs will change. To avoid incurring large fees for modifying and/or expanding all your different insurance plans, try to anticipate your business’s future requirements ahead of time.
Boost Your Business Credit
If your business is new, you might want to build your business credit score before you start buying insurance policies. The higher your score, the lower your premiums will be.
To establish business credit quickly, you can open a business bank account, get a business credit card, and pay your vendors on time.
Make the Purchase
Once you complete all the aforementioned steps, you can begin buying business insurance plans. While you’re doing so, don’t hesitate to spend a little more on coverage than you intended to originally because it usually tends to pay off in the long run. Then again, don’t let the insurance representatives persuade you into getting something that you don’t need.
The five kinds of insurance that business owners most commonly get are: general liability insurance, product liability insurance, commercial property insurance, errors and omissions insurance, and workers’ compensation insurance. However, every business is unique, and as such, requires an individual risk assessment to determine which insurance coverage types are most suitable.
The very first step for getting affordable business insurance entails shopping around for the most budget-friendly quotes from different insurers. You can do this yourself or hire an insurance broker to do it for you. Secondly, you should try and combine policies from the same insurance company to get a discount. Almost all business insurance companies will allow you to do so.
In addition, you might also be able to reduce your premiums by customizing the policies. Typically, you should be able to adjust the deductibles, as well as the policies’ limits and what they include. Lastly, you can make your business as safe as possible. For instance, some insurers offer a discount for businesses that have a burglar alarm installed.
The cost of business insurance depends on the kind of company insurance policy you choose and many other factors such as the type of business you run and your business credit score. On average, a 12-month business insurance policy ranges from $50/month to $90/month.
Seeing as there are far too many factors that go into determining your premium, we can’t name any one insurer as the most affordable. But what we can tell you is that Hiscox and The Hartford are known for their low quotes.
There are business insurance policies for pretty much any type of risk you can think of – from product malfunction to data breach protection. Most commonly, you’ll come across general liability insurance, product liability insurance, commercial property insurance, errors and omissions insurance, workers’ compensation insurance, commercial auto insurance, as well as business income insurance.
For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.
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