Insurance for Small Businesses & Legal Implications
When forming a business entity, business owners should consider whether to purchase insurance for the business, as well as which types of insurance to obtain. Insurance should be factored into the business budget.
Property and Casualty Insurance
Most business owners should buy property and casualty insurance, which protects the physical location of the business and its interior, as well as any items of value in the business. Some commercial leases may require a tenant business to carry property insurance. The policy language of a property and casualty insurance policy will specify precisely which contingencies are covered, and it is important to make sure that any risks specific to your geographic region are covered on the policy that you choose. For example, if you are in an area that has a high risk of earthquakes, you should make sure that your property and casualty insurance covers earthquake damage. Among other things, you should look at the policy exclusions to make sure that the types of coverage that you want are not expressly excluded.
General Liability Insurance
Business owners should also obtain general liability insurance. Some business structures, such as LLCs and corporations, have limited liability. Nonetheless, protection from liability is not absolute. General liability insurance can help protect both the business' assets and an owner's personal assets. Sole proprietorships and partnerships must carry general liability insurance, or they will be at risk of losing all of their assets. It can also be important to get an umbrella liability policy that fills any gaps in your coverage. For example, if your business is involved in pharmaceuticals, this is a type of business that carries a high risk of litigation, and it is important to obtain coverage to fill in areas where a general liability insurance policy may not.
Workers’ Compensation Insurance
Businesses with employees are usually required to obtain workers’ compensation insurance or become self-insured for workers' compensation claims. Workers' compensation protects employees in case they are injured or get sick on the job. It may also shield employers, since many state laws prevent employees from suing their employers for work injuries and illnesses unless no workers' compensation insurance has been obtained.
Other Forms of Insurance
Businesses that have employees must also obtain unemployment insurance. This is insurance that is paid in case an employee is terminated. When a business has vehicles that it uses as part of its business operations, it will need to obtain vehicle insurance. For example, if a pizza restaurant owns a vehicle for the purpose of delivering pizzas, it may need a commercial automobile insurance policy. Other policies that should be considered include disability insurance, business interruption insurance, and life insurance.
Insurance for Home-Based Businesses
Many sole proprietorships are run from home. Home-based businesses must be insured as well. Some people are surprised to find out that homeowners' insurance and renters' insurance policies will not cover risks associated with a home-based business. The kind of coverage needed may depend partially on the industry of your business. Types of insurance that may be appropriate include liability insurance, business property insurance, professional liability insurance, products liability coverage, commercial crime insurance, and business automobile coverage. Liability insurance can be especially important for a home-based business that has clients or visitors who come to the premises. For example, the liability insurance might provide coverage if somebody making repairs to business equipment in your home has a slip and fall and suffers a broken leg and sues you. A homeowners' policy would not cover business visitors' injuries.
Other coverage guards against certain contingencies affecting home-based businesses. Professionals working inside their homes, such as attorneys who see clients in home offices or psychiatrists who see patients in home offices, will need professional liability insurance to protect against claims of professional negligence. People who invent or design products from their homes should have products liability coverage to guard against the possibility of injuries to a consumer caused by a product that was designed, manufactured, or supplied from their home. People who use their cars to deliver or pick up items as part of their home-based business will need business automobile coverage, since their personal automobile policy would not cover the business use.