If you are starting a business, you may have a tight budget that does not allow much room to cover unexpected losses. As a result, purchasing insurance can make the difference between survival and insolvency. Your need for certain forms of insurance will depend on the types of products and services that you provide, but most businesses will want to obtain general liability insurance. This may be known as a commercial general liability policy. It covers accidents that occur on the property of the business for which the business is found at fault, such as slip and falls. Injuries to employees are an exception, since workers’ compensation will cover them.
State and federal laws usually require paying for workers’ compensation insurance and unemployment insurance. A business also may need to pay for disability insurance. Below is a summary of some other types of insurance that are not mandatory but may be prudent in many circumstances.
Business Owners Policies
Some insurers offer discounted insurance bundles specifically for business owners.
A fire, a storm, a theft, or another unexpected event can wreak havoc on a business. You can use property insurance to cover any building that your business owns and the contents of the building. A policy may cover furniture and equipment in the building, as well as computers, printers, supplies, carpets, and other key parts of the interior. You should try to obtain a policy that covers the replacement cost rather than the actual cash value of the property. The actual cash value will cover only a fraction of the replacement cost, since it will account for the depreciation in the value of the property after being used.
A business owner should be familiar with any exclusions in their policy and the amount of the deductible. This is the amount that you will need to cover on your own before the insurance takes over payments. Some types of hazards may require buying additional policies, such as theft or floods.
Some people operate a home business. They may assume that their standard homeowners' insurance policy will cover any damage related to their home business, but this is often not true. To the contrary, a homeowners' insurance policy may specifically exclude coverage for damage to a home business, or it may even render the policy void if you are running a business from your home. This could mean that you would not be covered for any damage to your home. As a result, you should find out the rules governing your homeowners' insurance and describe your situation honestly to the insurer so that you get the appropriate coverage.
Directors and Officers Insurance
If you are running a business that is large enough to have directors and officers, you may want to purchase insurance to cover their defense. A business that suffers serious financial losses might encounter a lawsuit from a creditor or another party, arguing that the board acted negligently. Directors and officers insurance could cover damages awarded in the related lawsuit, as well as paying for litigation costs. You should be aware that these policies do not cover fraud and other intentional actions, and they also probably will not cover lawsuits between directors.
Data Breach and Cyber Liability Insurance
Even small businesses may be at risk of a data breach or cyber attack and could benefit from data breach and cyber liability insurance, especially if they collect personal or payment information.
Professional Liability Insurance
Professional liability insurance is often known as malpractice insurance, or as errors and omissions insurance. Professional liability insurance covers actions by any managers and employees of the business, as well as the overall entity. Certain types of businesses in some industries may especially need professional liability insurance, such as medical providers and law firms.
Professional liability insurance usually does not cover discrimination, harassment, or wrongful termination claims brought by an employee or a former employee. These are covered by a specific type of insurance known as employment practices liability coverage. A limited amount of this insurance may be available in some commercial general liability policies, but more often these policies cover discrimination claims outside the employment context or do not cover discrimination claims at all.
Products Liability Insurance
Some types of businesses are based on selling tangible items to the public. Products liability insurance covers any lawsuits by people who buy these items and then claim that they were injured by a defect in them. It will pay for defending the case and may pay most of any damages that are eventually awarded.
Employees often use cars to conduct the activities of the business. This makes it important to purchase auto insurance, and some states require this type of coverage for businesses. Auto insurance pays for injuries or property damage caused by a driver who was working for the business. You should research the law in your state to determine which types of auto insurance may be required, and you may want to consider purchasing more than what is required to minimize your risk.