Insurance for Your Small Business
The insurance options that protect the future of your small business
Doing a thorough examination of all the potential hazards that your small business may face can be a daunting task, but it is the best way to ensure that you are not overlooking any risk factors that could derail your business’ finances or halt its operations. When you understand your risks, you can be sure that you have sufficient insurance to protect yourself and your business. There are a variety of different insurance options that can help you achieve this.
General Liability Insurance
General liability insurance is important for all small-business owners, even owners of small, home-based businesses. Without liability insurance, one small accident could result in an expensive lawsuit that jeopardizes the future of your business.
“We live in a litigious society and even if you think you’re unlikely to face a claim, getting insurance is a wise investment that doesn’t cost much,” said Caron Beesley from the U.S. Small Business Administration (SBA). “[It] certainly [costs] a lot less than the thousands, if not millions, of dollars you may need to spend fighting your case in court.”
General liability insurance will protect your financial assets if legal claims are brought against your business, including claims of misleading advertising, negligence, slander, libel, bodily injury, harm and property damage. If a suit against you is successful, the settlement will be covered by your liability insurance. This can include punitive damages, compensatory damages and nonmonetary losses of the injured party.
With this type of insurance, your business will avoid the excessive costs associated with paying out medical expenses or settlement bonds. Not only does liability insurance protect you from damages, but it also covers the cost of your legal defense or judgments for an appeal procedure.
Product Liability Insurance
If you own a business that manufactures, distributes or sells a product wholesale or retail, you may be liable for the safety of that product and could benefit from product liability insurance. This type of liability insurance will protect you from financial loss from claims that arise if a defective product causes bodily harm or injury. The amount of insurance you need depends on the type of products your business deals with. A product such as clothing, for example, carries less risk than do appliances.
Professional Liability Insurance
One further type of liability insurance that business owners should look into is professional liability insurance, which is also known as errors and omissions insurance. It covers your business against financial loss resulting from claims against your professional expertise, such as malpractice suits, negligence in services provided to your customers or errors in service. Depending on your state, this type of insurance may even be required. One example of this is malpractice insurance, which is required for all physicians in certain states.
Commercial Property Insurance
Commercial property insurance policies are designed to protect your business from loss or damage. You will need this type of insurance in order to protect the physical aspects of your business, such as buildings, computers, documents and money from loss or damage. It also protects against lost income and opportunity costs from business interruption. Depending on the specifics of the policy, damaging events can include smoke or fire, storms, wind, hail, vandalism and civil disobedience.
These policies come in two types: all-risk policies and peril-specific. If you choose an all-risk policy, you will be covered if your property is damaged by any circumstance other than the exceptions specifically listed on your policy. Examples of peril-specific insurance are fire insurance, crime insurance, flood insurance and business interruption/loss of earning insurance.
“All-risk policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased when there is high risk of peril in a certain area,” according to the SBA.
Insurance for Home-Based Businesses
Many home-based business owners are unaware of the fact that losses to their business are not generally covered by their homeowner’s insurance policy. If you do not have much risk, you may choose to simply add riders to your existing homeowner’s policy, which will cover property damage and other normal business risks. If your business requires liability insurance, however, your existing policy will not suffice and you will have to purchase additional insurance.
Business Owners Policy
You may be interested in obtaining a business owners policy (BOP), which combines a variety of coverage into a standard package that can offer a lower premium than can be achieved by purchasing separate policies. BOPs typically include business interruption insurance, vehicle coverage, liability insurance, crime insurance and property insurance; however, you can work with your insurance agent to create a package that is right for the needs of your business.
According to Forbes, “Typically, a business owner will save money by choosing a BOP because the bundle of services often costs less than the total cost of all the individual coverages.”
The SBA cautions that, whatever insurance you decide to use for your small business, you reassess every year or more often, as your business expands or changes.
As your business grows, so do your liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss changes in your business and how they affect your coverage,” stated the SBA.
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