Even the most promising sounding businesses close their doors all the time. It’s not for lack of experience, the wrong location or an inability to find talent that causes these businesses to shut down. It’s sometimes simply, and tragically, the lack of essential insurance coverage.
Indeed, fewer than three in 10 business owners have even a basic business owner’s policy in place, which includes general liability and commercial property coverage. That lack of insurance can doom a business that finds itself suddenly facing an expensive slip-and-fall or some other claim.
Did you know that, according to the SBA, more than a third of small businesses face litigation in any given year? Because most of these business owners lack the financial means to deal with such issues on their own, the cost of not having insurance can often be a lot higher than the cost of purchasing coverage.
So, whether long established or brand new, and regardless of which industry you’re in, here are the seven types of coverage you’ll need if you own a business.
1. General Liability Insurance
General liability insurance protects your business if a client, vendor, or customers get injured from your business’s property, products, or services.
- Physical injuries on business property.
- Property damage to another individual or business while carrying out your work.
This is must-have coverage, especially if you’re in an industry such as landscaping, manufacturing or construction where accidents are more likely to occur.
General Liability also covers non-physical injuries such as libel, slander, copyright infringement, or false advertising.
2. Workers’ Compensation
If you have even a single W-2 employee on your payroll, workers’ compensation insurance is one of those types of business insurance required by law in most states. In fact, depending on the state, penalties may apply for a failure to keep this insurance current.
Imagine your employee falls off a ladder while at work and is seriously injured. The employee cannot return to work, so workers’ compensation insurance would pay for the cost of the employee’s medical bills and rehabilitation. It will also pay for a portion of the employee’s lost wages while recuperating.
When an employee receives workers’ compensation, they also waive the right to sue the business they work for.
3. Commercial Property Insurance
The world is filled with perils, so every business needs to have some amount of property insurance in place, even if only to cover office equipment in case of theft, fire or other calamity.
Property insurance would cover a whole range of events including, for example:
- A fire is accidentally started in your restaurant kitchen, destroying your kitchen appliances and your food inventory.
- The building your business owns has its roof damaged by a severe hailstorm.
- A pipe bursts in your store, destroying fixtures and ruining merchandise.
In considering Property Insurance, be careful about selecting policy that offers Replacement Cost coverage vs. Actual Cash Value coverage.
Buy a Replacement Cost policy if you want the insurance company to pay the cost of replacing the property in the event of a loss. With Actual Cash Value coverage, the insurance carrier will pay you less because it will factor in depreciation.
ACV coverage, as you might imagine, costs less than RC coverage, but it also pays less in the event of a claim.
4. Commercial Auto Insurance
A Commercial Auto Insurance policy covers vehicles owned or leased by your business and used primarily for business purposes. It can cover both damage or theft of the vehicles, and liability for automobile crashes caused by employees of your business.
For example, imagine your employee crashes a company car while driving to meet a client, injuring the other driver. Commercial Auto Insurance would cover damages awarded against your company for the crash such as the other driver’s lost wages and medical expenses.
If you don’t own company cars, but your employees use their own cars for work, you will want to consider purchasing Non-owned Auto Liability coverage. This coverage protects your business in the event an employee either has inadequate or no auto insurance.
5. Employment Practice Liability Insurance
Settlement costs, lawyer bills, even back wages. An Employment Practices Liability policy can cover those expenses and more at a time when discrimination, harassment, and wrongful termination and other workplace claims are on the rise.
Not only have lawsuits and employee filings with Equal Employment Opportunity Commission been growing, but settlements are getting more expensive, too. The average settlement for employment practice claims is now estimated at $70,000.
Even if the allegations against your company are without merit, the defense costs alone in these sorts of cases can reach six figures quickly.
An EPLI policy, in short, is a good way to protect yourself and your company.
6. Professional Liability Insurance
Professional liability insurance, also known as Errors & Omissions coverage, can help real estate agents, accountants, lawyers, design professionals and consultants protect themselves against losses resulting from negligence, errors, and omissions in the performance of their professional services.
Examples of situations Professional Liability Insurance would cover include:
- A client of an investment advisor sues for negligence after losing money based on the advice they received from the advisor. A Professional Liability Insurance policy would cover the costs of defending the suit as well as any damages awarded.
- An architect draws up plans for a building but the work includes an undiscovered error. When the building is built, the error is discovered, and the client sues the architect.
There are several good reasons to consider E&O coverage but the No. 1 reason is often out of your control: Clients expect it. In fact, many customers won’t do business with any professional services provider without professional liability coverage.
7. Cyber Liability Insurance
Cyber liability insurance protects your business in the event that hackers find a way into your servers and make off with your customers’ credit card numbers, Social Security numbers, addresses, phone numbers and personal information such as birthdays and the names of family members.
A cyber policy can provide the funds you need to react quickly to restore customer confidence and mitigate further damage. Some insurance companies include consulting services to help you put software and systems in place to avoid such attacks in the first place.
Finding the Best Business Insurance
The above is a short list of the insurance basics needed for your business, but it’s not an exhaustive list. You may want to consider Umbrella Liability Insurance, Product Liability, Employment Practices Liability, Business Income, Directors and Officers Liability, Crime and Pollution Liability coverage.
It’s a lot, we know. To help you sort out which coverage is best for your business, The Mahoney Group can perform a free, no-obligation risk analysis of your business. Just click on the Contact Us link below to get started.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. For more information about business insurance coverage, contact us online or call 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.