How To Get Business Insurance In 4 Easy Steps

How To Get Business Insurance in 4 Easy Steps

You’ve already asked the question, “Do I need business insurance?” And the answer was an enthusiastic, “Why yes! Yes, I do!”

So…what do you do next?

Small business insurance is an important cost of doing business but obtaining coverage doesn’t have to be an overwhelming process. Once you know the reasons behind your need to purchase business insurance (a legal requirement or a desire to protect your assets), you can set out to protect your business and the people you employ with confidence. With the plethora of online one-stop insurance shops at your fingertips, it is possible to get business insurance from a reputable company in as little as thirty minutes. (That’s not a guarantee for Luddites, people with slow internet connections, or my mom.)

If you are a small business owner and are starting to look at your business insurance options, we are here to help. Follow the next 4 steps and you’ll be well on your way to buying appropriate insurance coverage!

Step One: Assess Your Risks & Choose The Insurance You Need

Whether you do the research online or meet with an insurance expert, the first thing you’ll need to decide is what type of business insurance you are in the market for. Give some thought, not only to your legal requirements, but also to the specific risks your company might face. Are you located in an area with increased fire risk (California) or flooding after hurricanes (Florida)? Are you in a state that is considered small business or consumer friendly? Do you work with vendors and want to insure your partnerships? Knowing what you need is more than half the battle.

Sit down with a list of insurance types and research whether your business could benefit from different kinds of coverage. Once you’ve done your due diligence, you are ready for step two.

Here is a list of some of the most common types of business insurance to get you started:

Type of Insurance What It Covers Who It Is For

General Liability

Protects your business from the threat of a lawsuit

All businesses

Property Insurance

Protects your building and things inside your buildings from damage and accidents

Businesses with a physical property site and products located in those physical locations

Business Interruption

Provides resources if your business is forced to stop or relocate

Businesses located in riskier areas and businesses who might work with vendors in risky areas

Commercial Auto Insurance

Provides protection from accidents on your commercial vehicles

Businesses that rely on automobiles to do business

Workers Compensation

Provides protection to you and your employees should they become injured on the job

All businesses

Professional Liability (E&O)

Protects your business during a lawsuit if your business commits errors or malpractices

Any business that provides a service

Product Liability Insurance

Protects a business from a lawsuit related specifically to the product it sells

Any business that manufactures, sells, or distributes a product

Home-Based Business Insurance

Protects any business-related items inside your home not covered by home owner’s insurance

Any business owners running out of their own homes

Business Owners Policy

Includes both general liability and commercial property insurance

All businesses

Umbrella Insurance

Provides a bigger ceiling for the legal costs of a lawsuit that extends your liability coverage

All businesses

Step Two: Gather Business Information

In order to receive an accurate policy quote from an insurance company or a comparison site, you will need to come prepared with some information about your business. Insurance is a numbers game and the company you work with will need your business numbers to accurately gauge your riskiness. So, gather the information before you shop. Depending on the policies you are buying, you may need to provide quite a few details about your business. The most basic questions are:

  • Where are you located?
  • How many employees do you have?
  • What is your payroll?
  • How much does your business make?

If you need to insure specific equipment, property, or vehicles, bring information about those assets. The more prepared you are, the better.

Step Three: Comparison Shop

Now that you have all the numbers and pertinent information at your fingertips, it’s time to shop around and find the best fit for you and your business. A few sites, including Insureon, CoverWallet, and Coverhound, will comparison shop for you and show you the best policies for your business. Some commercial business insurance companies also offer online quotes and rates.

If you have larger or more complicated assets or many moving parts to your business, sitting down with an insurance specialist is the way to go.

Step Four: Purchase!

You know what you want, you’ve found the best price, and now the only thing left to do is purchase your policy.

Done and done. Pay those premiums and protect your business!

Frequently Asked Questions

What Insurance Does A Small Business Need?

What kind of insurance you may need is entirely dependent on the business you run. The bigger your company or the more assets you are protecting, the more insurance you might need. If you have a physical storefront — or even if you are in the business of giving advice (people are pretty litigious if they think they received bad advice) –, protect yourself. It would be devastating to shutter your business because of an accident or mistake that could have easily been protected by investing just pennies of your profit.

How Much Is Insurance For A Small Business?

According to Insureon, an insurance provider that specializes in commercial businesses, the average cost for business insurance among their customers in 2017 was $1,281 per year and the median cost was $584. For a more detailed response, check out our article How Much Does Business Insurance Cost?

Do You Need Insurance For An LLC?

While classifying your business as a Limited Liability Corporation (LLC) might protect your personal assets in the event of a lawsuit, it still doesn’t prevent your business from lawsuits in general. One lawsuit can eat up all of your profits and close your business for good.

Is It A Legal Requirement To Have Business Insurance?

If you have employees, there are a few legal requirements. Employment laws and insurance laws vary by state, so research what your state requires of you. In general, if you have one employee you will need to provide workers’ compensation, disability, and unemployment insurance. Also, even though it is not a government requirement, some clients and partners or landlords will require proof of insurance.

How Much Is Small Business Insurance Per Month?

The monthly cost will vary depending on what type of insurance you purchase, how large your company is, and how many policies you have. However, a sole proprietor looking for one-million dollars in liability coverage may pay as little as $30 a month.

Ready, Set, Go!

It really is that easy. Research what you need and want, gather your information, comparison shop, and purchase. With so many online retailers, it is easy to grab a quote and play around with cost factors. And, as usual, it is best to talk with an insurance expert that is familiar with your industry to help you think about risks and opportunities for protection that may have slipped your radar.

Insurance is about peace of mind, and it’s also about valuing the work you’ve put into your business enough to not let an accident, a lawsuit, or an Act of God tear it all down. Follow these four easy steps to get small business insurance, and you can sleep and rest easier.

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Do I Need Business Insurance?

Do I Need Business Insurance?

Insurance isn’t a fun purchase. In terms of your small business, it’s far more enjoyable to order business cards, design window decals, work on a marketing plan, and think about how to make your product the best you can. Some business owners push off business insurance because they can’t help asking: “Is this really necessary? Can I afford this extra expense for things that may or may not happen?”

The real question is: Can you afford not to insure your business? The commercial insurance company Insureon completed a study and discovered that only one in four businesses have adequate business insurance and 80% of businesses cannot recover after a disaster. With that in mind, business insurance is a small cost to pay to keep yourself safeguarded from financial ruin.

Do I Need Business Insurance?

The insurance industry is in the business of doom and gloom and disasters. They see your cute storefront located right in the middle of flood territory and say, “Hey, business owner. Let’s imagine that river floods and you can’t open your shop and you lose sixty-percent of your inventory and now you can’t pay your employees and…”

And now you’re in the fetal position wondering if anything in life is worth the risk. Except, it doesn’t have to be like that. Unless you are a thrill seeker who likes to live dangerously, eschewing all ethical responsibilities to others, consider business insurance part of the cost of doing business.

What Is Business Insurance?

Business insurance protects you and your assets from disasters, accidents, lawsuits, theft of property, data breaches, and even mundane hassles like clogged drains. Commercial insurance plans are tailored specifically to your industry and your specific risks. Many factors affect insurance costs, including business location, number of employees, and risky behavior. For example, if you run the ax-throwing brewery near my house (this is a real thing) and want to put sharp objects in the hands of people also drinking beer, get yourself some insurance, people! (I’m confident they are well-insured. And I am also confident I will visit.)

Are You Legally Required To Have Business Insurance?

If you are a sole proprietor of your business and don’t have any employees or customers (see ax-throwing reference above) to protect, business insurance might legally be optional. However, the rules are often state specific, so it’s important to talk to a business lawyer or state insurance representative to make sure you are compliant with state requirements.

However, the government requires businesses with more than one employee to provide worker’s compensation, unemployment, and disability insurance. If you have employees driving business vehicles, you will also need commercial auto insurance, and some landlords and leaseholders require renter’s insurance or commercial property insurance as part of a rental agreement.

Another legal requirement might be health insurance. If you have fifty or more employees six months or more out of the year, then you are legally required by the federal government to provide health insurance. If you aren’t required legally to provide health insurance and you do anyway, then you’re eligible for a tax break.

Reasons You Should Have Business Insurance

How To Get Business Insurance in 4 Easy Steps

Business owners might wonder why they should invest in protecting their business and assets. Here are some important reasons to consider as you weigh your insurance needs:

It Fulfills A Legal Requirement

If you have more than one employee, you need to provide worker’s compensation, disability, and unemployment insurance. Also, your landlord may legally require you to hold renter’s insurance. (These requirements are state specific, so check your state’s legal requirements.)

People Like To Sue Other People

Humans are litigious and sue-happy. No matter what business you start, there is the potential for someone, at some point, to become unhappy with the business or your product and engage you in a lawsuit. Handling a lawsuit without liability insurance could be disastrous to any small business — even if the business is eventually found not liable. (And, yup, if you aren’t fully covered, the plaintiff could come after your personal assets.) A lawsuit is costly and stressful. And insurance is more affordable than you might think — a sole proprietor of a business who wants one million dollars in liability coverage could pay as little as $30 a month for peace of mind.

Protects Your Business In The Event Of A Disaster

The word disaster in this scenario could be anything from an Act of God, a fire, theft or vandalism, or anything else that has the potential to stop your business from running smoothly or running altogether. A business owner’s policy that provides a package of general liability and commercial property insurance will protect from the most common disasters.

Protects The Humans You Employ

Insurance isn’t just doom and gloom. Offering insurance protection to your employees creates a positive work environment and sends the message that you care about the people working for you. While you may have to provide basic protections like worker’s compensation, disability, and unemployment, you can also offer health insurance (and if you aren’t legally required to provide it, you can receive a tax break for doing so) and life insurance policies to help attract and retain quality workers.

Provides Tax Breaks

Business insurance is a tax write-off and you can claim your premiums as deductions. (Except, funny tip: if you are a beneficiary for one of your employee’s life insurance policies, you can’t deduct that insurance policy…so, since tax laws become oddly specific, it’s important to check with a tax expert for your state.)

Contracts May Require Proof Of Insurance

If you want to borrow money for your business, the bank may require you to prove your business is insured. Also, if you work with clients or other businesses as independent contractors, they may also require proof of insurance before choosing to work with you. Insurance doesn’t just provide peace of mind for the business owner but also for the people who engage in the business.

What Type Of Business Insurance Do You Need?

Okay, you’ve made the wise choice to insure your business. Now you’ll need to research which policies are the best fit for your business model. Businesses in riskier industries will need more insurance, but there are options for all types of business owners, from sole proprietors to corporations. The most basic types of insurance types are:

  • General Liability Insurance: General liability protects your business in the event of a disaster, lawsuit, or accident. Claims against a business can arrive in the form of bodily injury, property damage, personal injury to a customer (including slander or libel), or false advertisement.
  • Commercial Property Insurance: A commercial policy insures your building, business products inside your building, and other people’s property while it’s in your care. Property damage due to theft also falls into this category.
  • Professional Liability Insurance: Also referred to as E&O insurance, this is additional liability insurance that helps cover your business from professional liability of either errors (where your business caused a financial loss for a client) or omissions (an employee didn’t do his/her job as required).
  • Worker’s Compensation Insurance: If an employee is injured at work, this will protect your employee and you if a lawsuit should arise. This is a requirement for businesses with more than one employee.
  • Commercial Auto Insurance: If your business involves a fleet of vehicles or if an automobile is needed, you will want to cover those vehicles under a commercial insurance plan.
  • Business Owner’s Policy: This is a policy offered by most insurance companies; it includes both general liability and commercial property protection.
  • Renter’s Insurance: This might be a requirement if you are renting/leasing business space. This protects your location from damage and liabilities for that damage.
  • Business Interruption Insurance: If something stops your business from functioning (a flood, an Act of God, or an illness or other accident), this insurance will help pay for lost income incurred during the interruption. This insurance specifically covers income and profits and covering the cost of getting your business back up and running.

Industry Specific Insurance

The type of insurance your business needs is directly correlated to the type of business you run. Again, if you are running an ax-throwing business and putting beer in those customers’ hands, you will need a larger liability package than say someone who is working as a freelance writer (loss of limbs versus paper cuts, possibly?) and so knowing what kind of insurance might be specific to your industry is important.

Insurance For Retail

In addition to the basic coverage types mentioned above, there are a few other insurance policies that are specifically for small business retail owners. Franchise upgrade insurance, for example, helps a franchise pay for the cost of an upgrade required by your franchise agreement. Also, if your retail store is dependent on other businesses to provide you supplies, then you can request business income from dependent properties insurance which pays you out if your business is harmed due a business interruption from someone you work with.

Insurance For Restaurants

If you serve alcohol in your establishment, then liquor liability insurance is an important policy that specifically protects you from the damages caused by someone drinking too much in your establishment or even starting an alcohol-induced fight. Any lawsuits, costs, or damages that arise from serving liquor can be covered by that policy. Another restaurant industry-specific policy is a temperature change policy. If you lose power and your refrigeration unit shuts down (or breaks) and you have spoiled food, a temperature change policy will cover the cost to replace any lost product.  

Insurance For The Self-Employed

If you are self-employed, you might have many concerns about how your business might impact your quality of life. Renter’s insurance and/or homeowner’s insurance will protect the items in your business should your house suffer an accident or disaster (flood, fire, theft). It’s important to check with your insurance company to see if your homeowner’s insurance protects businesses run within the home, and if it doesn’t, then discuss an add-on liability package to cover your business. 

Insurance For Professional Services

If you run a professional service (legal, accounting, consulting, engineering), several types of insurance options might make sense for your business. The first is director & officers insurance (D&O) which protects the individual directors and board members in your business from lawsuits claiming their decisions had a direct financial impact on the plaintiff. While D&O insurance is mostly for larger corporations, small businesses and even non-profits are starting to see the importance of adding a D&O policy. Your managers could make a mistake and be personally liable for that mistake; this policy protects them and the company from the cost of lawsuits targeting a specific individual’s actions.

There are a few other policies that might be worthwhile. If you are a firm that runs a cloud-based storage system for clients and the cloud goes down, you could have a policy to protect yourself from damages related to lost files. And if you have physical files stored somewhere and they are ruined by wind, rain, fire, valuable papers and records coverage will cover the cost to replace and reproduce documents.    

Insurance For Technology

Today, most companies should absolutely prepare for a data breach if they collect sensitive information like social security or credit card numbers. Data breach coverage pays for costs that incur because of the loss of information, including notifying impacted clients, advertising the data breach to get the word out, and paying the cost of PR firm to help navigate the media. If personal information is lost or stolen from your technology business, you have legal requirements to follow in the aftermath and having data breach coverage will help you follow the law.

Insurance For Manufacturing & Wholesale

Product liability is a needed coverage to add to your general liability package that products your company in the event that someone sues you because of injuries or damage caused by your product. If you manufacture goods, product liability is a smart bet to protect against any litigation that comes your way. (Weird and true lawsuit fun fact: The widow of the murderer in the 1984 San Diego McDonald’s massacre sued McDonald’s saying their product, fast food, caused her husband to go into their establishment and kill 21 people. She lost.) Protect yourself now and worry about all the weird ways people might sue you over your product later.  

Insurance For Real Estate

Employees practices liability coverage protects your real estate agency from claims of discrimination, breach of contract, harassment, wrongful termination, among other employee-related lawsuits. It covers your defense and legal costs related to a claim, but it won’t cover any punitive damages that may occur as a result. (Damages are usually covered in a general liability policy.) 

Insurance For Construction

Construction jobs are risky and involve many moving parts. Sometimes a construction business has a physical store location in addition to a traveling business of workers in and out of other people’s homes. A specific brand of liability insurance specially designed for construction businesses will protect your business when things do go wrong. Construction insurance covers claims related to any part of your construction business, including medical and faulty workmanship.

Insurance For Personal Care Services

Do you run a hair salon? Does extra hair clog your drains? Well, there’s insurance to cover that. Back up of sewers and drains coverage is designed to cover all claims related to flooding caused by a sewer drain (no matter the reason it floods). Or computers and media coverage helps insure the technology needed to run your small business.

How Much Does Business Insurance Cost?

The cost of business insurance will vary depending on all your individual business factors. Are you a home-based business or do you have a storefront? Do you have employees or are you working solo? What are the risks involved with running your business (see: ax-throwing brewery) and do you have a product to protect? Business insurance might not be a fun expense, but it’s necessary to be one of the 20% of businesses that will survive a disaster.

While the average cost will vary depending on the industry requirements, for a business owner looking for a basic business owner’s policy for a small business, the average yearly premium is $1200. However, policies can start as low as $300.

Meet with an insurance expert to assess your individual needs and discuss the ways you can protect the business you love.

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How Much Does Business Insurance Cost?

How Much Does Business Insurance Cost?

Somewhere in that endless list of things-to-do and boxes to check, a small business owner needs to think about business insurance.

It might be easier to convince yourself that you’ll figure out insurance later or that maybe you won’t need it, but all businesses have risks and make mistakes. Business insurance should be a priority.

A quick search for business insurance on the internet might, however, create more questions than answers. What kind of insurance do you need, anyway? What is a reasonable amount to pay for coverage, and what is the average business similar to yours paying? Can you save money by buying different kinds of coverage from the same company?

It’s normal to feel overwhelmed about how much things will cost, but since business insurance is a must (and possibly even a legal requirement) for your small business, we will breakdown how much you can expect to spend to protect the business you love.

How Much Does Business Insurance Cost?

“So, how much will all this cost me?”

There is no pat answer that tells business owners how much they might spend to fully cover their business. The factors and choices can seem endless. Are you buying a business owner’s policy or opting only for worker’s compensation? Do you have a risky endeavor that might need a high ceiling on your general liability and professional liability? Would adding umbrella insurance help you sleep at night? What do you actually need and what is simply a scare-tactic up-sale from an industry that peddles you worst-case-scenarios?

In general, a larger business with more options for risk will end up paying more than a sole proprietor, but that doesn’t mean that insuring your business has to break your budget, either.

Average Cost of Business Insurance

merchant cash advance industry

According to Insureon, an insurance provider that specializes in commercial businesses, the average cost for business insurance among their customers in 2017 was $1,281 per year and the median cost was $584. (In this case, nearly 60% of the businesses inventoried only had one employee: the owner!)

However, with a plethora of individual factors involved, the pricing scale differs widely between businesses, their needs, their risks, and how much they will cost to insure. An automotive insurance adjuster takes everything about a driver and his/her car into account before calculating the cost to the insurance company, and business insurance operates the same way. If you’re a reckless driver with some tickets under your belt, that price tag for insurance is going to increase. If you’re running a risky business (resisting…Tom….Cruise…joke), expect the same.

A sole proprietor looking for a single general liability policy with a million dollars in coverage might only pay as little as $30 a month.

How Business Insurance Costs Are Calculated

If we take the time to peek behind the curtain and examine how costs are calculated, it can demystify the process and give business owners an idea of what to expect before they get a quote from their insurance company.

First, think about your small business and your industry’s potential risks and liabilities. How much risk is involved with all the facets of your business? Riskier, larger, and more profitable companies will require more comprehensive protection and will therefore pay more.

Your own insurance calculations will be completed by an actuary from an insurance company who will explore your space, your product, your financial numbers, and assess your own particular risk and loss. (Are you a paper company located within a high forest fire hazard zone? A glass company on an earthquake fault line? A pool builder in the middle of a drought? Okay, okay, you get the idea.)

After the actuary looks at the risk and loss, the size and revenue from your company will factor into the ultimate decision. When you ask for a quote, you will need to provide the actuary an ample amount of data with all your business numbers (square footage of space, payroll details, etc.), so arrive prepared.

Business Insurance Cost Factors

When the actuary (someone whose sole job is to manage risk and assess risk) arrives from the insurance company to sit down and plug all your risks, losses, and opportunities for income into the calculator, many factors can ultimately impact that final number. Knowing which factors might affect cost could help you plan ahead.

  • Your Business Size: What is the physical square footage of your business? What kind of space does it require? The larger the space, the larger the quote.
  • Location, Location, Location: Location is a key factor for multiple reasons. First, where you are located will affect your premiums because some states are more accommodating than others. Are you located in a state that is considered small business friendly or lawsuit friendly? Location also factors into other business risks like flooding, crime, and foot traffic. (More water, more thieves, more people in your storefront? More money.)
  • Business Sales Reports: How much money do you make? It’s pretty simple. The more money you make, the more insurance you’ll need. An actuary will look at your numbers and see how much you — or they — might stand to lose.
  • Your Business Industry: Offices require less capital to insure than, say, a traveling circus. Some industries are built with inherently more risk than others, and the insurance company will examine all the ins and outs of how your business operates to know the best ways to protect you.
  • Number Of Employees: More employees, more insurance. (Are we sensing a theme?)
  • Claim History: As with any insurer, the actuary will also look at your past business history and see if you have made any claims in the past.
  • Types Of Policies: The bigger your business, the bigger the policy. If you don’t have any employees and can stick with general liability, you will pay pennies next to a business that is working to protect employee incomes.

Ways To Save On Business Insurance

So, you want to protect your business but you don’t want to spend more than you need to? Maybe you can’t change where your business is located or your claim history, but here some tips on how to save on business insurance:

1. Bundle Policies

Bundling your insurance policies will often save you money. Consider a business owner’s policy which combines both general liability and commercial property insurance.

2. Shop Around

Insurance companies are in the business of sales and that lowest quote may not always be the best deal in the long run if the company can’t follow-through when you submit a claim. Your business is important enough to do the research. Five independent agencies (including Standard, Poor, and AM Best) rate the financial strength of an insurance company and you can use their services for free if you sign up for an account.

3. Choose A Higher Deductible

A deductible is the amount of money you will pay before your insurance kicks in. Choose a higher deductible and your premiums will go down.

4. Group Rates

Group rates might be available for your industry! If so, this route could save you the big bucks and possibly get you better coverage

5. Work With An Agent Who Specializes In Business

Go out and find an expert on small business insurance instead of settling for an agent who might not know the specifics of your industry.

6. Pay Your Premium In Full

It may be cheaper to pay your premiums for the year in one lump sum rather than spread them out in 12 monthly installments.

Where to Buy Business Insurance

According to Insureon, only 1 in 4 small businesses has adequate insurance and 80% of small businesses never recover after a disaster. Clearly, you need to protect your business, but where should you start?

All the major insurance companies carry commercial business insurance packages. So, places like Allstate, Farmers, Nationwide, and Chubb all offer competitive rates. Some companies, like Hartford and Hiscox, which specialize in small business insurance, have online quotes that walk a business owner through the process of optimizing their rate.

Again, it’s smart to check with the Better Business Bureau or your state’s department of insurance to examine the viability and strength of your insurer. Use the rating agencies and talk with business owners in your area. Ask around and shop around: this is your business baby and should the worst-case-scenario befall your company, you don’t want to end up in the 80% of businesses who have to close their doors after a disaster.

Comparing Business Insurance Quotes

Pre-internet days, a business owner might need to make an appointment with several insurance retailers and sit through long sales pitches before receiving a quote. Now, it’s easy to get an online quote from an insurance company in minutes over the internet. That isn’t to say that scheduling a face-to-face meeting with your top three insurers is a bad idea. Once you’ve narrowed down choices, talking to a real human being could help you make a final decision on what insurance company you trust the most.

Not all business insurance plans are created equally, so here are some things to consider as you compare:

  • Don’t just fixate on the premium number, but also look at the rate. As your company grows, the rate may increase as well and price you out of your own policy.
  • Cheaper isn’t always better. Carefully weigh the cost with the level of coverage you need and don’t skimp on the coverage you need just to pay less.
  • No insurance plan covers everything, so discuss and address exclusions to the policy to make sure there are no surprises.

Several websites also can do the initial aggregate work for you and compare all the major retail policies in one place. Check Bizinsure, Coverhound, and Insureon and have your company numbers ready to go (number of employees, sales data, business address, and square footage). You can grab comparison quotes from these websites in a matter of minutes.

After you’ve carefully researched and compared all of your options, pick the best one suited for your business. Consult an insurance professional for advice. Once you’ve found the right business insurance you can rest easy knowing that you got your business the coverage it needs — and without breaking the bank.

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Own A Business? Here Are 7 Types of Business Insurance You May Need

8 Types of Business Insurance You May Need

While making plans to start a new business, your instinct is probably to focus in on the positives. It’s not fun to sit around contemplating all the worst-case-scenarios that may occur — and even harder still to wrap your head around ways to protect yourself.

Business insurance may not seem like an encouraging object of focus when you’re just starting out, but it is one way small businesses can safeguard themselves, their employees, and clients from the everyday or occasional challenges that arise while running a business. The old adage says to hope for the best and plan for the worst; business insurance is there to give your brain a break from worry. You can rest assured that if something from the worst-case column happens, you’re covered.

But how do you know what kind of business insurance you should have? What insurance policies are required by law, and where do you even get started? In this post, we’ll cover the business insurance basics and explain the seven major types of business insurance so you can know exactly which insurance policies your business needs.

The Basics Of Business Insurance

For small business owners, constant rumination about risk and uncertainty is just a part of daily existence. There are numerous decisions to juggle, and you must account for all possibilities, including mistakes, mishaps, disasters, emergencies, and unexpected life events. Worries about how negative events could impact a business run the gamut, but there are many types of insurance policies designed to ease those worries and provide you with peace of mind.

Whether the intent is to purchase protection from flooding, damage to equipment, litigious employees and clients — or even from pollution, terrorism, and data breaches — small business owners need to carefully consider and examine which types of business insurance will work best for them (and which might be required by state law).

What Kind Of Business Insurance Is Compulsory?

Are you legally required to have business insurance?

The short answer is that mandatory business insurance varies by your company type, size, and the state you do business in. This is why it’s important to understand federal and state laws and to consult with an insurance professional to ensure that your business is compliant with all mandatory insurance requirements.

Most compulsory business insurance requirements are focused on making sure you treat your employees fairly and can compensate them in an emergency. The Federal Government requires that businesses with one or more employees provide unemployment and workers’ compensation insurance. State laws vary regarding compulsory business insurance, but most often their policies revolve around worker’s compensation, disability, and unemployment. Depending on how many employees a business has, a health insurance option might also be compulsory to comply with the Affordable Care Act. Renter’s insurance or property insurance may also be a requirement depending on your landlord and lease agreement.

Most Common Types of Compulsory Business Insurance
Worker’s Compensation
Health Insurance
Renter’s Insurance
Property Insurance

7 Major Types of Business Insurance

There are several major types of business insurance. While not every type is required by law, many are still a must-have for small businesses looking to safeguard and protect their business. Without the right type of business insurance coverage, a small business may have to face the brunt end of lawsuits, natural disasters, and other damages that could leave them bankrupt. And while no one likes the idea of paying extra for insurance, purchasing the right business insurance policy is a small price to pay to keep your business afloat.

Here are the seven most common types of business insurance that you may need:

1. General Liability

While general liability insurance isn’t required by law, for most small businesses some type of general liability insurance is a good idea as this type of insurance protects you in the event of a lawsuit or an accident. Claims against a business can arrive in the form of bodily injury, property damage, personal injury to a customer (including slander or libel), or false advertisement. General liability insurance guards a business against financial ruin if a client slips and falls on a wet floor or an employee damages a customer’s home. For all types of business owners, general liability also offers comfort to clients and ensures that they won’t be abandoned if an accident occurs.

2. Property Insurance

This type of insurance protects all of the property needed to run your business. A commercial policy would likely cover your building, business products inside your building, and other people’s property while it’s in your care. Property damage due to theft also falls into this category. The policy might be required for a lease agreement with a property management group, so if your business has a physical location, check with your landlord.

3. Business Interruption

If a business needs to close its doors due to a disaster — natural or otherwise–, business interruption service will repay the business the costs of lost revenue and business expenses accrued during the interruption. For example, if your store is flooded, your property insurance will get you back up and running in terms of damage, but if you had to close your doors for a few weeks, business interruption service will help offset the financial loss. Also, if you need to move your business to a new location because of damage, the policy will often pay for relocation and assist with lost income.

4. Commercial Auto Insurance

Commercial auto insurance protects business vehicles and drivers in the event of accident, natural disaster, vandalism, and theft. If your vehicle is an essential part of your business, ensuring and protecting the goods/services it provides is also essential. A commercial plan keeps the owner protected should driving mishaps occur, and it might be a necessary addition as many personal auto plans do not include provisions to cover vehicles used for business.

5. Worker’s Compensation

Workers’ Compensation insurance safeguards your business from any costs or lawsuits that may arise from job-related injuries, illnesses, or –gulp — death.

Any business with more than one employee is required to provide workers compensation for their employees; however, more specific guidelines are set by the state.

6. Professional Liability (E&O)

Professional liability insurance (commonly referred to as errors and omissions or E&O) covers the cost of defending your company in a lawsuit where the claim is that your business caused a financial loss for a client (errors) or did not perform a service as required (omissions). This type of insurance may be required for medical and legal businesses, but it is generally an add-on to liability insurance.

7. Umbrella Insurance

It’s true that insurance is in the business of worst-case-scenarios, but sometimes general liability insurance is not enough to protect you from the costs of litigation. Becoming the target of a lawsuit is a great fear and the outcome can be ruinous to a company ill-prepared to handle the financial burden. General liability provides an identified amount of coverage, but what if the claims exceed what liability coverage a business already has? Umbrella insurance swoops in and extends the ceiling on those general liability claims.

Additional Insurance Coverage Available For Your Business

While the seven insurance options above are the basics of business insurance, there are other types of insurance coverage to assist business owners with protection. Depending on your business type or industry, these additional coverage options may be a good idea to keep your company protected.

  • Business Owners Policy: Since so many businesses require both general liability and property insurance, many insurers offer a fancy package that includes both liability and property coverage. If an insurer references a business owners policy (BOP), it is a combo deal to cover both requirements.
  • Product Liability: Product liability exists to cover the damages of a lawsuit brought on by a faulty product.
  • Home-Based Business Coverage: Home-based business coverage is specific to entrepreneurs running out of their homes who might have home offices that need protection outside of a homeowner’s insurance policy.
  • Renter’s Insurance: If you’ve ever rented an apartment or house, you’re probably familiar with renters’ insurance, but it plays a role for businesses as well. Renter’s insurance might be needed if you are renting or leasing a location for your small business.
  • Cyber Insurance Or Data Breach Insurance: Cyber insurance or data breach insurance is there to protect businesses from the costly after-effects of a data breach. This policy also gives the insurer access to people who can assist them through the legal scrutiny of following data-breach protocol.
  • Directors & Officers Insurance: Directors and officers insurance is designed to offer financial protection in case a director or officer in your business faces legal trouble due to business-related actions.

What About Health Insurance?

In 2010, the Federal Government passed the Affordable Care Act (ACA). Since that time, tens of millions more Americans have had access to health care through a health care mandate. Many of these newly insured were small businesses owners, small business employees, or the self-employed. Through a marketplace specifically for small business owners called the Small Business Health Options Program (SHOP), more people had the opportunity to secure health insurance.

So, what does the Affordable Care Act (ACA) mandate for small businesses in terms of health care? If your business is considered an Applicable Large Employer (ALEs) with 50 or more full-time employees for more than six months out of the year, then you will need to provide your employees with health insurance as a legal requirement of the ACA. In short: an ALE will need to comply with the ACA. (A quick zip-code check over on healthcare.gov will direct you to the SHOP or health care program available in your state.)

If your business is not an ALE, then supplying health care for your employees is a choice. There are several options available for small businesses who want to remain competitive by offering insurance options. Another perk of choosing to offer health insurance to your employees is that you may be eligible for the Small Business Health Care Tax Credit if you provide insurance.

How To Choose Business Coverage Insurance

All small business are different and have different needs. When considering what types of small business insurance you need, first check state laws to ensure you are following all legal requirements and mandates. After you know what insurance you are legally required to have, it’s time to start thinking about other types of insurance would benefit your business.

To determine which type of insurance is right for you, outline the biggest risks in your industry and choose a plan that suits those risks the best. Do you have vehicles running around for you? Commercial auto is a must. Is your business located in a place that might be impacted by the weather every year? Business interruption service might be perfect for you.

When it comes to running a business, you can never be too prepared. In the end, choosing the perfect type of business insurance can protect your business from claims, property damage, and other disasters, and can give you peace of mind, so you can stop worrying and get back to business. Always consult with an insurance professional for the best advice on what type of insurance is right for your business.

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