Less than 50% of small businesses in the United States take out business insurance (as of 2019). That’s a significant drop from the 69% high in 2014.
Running a business is fraught with risk-taking that can expose your firm’s soft underbelly. If you are operating a small business, you are especially vulnerable as your firm is in its infancy. A marginal materialization of risk can spell doom for your operation.
Anytime you ask yourself, “Do I need insurance?” it would be wise to learn in what ways various business insurance policies can buffer your business from trouble. Here’s a guide on business insurance to help you decide on whether you should purchase a policy or two.
What’s Business Insurance?
Business insurance is a type of insurance policy that helps provide coverage for your business against adverse events.
When you take out a business insurance policy, you’re looking to protect your financial, physical, and intellectual assets from risks which include:
- Vandalism
- Loss of income
- Property damage
- Theft
- Employee illnesses and injuries
There are various business insurance policies in the market, and what you purchase will depend on several factors.
You’ll need to look at the industry your firm operates in, the size and location of your firm as well as the number of employees who work for you.
Do I Need Insurance for My Small Business?
Generally speaking, every business needs insurance, no matter its operating scale. You would rather have business insurance and never need it than need it when the unthinkable happens yet not have it.
Moreover, as a small business owner, you face risks at a point in time where a risk that materializes can pose an existential threat. Therefore, you need to cover the bases of you’re to give your firm a shot at survival and success.
The best way to gauge whether your small business needs an insurance policy is to look at what kind of protection each type of insurance offers you.
Let’s look at some essential policies you need as a small business.
1. Business Owners’ Policy Insurance
Business owners’ policy (BOP) insurance is a policy that was crafted primarily with small businesses in mind. The policy brings together both business liability and business property insurance into one.
BOP helps protect your firm’s physical assets, which makes it perfect if you operate brick-and-mortar locations. Firms that run from the home, garage, and office can also get covered under a BOP.
If you think there’s a possibility of customers suing you, then you need to acquire BOP insurance. When a client brings a suit against you, the policy can cover out-of-pocket fees you need to pay as composition.
BOP is typically cheaper than getting separate business liability and business property insurance policies. You can add other coverage options to enhance the policy should you so choose.
2. Commercial Auto Insurance
Commercial auto insurance covers vehicles owned and/or operated by your business. Through this policy, you can cover the employees, equipment, or products that your business vehicles ferry.
What about cars you hire or that belong to employees but are used for business’ purposes?
You will need to purchase non-owned auto liability to offer a similar level of protection. A non-owned auto liability policy will be especially critical as you are not sure if the employees have auto insurance.
You can always buy commercial auto insurance as an add-on to existing BOP insurance.
3. Workers’ Compensation
Accidents happen in the workplace, and if you have employees, then you should take out workers’ comp to cover them. Workers’ compensation is a type of insurance that provides benefits to your staff when they suffer a work-related injury or illness.
The resulting bills from medical expenses and other damages that crop up can make your firm take a severe financial hit. Such a policy assures your staff that their well-being is taken care of while also protecting your business’ finances.
It’s mandatory according to state law for you to cover eligible employees with workers’ comp insurance (except in Texas).
Even if you can be exempt from carrying the policy, it’s wise to take it out as a buffer against the unpredictable financial implications of such cases.
4. General Liability Insurance
General liability insurance is a critical policy you need to have, even if you are a home-based small business. That’s because the policy protects you against claims by customers that your product, service, or employees caused bodily harm or injury.
If a customer brings a suit against you, the policy can help pay the legal fees for your lawyer. Should you lose the case, the policy also provides for damages to the plaintiff.
It’s usually wise to purchase commercial umbrella insurance as an auxiliary to general liability insurance.
In case you face a successful claim and the award you have to pay exceeds your general liability policy, you can use commercial umbrella insurance to settle it.
5. Data Breach Insurance
Technology is a powerful tool that small businesses can leverage. However, malicious actors know how valuable your data is and seek to breach your security in search of it.
When you do get hacked, and confidential client information gets stolen, the resulting lawsuits can crumble your business.
Data breach insurance helps you protect the firm’s financial interests when you get sued due to data breaches.
Where Can You Buy Business Insurance?
You can purchase business insurance from any insurance firm that has experience in offering this kind of coverage.
Beware that there are two types of insurance providers—independent and captive agents.
An independent insurance agency can work with various insurance providers in selling their policies.
A captive insurance agency, as the name suggests, is tied to working with only one insurance company can only sell that provider’s policies.
An independent insurance agent offers a broader variety, and that implies various price points to pick from.
Protect Your Small Business
Running a business is risky and none more so than when operating a small business at its nascent stage. To buffer against these potential ruinous risks, you need to seek answers to the question, “Do I need insurance?” Only then can you identify the right policies that can protect your firm from unexpected adverse eventualities.
Are you driven to make your small business succeed? Check out more of our content for tips, ideas, and resources to help you scale your firm.
