Business insurance, or commercial insurance, is one of the things that business owners should prioritize but usually don’t. It serves as a security blanket, protecting the entity against significant financial losses due to claims associated with injuries, property damage, theft, data breaches, lawsuits, and more.
Running a business comes with inherent risks, but with the right coverage, you can be financially protected. But with so many types of commercial insurance for small businesses and factors to take into account, choosing the right policies can be confusing and even overwhelming for businesses. Here are 10 policies that you should know about:
1. General Liability insurance
No matter what industry you work in, General Liability insurance is usually the first line of defense. Also called Business Liability or Commercial Liability insurance, this policy protects your business in the event someone files a lawsuit associated with bodily injury or property damage that occurred while doing business. This insurance will cover medical expenses, legal fees, and settlements.
2. Commercial Property insurance
If you own or lease office space or have any physical assets, this is an important policy to carry. It protects your property as well as physical assets like office furniture, equipment, and computers, and it will help you recover in case of damage caused by an accident, like a fire. Even if you operate your business out of your home, you may still need this policy as most typical homeowners’ policies won’t cover damage to property that’s used for business purposes.
3. Business Owners Policy (BOP)
This is an insurance package that protects your business from all the most common major liability and property risks by combining General Liability and Commercial Property. Owners of small or mid-sized businesses should take advantage of this package for its convenience and affordability.
4. Workers Compensation insurance
Accidents can happen anywhere and when you least expect it. In the world of business, employees can slip and fall or get sick while at work. You can protect your business against losses due to employee-related claims with Workers Compensation insurance. This policy is typically mandatory once you add someone to your payroll. Workers Compensation is designed to protect your business against huge financial losses due to claims associated with a bodily injury sustained by employees at work. It will cover medical and rehabilitation expenses, as well as lost salaries.
5. Professional Liability insurance
Does your business providing consulting or professional services? You may want to purchase Professional Liability insurance. Specifically designed for those who charge a fee for services, this policy protects your business against lawsuits associated with claims that the service you provided did not meet the client’s requirements. Clients or customers may file a lawsuit and ask for remittance or recovery costs. This policy can have different names depending on the industry. For instance, Medical Malpractice insurance refers to this policy in the field of medicine, while Technology Errors & Omissions insurance is designed for individuals who are involved in software or computer industries.
6. Commercial Auto insurance
If your business delivers products or equipment, make sure you have this policy. A company vehicle plays a huge role in keeping operations running smoothly, protecting your business against financial losses due to vehicle-related accidents is important. This policy covers the repair and replacement costs in case of an accident. But if you’re using your personal vehicle to deliver goods or move equipment for business use, bear in mind that Personal Auto insurance may not be able to cover the needs of the business, so make sure to purchase the appropriate policy.
7. Employment Practices Liability insurance
As your business grows, so does employee-related liability such as discrimination, wrongful termination, and sexual harassment. An employee-related lawsuit will put a huge dent in your finances and your reputation, but this policy can cover the costs related to legal fees and settlements.
8. Product Liability insurance
If you need to recall one of your products due to design errors, tampering or contamination, Product Liability insurance will come in handy. This policy is designed primarily to cover the expenses associated with a product recall such as bodily injury or property damage caused by product defects.
9. Cyber Liability insurance
In this digital age, most people conduct business or handle transactions online so it’s crucial to protect sensitive information from cyber-related attacks. This is where Cyber Liability insurance comes in. You may think that hackers only target large companies, but in reality, even small businesses are vulnerable to a data breach or identity theft. If your business maintains a database of customers’ information or accepts payments digitally, you’re at risk of a data breach. This policy is designed to protect against a wide array of claims such as data breaches, network failures, and media and content liability.
10. Directors & Officers insurance
As your business grows, you may need to hire executives and directors to take on key responsibilities. This policy protects the business against lawsuits resulting from actions taken by directors and executives as part of their job responsibilities. This gives top management some peace of mind in doing their job as decision-makers.
Bonus: Certificate of Insurance
Having adequate coverage not only protects your business against numerous risks and liabilities. It also helps build credibility and trustworthiness with your clients. It’s also useful in attracting investors and potential customers. But how will people know that your business carries insurance? You need a Certificate of Insurance (COI), also sometimes called ACORD Certificates. Your insurance provider or agent will issue this document as proof that your business is covered and validates the policies in place.
In general, the type of insurance you need to buy depends on the needs of the business and the industry you work in. You can narrow down the policies you need by understanding the different vulnerabilities of your business, and knowing which policies can cover the risk. If you’re still not sure, a credible insurance provider can help you.
Some business owners may see insurance as an additional expense, causing them to put it off until they need it. However, having insurance is and should be a priority, it protects your business and allows you to continue operating even when there’s a claim. Insurance gives you comfort and security, enabling you to focus on growing your business.
Author bio: Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy and manage commercial insurance online. She has written for several outlets including Inc., Ooma, and Fundera covering small business news and advice.
Quick FAQs about Commercial Insurance
Q: What is commercial insurance and why is it important for small businesses?
Commercial insurance provides financial protection to businesses against potential losses due to claims associated with injuries, property damage, theft, and more. It acts as a safety net that allows businesses to operate securely, even in the face of unexpected events. For small businesses, commercial insurance is crucial as it helps mitigate risks that could otherwise lead to significant financial strain or even closure.
Q: What are the most common types of commercial insurance policies for small businesses?
The most common types of commercial insurance for small businesses include General Liability Insurance, Commercial Property Insurance, Business Owners Policy (BOP), Workers Compensation Insurance, Professional Liability Insurance, Commercial Auto Insurance, and Cyber Liability Insurance. Each of these policies covers different aspects of business operations and provides protection against specific risks.
Q: Why is General Liability Insurance crucial for businesses?
General Liability Insurance, also known as Business Liability or Commercial Liability Insurance, is essential because it offers protection against legal claims for bodily injury or property damage that may occur during business operations. It covers medical expenses, legal fees, and settlements, safeguarding the business from potentially devastating financial losses.
Q: What does a Business Owners Policy (BOP) cover and who should consider it?
A Business Owners Policy (BOP) combines General Liability and Commercial Property Insurance into a single package, providing comprehensive coverage for common risks faced by small to mid-sized businesses. This policy is ideal for business owners seeking convenience and affordability in their insurance coverage.
Q: Is Workers Compensation Insurance mandatory for all businesses?
Workers Compensation Insurance is generally mandatory for businesses once they have employees on their payroll. This policy protects businesses from financial losses due to employee-related claims for work-related injuries or illnesses. It covers medical expenses, rehabilitation costs, and lost wages.
Q: How does Cyber Liability Insurance benefit businesses in the digital age?
Cyber Liability Insurance protects businesses from financial losses resulting from cyber incidents such as data breaches and identity theft. Given the increasing reliance on digital transactions and data storage, this insurance is vital for businesses of all sizes to safeguard sensitive information and maintain customer trust.
Q: What is the role of Professional Liability Insurance in service-oriented businesses?
Professional Liability Insurance, also known as Errors & Omissions Insurance, is designed for businesses providing professional services. It protects against claims that the services provided did not meet the client’s expectations or caused financial harm. This insurance is crucial for industries like consulting, healthcare, and technology.
Q: Why might a business need Product Liability Insurance?
Product Liability Insurance is essential for businesses involved in manufacturing or selling products. It covers expenses related to product recalls and claims of bodily injury or property damage caused by defective products. This insurance helps protect the business’s reputation and finances in case of a product-related issue.
Q: How can having a Certificate of Insurance (COI) benefit a business?
A Certificate of Insurance (COI) serves as proof that a business has valid insurance coverage. It can enhance the business’s credibility and trustworthiness, making it more attractive to clients, investors, and potential partners. A COI is often required in contracts and can be a deciding factor in securing business opportunities.
