Types of Insurance for Small Businesses and Considerations

Written by: David Scott

Being a small business owner can be rewarding and challenging at the same time. As the owner you are taking a certain amount of risk while being solely responsible for not only your employees but your client’s safety and wellbeing as well. While running on a tight budget is one of the key elements of a successful small business, the absence of a proper business insurance can jeopardize the very existence of the enterprise you have worked so hard to build. The lack of protection form property losses related to items such as fire or from liability issues in case a client or an employee wishes to sue can be considered wildly irresponsible and in some states even illegal.

The world of insurance can be confusing for many that is why we set out to showcase the most important ones you should consider. In the first part of this two-part article, we’ll discuss how general liability and workers’ compensation can benefit your business and in the second part, the focus will be on property coverage and commercial auto insurance.

General liability

In short, general liability provides coverage for damage or harm caused to others by your business activities. Please note that general liability does NOT cover for example injuries to your own employees or sickness and injuries caused by your products. In order to judge whether the liability coverage you were offered meets the needs of your business, you should be familiar with the most common liability coverage types. 

  • Product Liability: It provides coverage for sickness, injuries, or damage caused by defective products. Sometimes even if you’re not the producer of a certain product sold by your company, you the seller could be sued and held responsible for damage or injury caused. 
  • Medical expenses: It is very similar to general liability, but it is usually a smaller amount that is paid out much faster. Having this type of coverage allows you to have quick access to cover medical bills which might allow you to avoid a major liability claim or lawsuit.
  • Employee benefits liability: Your employees might be entitled to certain benefits that your company is obligated to provide. Failing to do so can lead to a lawsuit that can bury a company that is already struggling. Having this type of coverage can alleviate this concern. 
  • Employment practices liability (EPLI): It can provide coverage for lawsuits associated with your hiring, firing, and handling of employees. We believe this type of coverage is becoming more and more essential as the number of claims that someone was fired or mistreated due to their race or sexuality is fast on the rise. It can also provide coverage for sexual harassment claims as well. 
  • Professional liability: It is also called errors and omissions insurance or malpractice insurance. It basically provides coverage for lawsuits resulting from “bad advice”. It is the most important type of insurance for businesses related to law, accounting, consulting, and for ones providing medical services. 
  • Cyber liability: Another type of coverage that is becoming essential in today’s digital world. If your company is storing customer data like social security numbers or credit card information in its database, it could be held responsible in case of a data breach. Due to the prevalence of cyber crimes nowadays, the question is “when an attack will happen”. Besides keeping your IT security up to date, the best way to protect yourself is having cyber liability insurance which can cover the cost of legal fees and fines related to hacks. 
  • Hired and non-owned auto (HNOA): It refers to any vehicles leased, rented by your company, and personal vehicles driven by the owner or employees that are used for business purposes. It provides coverage for lawsuits, legal fees, and fines in case you or one of your employees are held responsible for causing an accident. However, it does NOT cover the cost of repair of the HNOA and also does NOT pay in case the accident happens while commuting to work.

Workers’ compensation

Workers’ compensation insurance, which is also commonly known as worker’s comp, covers medical expenses and lost salaries (or at least a portion of it) in case employees get sick or injured on the job. If for example an employee falls off a ladder or inhales a chemical substance at work this type of insurance can not only provide support to the employees themselves but also ensures that your business won’t be sued if the workers were paid proper compensation. The premium you will be paying will be set mainly based on your industry, payroll, claims history, and state laws. The biggest factor will likely be whether the work is considered ‘low-risk’ or ‘high-risk’. For example, according to a recent Forbes article workers’ comp generally costs $1 for every $100 payroll, but for example in Florida, the average for ‘low-risk jobs’ is only 26 cents while it is $19.40 per $100 in payroll in case of ‘high-risk jobs’.

Having worker’s comp will be non-optional, since it is compulsory to have for most small businesses in almost all the states and in most countries outside the US. Not having it not only increases the chance of being tied up in a potentially devastating lawsuit, but your company can also expect a hefty fine for breaking the law. Please note that the type and extent of the required coverage varies greatly by state so please do your own research or consult an insurance expert before choosing the right one for your business.

In the second part, the focus will be on property coverage and commercial auto insurance.

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