As a small business owner, you put time, energy, and — of course — money into making your entrepreneurial enterprise a success. You don't want all that effort and investment to go to waste. Small business insurance can help protect your business in case of damaging incidents or accidents, from natural disasters to theft and cyberattacks.
This guide covers some of the most important types of small business coverage you might consider investing in to minimize business risks.
Why Your Small Business Needs Insurance
As a business owner, you likely already know how important it is to expect the unexpected. Whether an employee calls in sick for work and you have to step in or an essential piece of business machinery breaks, you're used to handling everyday emergencies. But what happens when disasters occur you can't control, pay for, or easily fix yourself?
That's when your small business insurance comes into play. A comprehensive insurance package can help you avoid serious financial damages and keep your business afloat even after disaster strikes. For example, if you're burglarized and you lose $10,000 worth of business equipment, the right insurance can help cover the loss so that you can quickly and easily buy new technology without having to take out a loan or dip into savings.
This is just one example of incidents that insurance can cover. The next sections elaborate on different insurance policies and how they can help protect your business against money loss. The one thing they all have in common is that they can spare you serious financial damages — which could otherwise possibly ruin your business and cause you to file for bankruptcy.
Common Types of Business Insurance
Before you sit down with an insurance agent, take the time to consider what types of coverage you need. Knowing the ins and outs of small business insurance will help ensure you don't invest in policies you don't need — or miss out on any essential types of coverage that you shouldn't ignore.
General Liability Insurance
General liability insurance can help provide financial coverage in case someone experiences bodily injury or property damage on your business premises. For example, say a customer slips and falls because of spilled water, which causes them to break their arm. They may demand that you pay their medical bills. Alternatively, say your customer is carrying a designer handbag and you accidentally spill your coffee on it. They may ask that you pay for the damage to their personal property.
Commercial Property Insurance
If you have a business with a physical location, it's critical to get commercial property insurance. This will help cover damage to the physical structure of the business building and the contents inside, from equipment to furniture.
For example, say you run an e-commerce business and experience a fire, burning thousands of dollars' worth of inventory. Your commercial property insurance can help cover the damage to your business property.
Business Owner's Policy (BOP)
Keeping track of multiple insurance policies can get tedious. A business owner's policy (BOP) simplifies matters by combining general liability insurance and property insurance in a single package. This is also usually a more cost-efficient option, as an insurance agency will more often throw in deals when you bundle services in this manner.
Professional Liability Insurance
This type of insurance coverage is sometimes referred to as errors and omissions (E&O) insurance. It specifically covers legal costs you may incur if you're sued because of your professional services. For example, if an accountant makes an error in a client's bookkeeping, and they lose money as a result, this could be grounds for a lawsuit.
Workers' Compensation Insurance
Workers' compensation is a unique insurance that employers take out to cover the cost of medical expenses if one of their workers is hurt on the job. In many states, workers' comp is obligatory, and it's illegal to forego this cost. This kind of insurance is especially important if your business poses a high risk for injuries. Construction is one example.
Cyber Liability Insurance
Cyber attacks are bad news for any business. For example, say you run a chiropractic practice. Your databases include extremely sensitive information, like HIPAA-protected patient medical records and insurance details. If you experience a data breach, your patients may sue. Cyber insurance helps cover legal costs in such instances. It can also help pay for costs of recovering data and for risk mitigation expenses like fraud monitoring.
Many small businesses rely on vehicles in their day-to-day operations. For example, if you own an HVAC service repair business or a landscaping business, you need a commercial car to get workers, tools, and equipment to work sites. Commercial auto insurance helps protect vehicles in case of accidents, vandalism, weather, theft, and similar risks.
Additional Types of Coverage
There are some other types of coverage that are less mainstream that you might consider. Here is a quick rundown of these other insurance options.
- Business interruption insurance: If your business is forced to close temporarily because of unforeseen circumstances, it won't be able to make money. Business interruption insurance can provide coverage for lost revenue and expenses in these instances.
- Employment practices liability insurance (EPLI): If your business employs other people, EPLI may also be worth looking into. This type of insurance can help cover legal costs in case a staff member sues your business for issues like harassment or discrimination.
- Product liability insurance: If you have a product-based business that sells goods to other people, product liability insurance can be useful in case someone claims that your product caused them harm. This liability coverage is ideal if you're a manufacturer or retailer.
- Special event insurance: If your business hosts events, fundraisers, or parties outside of normal business activities, special event insurance is a must. This brings together property and liability coverage for events that don't qualify as normal business activities.
- Umbrella insurance: Any insurance policy you take out will have coverage limits that put a cap on how much reimbursement you can get. If you're worried that your coverage isn't sufficient, consider an umbrella policy. This kicks in once you've reached your limit, offering additional coverage beyond existing policy limits.
Finally, there are industry-specific insurances that you might opt for depending on the professional services your business offers. For example, if you run a general contracting or construction company, you might get builder's risk insurance or insurance for contractor's equipment and tools. There is also a liquor liability policy for establishments that serve alcohol (e.g., in case an intoxicated person on your premises harms others or causes property damage).
Manage Your Business Insurance Costs With Skynova
Insurance can bring you valuable peace of mind as a business owner. You don't want to constantly worry that any minor event — like a customer slipping on a spilled coffee and suing — is going to bankrupt you. Of course, ideally, your business will never face issues like these. However, it's best to be prepared, just in case.
Every business has unique needs when it comes to business insurance products. Educating yourself about the different types of business insurance products will help you figure out which ones you require to stay safe. You can then compare different insurance company rates and offers to see which one is right for your business — and your budget.
Skynova's accounting software can help you maintain oversight over your insurance policy costs. The platform also lets you manage and track expenses, which can be useful if you ever need to request a reimbursement from your insurer. By making it easier to manage your money, Skynova ensures you have one less thing to worry about as a business owner.
Notice to the Reader
The content within this article is meant as general information and should not be construed as advice or guidance. Business insurance needs and requirements vary depending on the industry, business size, and more. Consult a business law professional to make sure you're in line with state and federal insurance requirements and maintaining best practices in terms of coverage.