Starting a business is hectic, I know, I’ve done it, wading through the many types of business insurance policies only makes things more difficult. Your specific business needs of course will dictate the types of business insurance policies that will fit you best, but I will provide you with a few of the most common types of business insurance policies that you should focus on. There is nothing more exhilarating than starting your own business venture, however, you need to protect your asset from the litigious society within which it resides. Covering your business with the most comprehensive types of business insurance policies is a must. So let’s get started shall we?
General Liability Insurance: This is the bare minimum. When you start a small business, the first thing you should do is contact an insurance agent and get a quote for general liability insurance. This type of policy protects the business entity from losses from lawsuits that arise from injuries, negligence or accidents. Claim coverage will likely include bodily harm, property damage, false advertisement and slander. In the case of a settlement against your business, the insurance provider is then liable to cover the costs related to legal representation. Punitive damages however are the responsibility of the business. So for example, if you own a floor waxing company and somebody slips on your floor, your general liability policy will cover you in all but punitive settlements.
Property Insurance: If you started your small business with enough capital to begin working out of a commercial office space, you will need to purchase property insurance. These types of business insurance policies generally cover theft, smoke, fire, wind, hail and vandalism losses. The definition of property in this case typically encompasses buildings, documents, lost income, money and business equipment. If you happen to work out of your home, there are types of insurance policies available which integrate into the home owner’s policy.
Product Liability Insurance: If your business manufactures, distributes or sells products then your business is generally liable for the safety of those products. Product liability insurance covers any claims that may arise from defective products or products that may cause bodily harm or injury during use. For example, if you manufacture a small toy that causes a child to choke, you had better hope that you have this type of business insurance policy in place to cover your business.
Errors & Omissions Insurance: This type of business insurance is most often used by businesses that provide professional services. Some examples of these types of businesses are accounting firms, legal firms, consulting practices, doctors etc. In these cases, a misrepresentation of fact by a professional representing one of these businesses may end up causing material harm to a client. The client in this case will generally look back to the professional service that rendered the information for damages.
Worker’s Compensation Insurance: Once your small business grows to the point that you have to hire people, you will need this type of business insurance policy. Worker’s Compensation insurance is typically more expensive than most of the other policies listed here. It is not only a recommendation, but in many states, a Law requires businesses to carry a worker’s comp policy. So what does this type of insurance cover? Let’s say an employee gets hurt on the job. This type of coverage insures you against medical expenses and loss of income from disability leave. In cases where the injury turns into a permanent disability, worker’s compensation policies can provide benefits until the employee reaches the age of retirement. Typically, this type of coverage will not cover the owners of the business or their immediate family members who work for the business. This would represent a conflict of interest from the standpoint of the insurance company. The price for this type of policy is based on the total hours worked multiplied by the injury rate profile for the industry in which you work. For example, let’s say that you are a logger in the great Northwest. Logging is a notoriously dangerous line of work, so covering your employees for worker’s compensation will likely be very costly.
Commercial Auto Insurance: So now you have a big booming business with employees and a couple of work vans for them to drive around in to service your customers. If you haven’t already, it is time to get some commercial auto insurance. This type of policy is probably the most familiar to people outside of the world of entrepreneurship. Much like the automotive insurance policies that you have carried personally, this will cover your business for personal injury and property damage to your vehicle and others.
General Umbrella Policy: This type of policy is built as a safety net to cover anything that may have slipped through the cracks of the other policies that you have in place. The good news is that this type of policy, even though it provides a great level of coverage is relatively inexpensive. So you are probably wondering, why don’t you just buy an umbrella policy from the get go? Well, the insurance companies have this one figured out. In order to qualify for this type of insurance you are generally required to carry the maximum coverage limits for all other policies. This protects the insurance brokers from business owners simply purchasing umbrella policies to catch every liability.
A Quick Review: Owning your own business can be a liability nightmare. However, with the proper insurance coverage in place you can put your mind at ease and sleep well at night knowing that whatever happens, you and your business are covered. So what do you need? General liability insurance, product liability insurance, professional liability insurance, property insurance, worker’s compensation, commercial auto policies and an umbrella. And not that you are one, but, Insurance for Dummies