Insurance for Business: Which Policies to Consider and Why

Nine in ten small business owners aren’t confident they have adequate insurance coverage, Forbes reports. Nearly 30 percent don’t have any business insurance at all. This is concerning, given how vulnerable small businesses are to even small shifts in cash flow or profitability. However, most say this is because they don’t know what types of insurance they need, and that’s an easy fix.

On this page, we’ll walk you through some of the most common types of business insurance coverage, the benefits of specific types of insurance, and specific requirements. Due to the complexity of insurance and the diverse needs of businesses, it should be thought of more as a primer that can help guide your future learning or prepare you for a discussion with a risk management professional or broker.

Why Do Businesses Need Insurance?

The importance of insurance to business owners cannot be overstated. Forming an LLC or corporation protects your personal assets from business issues, but your business assets remain at risk unless you protect them with insurance.

The government leaves these decisions up to you most of the time. However, state and federal laws sometimes require businesses to have specific types of insurance to ensure people impacted by your business are protected. You’ll learn about both optional and legally required types of insurance below.

Legally Required Insurance

The federal government requires businesses with employees to have specific types of insurance, U.S. Small Business Administration (SBA ) reports.

Workers’ Compensation Insurance

If you have employees, you must have workers’ compensation insurance. It ensures that your team has medical, wage, and other financial benefits if they’re hurt or become ill on the job.

Disability and Unemployment Insurance

Unemployment insurance is taken care of through the Federal Unemployment Tax Act (FUTA) and your state unemployment insurance (SUI). Federal disability requirements are addressed through Social Security.?

State-Specific Coverage

Individual states will have their own business insurance requirements. For instance, most require commercial auto insurance if your business has vehicles. Five states, including California, Hawaii, New Jersey, New York, and Rhode Island, have state-mandated disability insurance requirements. These are intended to supplement federal disability coverage.

Industry-Specific Coverage

States sometimes require professionals within specific industries to carry specific types of insurance, too.

Professional Liability Insurance

Doctors, lawyers, and real estate agents are routinely required to carry professional liability insurance. It protects the business against claims of negligence, copyright infringement, personal injury, and more from clients and consumers.

Contractor Professional Liability Insurance

Contractors and other building professionals are often required to carry contractor professional liability insurance. It protects the business against claims related to negligence, construction errors, omissions, and design issues. It also covers mistakes by third parties, such as plumbers and electricians. Contractor professional liability insurance usually supplements general commercial liability insurance. It can be purchased annually or for individual projects.

Business Owner’s Policy

You can sometimes purchase insurance for a small business as a bundle. A business owner’s policy (BOP) is one example. A BOP policy usually contains general business liability, business income, and commercial property insurance. While these types of insurance are not usually required by law, they’re popular forms of protection for small business owners and are usually purchased together regardless.

General Liability Insurance

General liability insurance for businesses typically covers property damage and bodily injury claims related to your products, services, or operations. If you rent, it may also cover damage caused to your landlord’s property.

Business Income Insurance

Business income insurance is sometimes called business interruption insurance or contingent business interruption coverage. It’s designed to replace income lost from a covered event, such as property damage. For instance, if a tree falls on your business or a vandal breaks your door, income insurance will cover any income lost while the repair is being made.

Commercial Property Insurance

Commercial property insurance covers property and physical assets that are damaged or lost due to specific events, such as fire, storms, or vandalism.

Management Liability Insurance

Management liability insurance is another bundled policy designed to protect directors, officers, managers, and business entities. It typically includes directors’ and officers’ liability, employment practices liability, fiduciary liability, and crime insurance.

Directors and Officers Liability Insurance

Often shortened to D&O insurance, directors’ and officers’ liability insurance shields directors and officers from personal losses if the company is sued.

Employment Practices Liability Insurance

Lawsuits involving employment practices have recently doubled, according to the U.S. Equal Employment Opportunity Commission (EEOC ). Employment practices liability insurance (EPLI) covers a wide variety of claims, such as sexual harassment, discrimination, wrongful termination, wrongful infliction of emotional distress, and mismanagement of employee benefit plans.

Fiduciary Liability Insurance

If your company offers benefits, such as retirement and healthcare plans, your business can be liable for any mistakes your team makes in managing them. Fiduciary liability insurance covers legal costs for defending your business against claims made.

Fidelity and Crime Insurance

Fidelity and crime insurance protects your business against losses due to employee dishonesty, credit card forgery, the disappearance or destruction of property, and more.

Other Types of Insurance for Business

In addition to legally required insurance policies and those commonly bundled, your business may benefit from additional policies such as those covered below.

Product Liability Insurance

Manufacturers, retailers, and wholesale and distribution benefits often purchase product liability insurance. If someone claims your product harmed them, your product liability insurance can help cover your legal fees, the customer’s medical costs, and any settlements or judgments against your business. Considering that the typical jury now awards over $7 million in a product liability case, Forbes reports, this may be one of the most beneficial policies a company can obtain.

Business Overhead Expense Insurance

Business overhead expense insurance (BOE) can provide your business with monthly payments that allow it to continue operating while you’re disabled.

Cyber Liability Insurance

A single data breach now costs a typical business $4.45 million, according to IBM , and incidents are rising. Cyber liability insurance covers expenses such as legal fees, the cost to alert customers, and settlement fees if your computer system is hacked and data is lost or compromised.

Environmental Liability Insurance

General liability and property insurance policies often exclude coverage for loss or damage relating to the unexpected release of pollutants. Environmental liability insurance, also known as pollution insurance or pollution coverage, protects the business when claims relating to bodily harm and property damage arise. It can also cover business interruption and cleanup expenses.

Accounts Receivable Insurance

Accounts receivable (AR) insurance protects your business when it’s unable to collect payments when customers purchase goods or services on credit. This includes things like direct losses from non-payment, balances that become uncollectable due to damage to AR records, and indirect costs, including payments due on loans secured by your receivables.

Considerations for Business Owners When Selecting Insurance Coverage

Now that you have a good idea of what’s available, your next step is selecting commercial insurance coverage. Keep the following points in mind as you make your decision.

Assess Your Risk

You don’t necessarily need every type of business insurance outlined on this page. Consider which threats pose the most significant risk or what issues might cause irreparable damage to your business and safeguard against them.

Work with an Experienced Agent

It’s often helpful to work with an insurance professional who can help you identify risks and determine the proper levels of coverage for your business.

Shop Around

You can bundle the most common types of insurance for less than $400 per month, Forbes reports. Shop around for a fair deal, but be mindful of choosing the cheapest option. Companies that cut corners to cut costs can be challenging to work with and may drag their feet when you need their support the most.

Reassess Annually

Your risks will change as your business grows. Reevaluate your coverage annually to ensure you’re maintaining adequate coverage.

Streamline Your Receivables with Invoice Factoring

Invoice factoring provides instant payment on your B2B invoices, so it’s easier to cover insurance premiums, recover from setbacks, and grow your business. Although factoring isn’t insurance, many businesses that leverage it also see reduced bad debt because the creditworthiness of clients is confirmed as part of the process before extending credit. If you’d like to learn more or get started, request a complimentary factoring quote.

Original Article: Insurance for Business: Which Policies to Consider and Why