Insurance is a vital tool every business owner needs to protect their assets, and it’s often a legal requirement when it comes to adding employees to your payroll or leasing and buying office space. In addition, insurance is often a requirement for certain partners and a prerequisite to obtaining loans or capital from investors. So, if you’re serious about growing a successful business, you should have a basic understanding of your commercial insurance needs and make sure you have the right coverage in place.
Every business is different and therefore has different coverage needs. For example, a consulting firm will have different liability than a retail store. So, how can you determine which policies are best for your business? We put together this easy-to-understand guide of four basic policies every small business owner should consider.
1. General Liability
This policy is like the bread and butter of commercial insurance. It covers broad liabilities like third-party bodily injury, property damage, and tenant liability. For example, business owners and employees interact with customers, vendors, or contractors daily. What if one of them were to slip and fall on your property? You could find yourself facing an expensive lawsuit to pay for any damages or medical costs.
Or, let’s say you’re doing work on a client’s property and accidentally break something. This is where General Liability comes in. The policy will cover the costs associated with these claims such as lawsuits or medical bills for injured customers. And, if you’re thinking of leasing or owning a commercial space for your business, this policy is often a requirement.
2. Commercial Property
If you own any physical property that’s used for business purposes, you’ll need this policy, which is often used to protect a physical office space but can also cover any physical asset you use for business purposes such as computers, equipment, and company records.
Let’s say your business is broken into or is damaged by a fire; Commercial Property insurance can pay for the costs associated with replacing lost or damaged assets.
Even if you’re working from home, you might still need this policy. Your homeowner’s policy will not cover any damage to property that is used for business purposes. For example, if you’re using your garage as a studio space and there’s a fire, you’ll be stuck paying for the damages out-of-pocket.
Like General Liability, this policy is often a requirement for buying or leasing a commercial space. It’s important to note there are certain “limits” to every policy, meaning some things will not be covered under a Commercial Property policy including:
- Property or assets that are intentionally damaged
- Damage resulting from employee negligence
- Property that was not purchased for business purposes, even if it’s stored on business property
- Vehicles used for business reasons. This requires a different policy called Commercial Auto
Pro Tip: You can save money by bundling policies together. A common way to do this is by combining your General Liability and Commercial Property policies into what’s known as a Business Owners Policy (BOP). A BOP can save you money compared to paying for two separate policies.
3. Workers Compensation
The insurance industry is highly regulated, and every state has its own set of rules. Therefore, it’s important to check with local and state authorities to make sure you’re meeting the necessary requirements.
There are exceptions for certain industries, in general though, as soon as you add an employee to your payroll you’ll be legally required to carry this policy. Or, in some states, once your business meets a revenue threshold you’ll need to purchase Workers Compensation.
Workers Compensation protects you and your employees from costs associated with work-related injuries and illness. For instance, if an employee is injured as a result of doing their job, like falling off a ladder, this policy covers the medical bills, rehabilitation costs, and any legal fees.
The premium of Workers Compensation is determined by several factors, such as the number of employees on the payroll, annual revenue, and industry. For example, a roofing contractor will have a much higher premium than a boutique owner since roofers face a much higher risk of work-related injuries.
However, there are ways you can keep your premium low. If you can demonstrate a strong safety record to your insurance carrier they may provide you with a discount. In addition, it’s important to keep your insurance advisor up-to-date on any payroll changes. For example, if you recently reduced your workforce you could get a lower premium.
Pro Tip: Ask your carrier about pay-as-you-go premium options. This can help lessen the burden on your cash flow compared to paying an annual lump sum for your premium. This way, you’re charged monthly for the number of people on your payroll rather than a set rate.
Keep in mind, it’s important to be honest with your provider. Carriers will often conduct annual Workers Compensation audits and if they find any discrepancies between the information you provided and your payroll and employment records you’ll likely wind up owing money to the carrier in the form of a higher premium. In addition to financial penalties, lying about the number of employees you have or your payroll information could land you in hot water with state authorities.
4. Cyber Liability
In today’s digital landscape, more business is done online than ever before. But, that means that more small businesses are being targeted by cybercriminals.
It’s a common misconception that only large corporations are targeted by hackers. But, in 2019, 43% of data breaches impacted small businesses. Recovering from a data breach could cost you thousands of dollars in notification and legal fees, not to mention the damage it would do to your business reputation.
Cyber Liability is the only commercial policy that can help you recover from a cyberattack. This policy specifically covers the loss of digital assets, business interruption expenses related to cyberattacks, cyber extortion costs, and the costs associated with notifying impacted customers.
If you run an eCommerce site or store any sensitive information in your systems, such as credit card numbers or bank account information, you should definitely consider this policy.
Insurance is something that, unfortunately, many business owners don’t realize they need until it’s too late. Keep in mind, you cannot file a claim for an incident that occurred before your coverage period. That’s why it’s vital to have the right insurance before an accident happens. Ask yourself, could you afford to pay thousands of dollars out-of-pocket for damages or lawsuits? If not, you need insurance.
Insurance isn’t just another business expense, it’s a vital investment in the future of your business. To make sure you find the right policies that fit your coverage needs and budget choose a platform where you can compare multiple quotes from top carriers. And, if in doubt, reach out to a trusted insurance provider for advice.