If you're one of the millions of people who own or operate a small business in the U.S., you know what it's like to face risks and responsibilities every day.
Along with the many rewards you stand to gain as your own boss, you face a slough of potential (and unpredictable) circumstances that threaten your livelihood. How can any small business owner sleep at night when the risk and reward are so inextricably linked?
The answer is small business insurance.
The key to getting a good night sleep as an entrepreneur is knowing your back is covered in the event of an emergency. The right type of coverage for your business can help minimize your liabilities and help keep the doors open, even if the big bad wolf comes knocking.
What is Small Business Insurance?
For large corporations, an entire industry — commercial insurance — exists to meet their unique needs and risks.
But most entrepreneurs and small enterprises don’t have the budget to buy the same commercial insurance products and billion dollar companies, which in most cases would provide far more coverage than a small business would need.
That’s where small business insurance comes in.
Today there are plenty of insurance products designed just for small businesses, which means you can truly customize your coverage at a cost your business can afford.
How Much Does it Cost to Get Covered?
As you might imagine, the cost of your insurance premiums would be calculated using several factors. Cost will increase or decrease depending on the characteristics of your business, as well as the type and level of coverage you choose.
Factors affecting the cost of your business insurance premiums might include:
Product related variables would include:
Type of insurance
Product and Company details are calculated to determine the cost of your insurance premiums.
Companies in high risk industries like construction tend to spend more on insurance than lower risk business classes like writers and designers, but can make reduce the cost with higher deductibles and solid risk management practices.
The bottom line is this:
The cost of small business insurance premiums can increase or decrease depend on a number of factors, but will always be cheaper in the long run than even one small accident leading to a costly lawsuit.
How Do You Know if You’re a Small Business?
Small business is typically defined as those with 100 employees or fewer and revenues of $5 million or less per year.
But what if you’re just one person providing consulting services remotely from your home office? Is your business too small to need insurance?
Not even close.
Solopreneurs, professionals, and larger small-business classified companies alike need to consider the coverage they should carry, because the risks are real.
In fact, while most home-based business owners overlook insurance and write it off as something they don’t need, they may need it more than most. As a sole proprietor, your business assets are your individual assets, so one single lawsuit could result in the loss of your home and personal savings.
Here's what you should know about small business insurance options so you can feel confident you've got the coverage you need.
Core Coverage for Small Business
While each business is different, and faces a variety of risks, every small business should carry the protection of ‘core coverage’ at a minimum.
Every small business needs:
Business owner’s policy
A business owner’s policy (or BOP) is an insurance product designed specifically for small- and medium-sized businesses. BOPs package the three “core” insurances — general liability, property and business interruption insurance — into one comprehensive package.
BOPs offer the same amount of coverage and protection as individual policies, but because the policy combines all three types of coverage, the cost of a BOP can be substantially less than the cost associated with buying three separate policies.
General liability is one of the “core” types of business insurance that every type of business, of every size, needs to have in order to protect its assets.
It’s called ‘general’ because it covers a wide range of potential risks, and blankets your business with a wide net of protection.
General has your back in a variety of scenarios, and protects against many potential situations that might result in an untimely and expensive lawsuit, such as:
If a person is injured on your property
One of your employees injures a non-employee while working on behalf of the company’s interests
False advertising claims
Slander, libel and copyright infringement
In addition to paying for any resulting damages, business liability also pays for legal costs associated with defending your business in court or during pre-trial mitigation proceedings.
As you might have surmised, property insurance provides coverage for any losses associated with damage to any buildings your business owns, as well as outdoor structures like signage and fencing.
But that’s not all.
Property insurance policies also compensate extends to other types of property your business might use in the course of operations.
If you’ve spent your hard earned money on items you require to continue bringing in revenue, you might appreciate coverage for items like:
Some property insurance policies even cover the cost of removing debris if your building is damaged by fire or natural disasters.
Business Interruption Insurance
A business interruption policy may not be as well known as property and general liability insurance, but it’s just as vital.
This policy protects you from financial losses that would occur if couldn’t continue normal operations due to an event beyond your control, like a fire or an extended power outage.
While other types of insurance protect you against claims filed by other people, business interruption insurance provides you with the funds you need to replace your lost income so your business can keep operating in the event of an emergency, essentially protecting you from unforeseen disaster.
Fire is a great example of why business interruption insurance is so vital for small businesses. It takes time to file a claim for the property to be repaired, and time to make the repairs themselves. Business interruption insurance replaces the income your business stands to lose while you wait for the paperwork to go through, and the repairs to be completed.
Depending on the type of business you operate, you’ll need other types of insurance to provide comprehensive coverage against potentially devastating losses.
When is a BOP Not Enough?
At the bare minimum a business should carry a BOP, but depending on the business type and risks associated with its industry, you might be vulnerable to risks that lie outside the scope of your core coverage.
BOPs can be combined with various other types of insurance to provide your business with the custom coverage options not covered by the standard insurance policies.
Workers’ compensation insurance is required in all states except Texas, although the amount of insurance and the extent of coverage can vary depending on where you do business, how many employees you have, the type of employees your business uses and where they’re located.
Workers’ comp pays for medical costs of employees injured while on the job, and also pays for a portion of lost wages, regardless of how the injury occurred or who was at fault. In the unfortunate event a workplace injury results in death, damages are paid to the employee’s family members.
Business Auto Insurance
Business auto insurance covers any vehicle used by your business (not just automobiles, but trucks, vans and other vehicles). Like other auto insurance policies, business auto policies provide coverage for bodily injury and property damage caused by a company vehicle.
Also called errors and omissions insurance or E&O, professional liability insurance provides coverage for specific business professionals who provide services that carry more risk than average, like financial guidance, medical care, or legal advice.
These policies offer coverage for both damages resulting from claims where your business is deemed liable, as well as coverage for legal fees associated with defending your business against a claim.
Product liability protects your business against damages caused by a defective or faulty product. Like other types of business liability insurance, product liability covers both the damages of claims where your company is deemed liable as well as the legal costs associated with your business’ defense.
Cyber Liability Insurance
Cyber liability insurance is a relatively new type of insurance that protects businesses in the event of a cybersecurity breach or similar incident.
Identity theft and computer fraud are becoming increasingly common, and they can affect any business with an online presence, as well as companies using the internet or computer networks to conduct any aspect of their business or to store customer data.
A cyber liability insurance policy provides coverage for both direct and losses associated with third-party vendors, like network and server providers when these types of liability issues arise:
Other associated costs your policy might cover include:
Compensating customers affected by a cybersecurity incident
Advertising and information dissemination costs
Credit monitoring fees and other costs
Directors and Officers Liability
If your business or non-profit has a board of directors or officers, this type of insurance protects them against losses if they’re sued for mismanagement in the course of their duties.
In addition to paying for damages when the director or officer is found legally liable, directors and officers liability insurance also pays for legal costs associated with their defense against such claims.
Umbrella insurance is aptly named because it provides comprehensive coverage that can protect your business for losses that exceed the maximum amounts allowed by other types of liability insurance.
For instance, if your business is sued for an injury that occurs on your property and the damages awarded exceed the maximum amount provided for in your property insurance policy, an umbrella policy provides you with additional coverage so your assets are protected.
Umbrella insurance policies are most often written on top of existing property or general liability policies, but you may also choose to have umbrella coverage for other types of insurance as well.
Key Person Insurance
Also called key employee insurance, this type of coverage protects your business if one or more essential employees become disabled or die. If your business depends on one or more people to stay in operation, key employee insurance can provide your business with a “cushion” against the negative impact of losing someone crucial to the business’ growth and success.
How to Know Which Insurance Is a Must-Have for Your Business?
Above and beyond the basic core coverage you already know every small business owner should carry, you might wonder if you have specific vulnerabilities inherent in your line of work, or particular business model.
The easiest way to find out if you need more than a BOP is to ask an experienced insurance broker who specializes in small business insurance needs. They’re used to working with budget-conscious business owners, and understand how to find the best coverage at the most affordable rates, so you can relax, get on with your day, and help you keep doing what you do best.