If you've filed an LLC for your business, then you already have substantially more protection from your business structure than you would with a sole proprietorship. But have you considered purchasing extra protection in the form of insurance? Since each small business has unique needs, there are many types of insurance for small business owners available.
In some ways, business insurance is akin to the insurance used by individuals. We can carry life, health, car and home insurance, and some people even have an umbrella policy that covers all of the above and more. So why shouldn't your business have a similar level of protection? Here, we'll explore the core small business insurance options that you should consider.
1. Business Liability Insurance
Ask any seasoned entrepreneur, "What type of insurance you do need to start a business?" and their first response could very well be "business liability insurance." This form of insurance is also referred to as general liability insurance and commercial general liability insurance. It can include multiple areas of coverage, such as:
- Property damage or bodily injury: If you're renting a space, this would cover the expenses and/or damages incurred if someone were to get injured on the property or damage property not under your ownership. It also covers you if you were to injure someone or damage a third party’s property.
- Medical payments: This covers payments dealing with a bodily injury for which you're legally responsible.
- Defense costs: If you need to hire an attorney to defend your company during a lawsuit, this area of coverage would help mitigate the cost.
- Personal and advertising injury: This protects your business in the event that it's sued for slander or libel.
2. Property Insurance
When you own or rent a space for your small business, you want to make sure all your assets are protected. That's where commercial property insurance comes in.
This type of insurance, also known as small business hazard insurance, is used to cover the contents of a structure from theft and damage. The types of property protected can include your business's:
- Building or unit
- Equipment and tools
- Furniture
- Product inventory
- Personal items
It can also offer protection from environmental damage. For instance, if lightning strikes and ignites your building or heavy snowfall damages your roof, then property insurance can help.
3. Business Interruption Insurance
Typically included as part of general liability insurance, business interruption insurance covers profits lost due to a business interruption caused by certain events.
For example, if a tornado destroys part of your building and some of the inventory it contains, then business interruption insurance could help replace the profits you would have earned from that inventory.
Note that this type of insurance is distinct from property insurance in that property insurance only covers physical property damage, while business interruption insurance covers the profits lost as a result of the damage.
4. Cyber Liability Insurance
If you've taken the wise step of creating a website, adopting an electronic point of sale (POS) system or using any other type of technology for your small business, then you stand to benefit from cyber liability insurance.
This is a type of small business insurance that protects against tech-related risks, such as:
- Data breaches
- Malware attacks
- Cyber extortion
- Hardware failure
And if you think that cyber liability insurance is only necessary for large companies, it might change your mind to learn that 58 percent of small businesses have experienced at least one security breach or one data breach.
5. Public Liability Insurance
What if one of your employees accidentally breaks a customer's brand new iPhone? What about if a client slips and suffers a sprain or break while walking through your building? A very real possibility is that your business will be held legally responsible for the cost of the damages.
Luckily, this is a risk that can be reduced with the help of public liability insurance (PLI). In a nutshell, PLI can protect against the cost of property damage, bodily harm and legal expenses incurred as a result.
And if you think PLI sounds like it covers some of the same things as business liability insurance, then you're absolutely right. The difference is that business liability insurance covers injuries sustained by the public and additional areas of risk, while PLI only covers the former. As a result, PLI tends to be more affordable than business liability insurance.
6. Product Liability Insurance
Depending on your business structure and the product(s) you sell, another insurance option to consider is product liability insurance. There is an inherent risk to using almost any product; even something as simple as a shirt can become a suffocation hazard. And if you own a company selling nutrition supplements or other food/beverages, one of your ingredients could cause a customer to experience an allergic reaction.
In situations like those, your business could be subject to a lawsuit. If that were to occur, product liability insurance could help protect your business and cover the costs to make things right. So if you sell any type of tangible product, then product liability insurance should be a top priority. And when your business and products expand, so too should your coverage.
7. Professional Liability Insurance
Professional liability insurance is similar to product liability insurance. But rather than protecting you from potential lawsuits due to tangible products, this insurance covers you if your business sells services. For instance, this can apply to consultants, engineers, accountants, attorneys, architects, counselors and real estate agents.
This type of insurance, also known as errors and omissions (E&O) insurance, protects your business from costs associated with negligence stemming from a professional service, regardless of whether the damage is actual or alleged. There are even some instances where you may need to show proof of professional liability insurance in order to have clients sign contracts.
8. Crime and Fidelity Insurance
The unfortunate truth is that not everyone is honest, and some people have stickier fingers than others. In some instances, you may even find that some of your employees don’t have the morals you thought they did when you hired them.
When this happens, crime and fidelity insurance becomes extremely important. It can help cover losses resulting from:
- Employee theft
- Computer fraud
- Credit card forgery
- Destruction of property
Alas, no one is safe from dishonest employees. And since it's not always possible to find and fire such individuals before they cause problems, you need to have the right insurance in place to protect both yourself and your business.
9. Health Insurance
If you have employees working for your small business, then you can greatly increase their job satisfaction (and enjoy the benefits of having a healthier staff) by providing them with health insurance.
Fortunately, securing small business health insurance is relatively straightforward. The U.S. government has its own online health insurance marketplace for businesses with 50 or fewer employees. And if you'd prefer to go through a specific provider, you can certainly do that instead.
Don't have any employees? Not to worry — the government has options for self-employed people too, as do many private providers.
10. Workers' Compensation Insurance
If one of your employees sustains a work-related injury or illness, then workers' compensation insurance can cover the cost of their resulting medical care and lost wages.
In some states, you may be required to purchase workers' compensation insurance in order to legally employ a single person. In other states, you can only hire up to a certain number of people (typically three to five) before such insurance is required. With that in mind, be sure to check your state's individual laws before making any final decisions.
The truth is that picking the right type of small business insurance is rarely about finding one perfect solution. Instead, you'll likely achieve the best protection by combining several types of insurance to create coverage that's customized for you and your business.
Once you're ready to make a purchase, our partner The Hartford can help you select the right business insurance for you.
Carrie Buchholz-Powers
Carrie Buchholz-Powers is a Colorado-based writer who’s been creating content since 2013. From digital marketing to ecommerce to land conservation, she has experience in a wide range of fields and loves learning about them all. Carrie is fond of history, animals and beauty in equal measure. In her free time, she enjoys knitting, playing video games and exploring Colorado's prairies and mountains with her husband.
