Navigating Insurance As A Small Business Owner

From general liability insurance to worker’s compensation, figuring out the world of insurance as a small business owner can be overwhelming. Depending on what your business does and what state you’re in, what insurance you need varies–making it even more confusing than it already is. Without the right insurance, you may end up paying a lot of money out of pocket, costing you thousands in the long run.

So how do you know what’s right for your business? Well, that’s why we’re here to help. We’re breaking down each type of insurance so you can feel rest assured that you are making the right decision when it’s time to choose for your business.

Why do I need insurance as a small business owner?

Think about business insurance the same way that you think about health insurance. You have it in case there is an emergency. It gets you the help you need without paying thousands upon thousands. The same is true for business insurance. Without it, you could end up spending an arm and a leg on damages and legal claims. If you are not financially prepared for this, these costs could end up being extremely devastating–especially if your company is in the beginning stages.

According to Insureon, 75% of U.S businesses are underinsured, and 40% of small businesses have no insurance at all. Out of those same business owners surveyed, 35.2% experienced an event where some type of insurance was needed, and out-of-pocket payments were needed to be made. Although that may not seem like a very high percentage, it’s enough to note that it can (and does) happen, even when you don’t expect it.

Types of Insurance You Need As A Small Business Owner

Worker’s Compensation

If you have employees, you’re most likely going to be required–by law–to have worker’s compensation. Though it depends on the state, failure to have this can lead to hefty fines and potential criminal penalties.

Worker’s compensation protects your employees should they be injured on the job. It covers their medical expenses and gives them paid leave while they are home recovering. For example, if you run a brick and mortar store and an employee falls off a ladder while restocking, they would be covered for said injury. It would also cover the cost of a defense lawyer should an employee sue you.

This type of insurance is typically sold through both private carriers and brokers, and, according to the Insureon study mentioned earlier, the average premium is $47 a month.

Liability Insurance

General and professional liability insurance, although not legally required, are must-haves for all businesses. They protect your company/brand should a third party (i.e., a client, vendor, customer, etc.) claim bodily injury, property damage, or financial losses. 

The median cost for liability insurance is $42 a month, or around $500 annually. Your industry has the biggest impact on the cost. The riskier the field, the higher your payments are most likely going to be.

Unemployment Insurance

Unemployment insurance is another government-mandated insurance that you must have. It covers your employees should they face job loss or termination. Unlike the other insurances on this list, unemployment insurance is not paid through an insurance carrier.

When you pay payroll taxes, you also pay federal unemployment taxes (FUTA) and state unemployment taxes (SUTA). These tax payments are claimed by the employee when out of a job. While you could calculate and make these payments yourself, it’s easier to let your payroll provider take care of it.

Related: How Unemployment Insurance For Small Business Works

Disability Insurance

Disability insurance provides guaranteed money to your employees should they be injured or become sick. Unlike worker’s compensation, the illness or injury doesn’t have to be because of the job. A perfect example is a pregnant employee. They may receive disability benefits after they give birth, as it typically covers three to six months after they have been hurt or fallen ill.

While it is only required in five states (NY, CA, HI, NJ, and RI), having this insurance can give you and your employees peace of mind and make you a competitive employer.

Commercial Property Insurance

If you are the sole employee of your company and you work from home, keep scrolling. This one doesn’t necessarily apply to you. But if you’re a business owner with any kind of storage for inventory, office space, or expensive equipment, you may want to consider commercial property insurance.

It covers incidents of theft, vandalism, fire, flooding, and other weather-related damages. If you live in an area with a high likelihood of natural disasters such as tornadoes or earthquakes, you may not be covered. You may have to pay additional for these, so just be mindful when picking out your plan.

Business Interruption Insurance

Last but certainly not least is business interruption insurance aka business income coverage. This type of insurance helps should you find yourself unable to operate due to property damage. This means that if your business cannot operate due to fire damage, you would have assistance to help cover your loss of income until you’re back on your feet. It can help pay your monthly bills, rent, employee’s wages, tax payments, etc.

Final Thoughts on Purchasing Insurance As A Small Business Owner

To best determine what insurance is right for you, we highly recommend talking with other business owners in your industry. This will give you a sense of what is the “norm.” From there, you may hire a broker and compare quotes, so you know you’re getting the best deal for your business. You may find that bundling different types of insurance helps save you a pretty penny.

No matter how you choose to go about buying it, we can’t recommend getting insurance more. Owning your own company is full of unknowns, and being prepared will help save you in the long run. While it may feel like a time-consuming process, doing your research will help ensure you end up with a provider that best suits your needs, so you can continue to run your business while feeling confident that you’ll be covered during tough times.

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