As a business owner, it’s vitally important to be properly insured. You’ve worked so hard to create this source of income for yourself, your family, and your employees.
Taking a large financial hit due to improper insurance coverage would be a terrible misfortune–one that can be prevented. There are different types of business insurance including types of liability insurance and policies that cover business losses as well as the insurance you might typically associate with personal insurance such as disability and auto insurance.
The Different Types Of Business Insurance
Surprisingly, there are several types of business insurance available. Each is meant to cover different aspects of a business. How can you know what each type covers and which types you need?
Here are some breakdowns of available business policies and what each one does.
Business Liability Insurance
Just as you have liability insurance for your personal automobiles, it’s smart to have liability insurance for your business. There are several types of business liability insurance, but we’re going to cover three of the most common types.
General Liability Insurance
General liability insurance covers your business against financial losses due to incidents such as:
- Bodily injury
- Medical expenses
- Property damage
- Libel and slander suits
And more. This is basic business liability coverage for common business mishaps and occurrences.
Product Liability Insurance
Product liability insurance is coverage directly related to financial losses involving products that cause injury or harm. For example, if a product your company makes has a defect that injures a buyer.
Professional Liability Insurance
Professional liability insurance is also called Errors and Omissions insurance. This type of coverage is intended in the case that your business owners or employees are involved in an incident due to negligence, malpractice, or some other type of error.
Which businesses need liability insurance coverage: All businesses should have liability coverage in some form, depending on the type of business. Also, check with your state’s department of labor for any liability insurance requirements.
Business Owner’s Policy
A business owner’s policy (sometimes called a BOP) is a combination policy for business owners. In most cases, a BOP is a combination of a general liability policy, a business income policy, and a commercial property policy.
This type of policy can also cover expenses related to equipment breakdown.
Which businesses need business owner’s insurance coverage: If your business needs liability insurance and business income/interruption service, you may be able to save money by obtaining a BOP that has several levels of coverage.
Business Interruption–Income Insurance
Business income insurance and business interruption insurance are similar types of policies that cover a loss in your business’s income. The losses are typically covered when there is an incident such as:
Or other damages. Floods and earthquakes are usually not covered with this type of insurance. Some of the expenses business interruption and business income insurance policies will pay for can include operating expenses, temporary business site expenses, and lost income expenses.
Which businesses need business interruption/business income coverage: It’s a good idea for your business to carry this type of insurance if you have employees and/or a business workspace that would result in the need to halt your business if damaged.
Directors And Officers Insurance
Directors and officers insurance is another type of business liability insurance. This type of business insurance covers the personal assets of your company’s directors, officers, and their spouses.
Utilize this policy to help cover your company’s senior management staff in the event they are sued by employees, vendors, or others. This type of coverage also helps protect investors and others involved with your business from fraud or mismanagement of funds.
Which businesses need directors and officers insurance: It’s a good idea for most businesses to have this type of coverage. D&O insurance will help protect your company in the event of a lawsuit.
Note: When looking to protect your company from employee mishaps, consider employee practices liability insurance (EPLI) coverage as well. This type of insurance will help protect your company from acts of other employees too, such as discrimination or sexual harassment.
Cyber Liability (Data Breach) Insurance
Most businesses dabble in online business in some capacity. That makes your business vulnerable to data breaches. Even if your company’s website simply directs clients and potential clients to where to contact you, you’re still at risk for a data breach.
Cyber liability insurance can come in several forms, such as basic cyber protection, data compromise protection, and identity recovery protection.
Coverage benefits for cyber liability insurance can vary. There is everything from basic coverage that helps cover expenses associated with restoring and recreating data to covering costs for an expert team to help with damage control.
Depending on the nature of the breach your company encounters, you may need services such as forensic work needed to determine the extent and nature of a breach. Or you may need to employ a team that works on the restoration of client and employee pre-breach status, reimbursement for legal fees, and more.
Which businesses need cyber liability insurance: Any business with a website
Workers’ Compensation Insurance
Workers’ compensation insurance covers your employees if they are injured in a work-related accident or disability.
Which businesses need worker’s compensation insurance: Laws vary by state, however most states require that businesses carry some type of worker’s compensation insurance. Check with your state’s department of labor for requirements.
Home-Based Business Insurance
Home-based business insurance is pretty self-explanatory. This type of insurance is typically added as a rider to your homeowner’s insurance.
Check with your insurance agent for details, as this type of rider doesn’t necessarily cover a large amount of expensive equipment or liability for a large number of employees or third parties.
You may need different coverage if you run a large business operation on the same site as your home is located.
Which businesses need home-based business insurance: Typically, smaller businesses that are run out of the owner’s personal home.
Flood and earthquake insurance typically cover damages to your business building and equipment in case of a flood or earthquake.
Note that flood and earthquake insurance (they are purchased separately) generally do not cover business automobiles or loss of income due to flooding. Interestingly, many business interruption insurance policies don’t reimburse losses due to flood either.
In fact, you might just be left to deal with the business interruption/income loss yourself if your business is damaged by flooding. Check with your business insurance broker for more information on what types of coverage are available in a flooding scenario.
Which businesses need flood or earthquake insurance: Most companies don’t count floods and earthquakes in the same group as other types of storm damage. For that reason, if you live in an earthquake-ridden area or an area that’s prone to flooding, you may want to seek out this type of coverage.
Accounts Receivable Insurance
Accounts receivable insurance protects your company in the event that they cannot collect payment from a customer for a variety of reasons.
Some instances in which this insurance could payout include:
- Cancellation of a contract
- Cancellation of import or export permits
- A customer refuses to accept or pay for goods you’ve sent
Accounts receivable insurance can even cover you in the event that your accounts receivable records are damaged.
Which businesses need accounts receivable insurance: Any business that has accounts receivable could benefit from this type of coverage.
While you may not consider life insurance as valuable to business owners, it truly is. As a business owner, you’re on your own when it comes to many health and life benefits.
For example, people who work for large companies often get life insurance coverage as a benefit of their job. As a small business owner, you may not have that luxury.
And your family needs to have money to survive in the case of your untimely death. For that reason, purchasing a life insurance policy is a good move for many business owners.
Which businesses need a life insurance policy: Any small business owner that doesn’t have life insurance coverage directly through his or her business as a benefit for employees and directors.
The purpose of umbrella insurance is to provide extra coverage and pick up where other policies end. Depending on the advice of your insurance broker, you may want a personal umbrella policy, a commercial umbrella policy, or both.
Umbrella policies can add $1 million or more in coverage on top of your existing insurance policies. The types of occurrences umbrella insurance covers vary from policy to policy.
Which businesses need umbrella insurance: Any business looking for an added measure of financial protection could benefit from umbrella insurance.
Commercial Automobile Insurance
Your personal auto insurance policy may not cover you if you’re involved in an accident while driving for business purposes. For this reason, it may be a smart idea for you to look into commercial auto insurance coverage.
A commercial auto insurance policy is a definite need if you have employees that drive vehicles your business owns. However, even if you’re a sole proprietor using your personal vehicle for your business, this type of coverage may be necessary.
Which businesses need commercial automobile insurance: Any business that uses a vehicle for business-related purposes should inquire about the need for carrying commercial auto insurance.
Having the right types of insurance coverage to protect the business you’ve built is vitally important. Talk to your insurance agent to find out more about the types of business insurance you might need.