The economic strain brought by the pandemic on small business resilience has highlighted the importance of small business insurance. In addition to being required by the law, insurance coverage helps protect a company. It safeguards the business from the unexpected and the downright undesirable: economic downturn, liability, property damage, and the list goes on.
Insurance also benefits a small business by:
- Protecting employees;
- Protecting customers;
- Helping secure contracts and loans;
- and building credibility
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What are the Types of Small Business Insurance?
Depending on your business, there could be more than a dozen kinds of insurance you can invest in to help mitigate the risks specific to your industry. For some of these, you’ll need more than others, so you need to discern which ones to purchase.
To avoid overwhelm and needless expenditure, you can choose from these eight small business insurance types.
General Liability Insurance
Although not strictly required by the government, most small businesses in the US take out General Liability Insurance (or GLI) because of the protection it provides. GLI is appropriate for any business type and covers the costs incurred when responding to claims of bodily injury or property damage.
Commercial Property Insurance
Commercial Property Insurance protects a business’s physical location and other assets (like equipment, furniture, and inventory) that might get damaged in the event of a natural disaster, civil disruption, fire, theft, and vandalism.
Suppose your business is located in your home. In that case, property insurance becomes all the more beneficial. It helps you to take out a CPI because it offers more comprehensive coverage than your home insurance.
Professional Liability Insurance
If you are a type of service provider, then you must consider Professional Liability Insurance. Sometimes also called Errors and Omissions Insurance (E&O) or Professional Indemnity Insurance, this type of insurance protects your business from financial loss resulting from errors, malpractice, misrepresentation, and negligence.
Workers’ Compensation Insurance
Required by many, if not all of the states, the Workers’ Compensation Insurance covers your company employees’ medical care if they sustain injury or illness while on the job. It also covers lost wages during recovery, disability benefits, funeral costs, and even the legal cost incurred if a former employee or family sues.
Product Liability Insurance
Businesses in the manufacturing sector will benefit the most from Product Liability Insurance. If a defective product causes bodily harm, this insurance will help recover the losses incurred. Wholesalers, distributors, and retailers would also be wise to invest in this type of insurance.
Business Income Insurance
Suitable for small businesses across the board, Business Income Insurance protects your net profit if you have to shut down temporarily due to fire damage, wind damage, or theft. It helps ensure the recovery of lost revenue if your business is interrupted. If your business counts heavily on locations, tools, and equipment, this is good insurance coverage.
Data Breach Insurance
You’ll be hard-pressed to find a business nowadays that doesn’t rely on data. Most businesses collect and store some personal information provided by their customers. One of your responsibilities as a business is to keep this type of data safe. However, one can never completely eliminate the risk of a data breach.
Data Breach Insurance helps ensure that you have funds to mitigate the damage caused by a data leak. The coverage can help pay for a PR firm, customer notification, and data monitoring for the victims.
If you recently applied for an Economic Injury Disaster Loan from the SBA, then you have probably received an email reminding you to submit your requirements, one of which is proof of your Hazard Insurance.
Essentially, Hazard Insurance protects a property owner from damages caused by different natural disasters, theft, or vandalism detailed in the policy. This type of insurance can have many names like catastrophe insurance, earthquake insurance, hurricane insurance, etc.
Technically it covers your home or the property that houses the business. Hazard insurance is different from homeowner’s insurance. Primarily because the former covers only the physical damages while the latter is more comprehensive and includes protection from liability.
Taking out hazard insurance is pretty straightforward if you are a homeowner or own the property where your business stands. But what if you’re renting? Small businesses that are only renting the space where they operate can get a Renter’s Insurance instead.
Renter’s Insurance functions similarly to hazard insurance. It protects the policyholder’s belongings and liabilities if the space they are renting experiences a loss caused by the situations mentioned above.
Bonus: Business Owner’s Policy
The Business Owner’s Policy (BOP) is somewhat heaven-sent as it combines business property and business liability insurance in one neat insurance package. It covers your properties against theft and natural disasters and helps you recover from claims from business operations. This package can be customized and expanded to include protection against data breaches and some types of income loss.
Small businesses with a physical location, potential for lawsuits, and valuable assets prone to damage or thievery benefit the most from BOP as it provides enough protection for a fraction of the cost.