Small business insurance is probably not the first thing you think of when starting a new business. Perhaps you’re too busy writing your business plan or figuring out your cash flow. Or maybe you aren’t even sure what business insurance is and why you need it.
Business insurance is pretty straightforward. It pays for certain events that would otherwise come out of your company’s bottom line. For example, business insurance can cover the costs when:
- A customer is injured in your store.
- A client sues you over missing a deadline.
- A fire destroys your office.
Let’s look at the most common types of business insurance and how they can protect you.
General Liability Insurance
This is the first policy most business owners buy, and for good reason. It covers some of their most basic liabilities, including:
- Third-party injuries. For example, if a customer slips and falls at your shop, your policy can help pay for their medical expenses.
- Third-party property damage. If you spill coffee on a client’s laptop, your policy may help pay for its replacement.
- Product liability. If you sell products that end up hurting customers, general liability can help pay for your legal expenses.
- Advertising injuries. If you’re sued over libel, slander, copyright infringement or misappropriation (i.e., using someone’s name or likeness without their consent), your policy can help pay for your legal costs.
If you are sued over the incidents above, your policy may cover your attorney fees, settlements or judgments and additional court costs, like expert witness fees.
You might need this policy if…
- You rent your office or storefront. Your landlord will probably require you to have general liability coverage and name them as an additional insured. They want to know that if accidents or property damage occur, your insurance will cover the costs.
- Your store or office gets a lot of foot traffic. If someone is injured on your property, you can be held responsible for their medical bills. More people coming through your doors mean more opportunities for accidents.
- You sell products. You don’t have to manufacture the product to be held responsible for injuries it causes. In many states, anyone involved in putting a defective product in a consumer’s hands can be sued.
- You advertise online or via social media. Simple marketing mistakes like sharing a customer photo without their permission or tweeting something inflammatory about a bad client could lead to legal action against you.
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Professional Liability Insurance
Professional liability insurance, also known as errors & omissions insurance, can pay your legal costs if a client sues you over work mistakes, like…
- Failing to complete a project.
- Missing a deadline.
- Making an error or delivering faulty work.
For example, let’s say you were hired to create an app for a client. You didn’t realize quite how complicated it would be to code. The day it’s scheduled to launch arrives – and you aren’t ready. If your client sues, claiming you didn’t meet the terms of the contract and caused harm to their business, professional liability can help pay to defend you in court.
Unfortunately, even if you didn’t do anything wrong, a client can still sue you. Maybe you don’t see eye to eye on the expected outcome for a project. Or maybe they are simply trying to invent a scenario to get out of paying a bill. Fortunately, professional liability can pay for your legal costs even if the lawsuit is meritless.
You may need this policy if…
- Your client contract requires it. Clients may require professional liability insurance to ensure they don’t lose money by working with you.
- You offer professional services. If you make a living off your expertise, you’re susceptible to lawsuits over not meeting the professional standards of your industry.
Commercial Property Insurance
When you own a business, you also own a lot of stuff. There’s the physical building itself, as well as things like:
- Office furniture
- Business equipment, like computers or a point-of-sale system
Property insurance can pay to replace or repair your business property when it’s damaged by:
This policy helps ensure that when disaster strikes, you have the means to quickly get back on your feet and back to work.
Even if you work from home, you may want to consider business property insurance. Homeowner’s insurance typically excludes coverage for business property. That means if there’s a fire in your home, your personal property would be covered, but not your business property.
Workers’ Compensation Insurance
Workers’ compensation insurance can cover employee occupational injuries. Having this coverage reduces the chance of employers getting sued over work accidents. In fact, most states don’t allow employees to sue over work accidents if workers’ comp covers their medical expenses.
So if an employee falls off a ladder and breaks a bone or develops carpal tunnel after years of typing, workers’ compensation insurance can help pay for:
- Medical bills
- Ongoing treatment or rehabilitation costs
- Partial lost wages
- Death benefits in the case of a severe accident
If you have employees, you may need to purchase this policy. Most states require employers to carry it, though the laws vary depending on where you operate. You can check the laws for your state to see your requirements.
If you need more ideas on protecting your business, read “How to Make Sure a Lawsuit Doesn’t Take Down Your Business.”