Business Insurance

As a Small Business Owner, How Do I Know Which Insurance Policies I Need?

If you have already started to explore the options for business insurance, you may have found there are various types of policies available. Either one, or several polices can be selected that could help minimize your exposure to risk.

Finding the right combination of policies could ease your mind, knowing you have assistance when unforeseen circumstances arise. In 2019, 27% of US small businesses were underinsured and among the business who don’t have coverage, 60% of small businesses planned to obtain insurance in the next 12 months. If faced with a lawsuit or natural disaster, the costs associated to damages incurred would have to be completely covered out of pocket, which is not always easy for a small business owner. Drawing the parallel with personal insurance products, such as auto or home, it can be a relief to have assistance when unexpected, costly repairs come up from incidents that are often no fault of your own.

With a variety of insurance product lines and multiple vendors, there are often different names for the same type of insurance product, which could add some confusion during your research for the right policy. Like most investments, finding an advisor who has your best interests in mind can help you to gain clarity on what you really need. Insurance salespeople are generally paid through the carrier once you pay the initial premium. Their consultation and advice are included in the service you receive, so finding a representative who understands your business model is ideal.

The insurance you may need for your business will depend on the type of business you own, whether you have employees, and what type of services or products you offer.

When searching for insurance, there are three typical categories to consider:

  1. Coverage type – what asset or situation are you trying to cover?
  2. Business sector - what industry is your business in?
  3. Business type/role – what do you do? Are you a consultant or freelancer? Home-based?

You may find that a combination of policies will work best for your niche. Here are a few of the main insurance categories to consider:

General Liability

What: A general liability policy is meant to protect the business against certain types of liability claims or financial losses related to property damage, bodily injury or the medical expenses associated with the injury. General liability can also cover expenses related to defending lawsuits, libel and slander cases, and settlements or judgements or advertising injury claims. It can also help cover administrative costs to handle covered claims and court costs.

Without general liability insurance costs associated with legal counsel, settling claims, and court fees would come out of your pocket and could add up quickly.

What Type of Business Is It For? Any Business

Also Known As: Business Liability Insurance, Commercial General liability

Professional Liability

What: Professional liability coverage is a policy you may want to have over services you personally provide. For example, if you are writing copy, offering advice or providing consultation, it may be a good idea to be covered with a professional liability policy. Often, companies hiring freelancers will ask the contractor to have professional liability coverage in case of negligence related to professional services or advice.

What Type of Business Is It For? Consultants, freelancers or businesses that provide professional services to customers

Also Known As: Errors & Omissions or Professional Indemnity

Product Liability

What: Product liability insurance is helpful for protecting against faulty products or financial loss related to a product being defective that causes injury or bodily harm. It also transfers the risks associated with lawsuits and other claims related to product malfunctions. There are four types of product liability claims: manufacturing defects, marketing defects (failure to warn), design defects and breach of warranty.

What Type of Business Is It For? Businesses that manufacture, distribute, wholesale or retail a product or products

Also Known As: n/a

Commercial Property

What: A commercial property can be covered against loss or damage to the property due to civil disobedience, theft and vandalism, fire, explosions or smoke, natural disasters such as wind and hailstorms. Typically, the policy holder must request to add earthquakes and floods to the policy.

What Type of Business Is It For? Businesses with a significant amount of physical assets or property.

Also Known As: Business Property Insurance

Business Owner’s Policy

What: A business owner’s policy is a package that combines all the typical coverage options into one comprehensive bundle. Designed to simplify the buying process, these types of packages can also save you money.

A Business owner’s policy may include business property insurance covering the costs to repair or replace your business including physical locations, tools, computers, inventory, and accounts receivable. It could also include general liability (bodily injury, advertising mistakes, and property damage) and sometimes business income insurance is included.

What Type of Business Is It for? Most small business owners and home-based business owners - it is particularly popular among small-medium sized businesses such as restaurants, wholesalers, retail stores, and contractors

Also known as: N/A

Home-Based Business

What: Often, a home-based business insurance is added as a rider on your homeowner’s insurance and can offer protection for a small amount of business equipment and liability for third-party injuries.

What Type of Business Is It for? Businesses conducted from the business owner’s personal place of residence

There are also policies available to cover items not listed in these general categories such as:

Other Types of Insurance

  • business interruption, also known as business income insurance
  • commercial auto insurance
  • workers compensation insurance
  • data breach insurance

Without insurance, expenses incurred for costly damages, legal claims, or your business being burglarized will come from your own pocket. Legal fees to defend the business, if your business is sued, can become costly and may take a long period of time to reconcile, tying up your funds and resources for an inordinate amount of time. Business insurance can help to cover those unforeseen costs and to protect you from needing to rely on your personal resources.

The content provided in articles are suggestions only and based on best practices. Dun & Bradstreet is not liable for the outcome or results of specific programs or tactics. Please contact an attorney or tax professional if you are in need of legal or tax advice.

Also Known As: n/a

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