Five Types of Insurance that Help Protect Small Businesses
The right insurance protection is necessary for the long-term success of a small business. Here’s a breakdown of the five most common types of small business insurance and how to utilize them to protect your business.
Starting a business always involves some level of risk. It’s an owner’s job to mitigate that risk by protecting it against liabilities. When you’re in the process of starting a business, purchasing the right type and amount of insurance needs to be one of the first things on the pre-launch to-do list. High-quality insurance should be looked at as a smart investment in the financial stability of your small business. The costs of confronting a lawsuit are enough to cripple a small business that’s not adequately insured. Not insuring your business is also not an option. In many cities and states, small business insurance is required by law.
Failing to follow your local laws will present damaging financial costs that could also cost you your business. It’s not enough to have insurance –you need to have the right insurance for your particular business. There’s no shortage of businesses who have suffered the financial consequences of not properly insuring their businesses. Too often a business thinks it’s covered against damages to later learn that they’re on the hook to pay without any options for recourse. By learning your small business insurance options, you can better safeguard your business.
Here’s a breakdown of five common insurance types that all small business owners should know about and consider.
General Liability Insurance
General liability insurance casts a wide net of protection over your business to cover general business risks. These risks may include property damage, bodily injury, medical payments, etc. General liability acts as a first line of defense for businesses and something every small business should consider.
Home-Based Business Insurance
If you run your small business from your home, you should know that most homeowner’s policies do not cover home-based businesses’ losses. General liability acts as a first line of defense for businesses and something every small business should consider. Adding a level of home-based business insurance to your small business’ coverage can protect you against loss from normal business risks like property damage. Because the waters can get muddy when you start overlapping your home and your home-based business, talk to your insurance provider to see which policies offer the best protection.
Professional Liability Insurance
If your business provides a professional service that involves advising clients or customers, professional liability insurance can protect you against claims that your services resulted in damages to your customers. Protecting your business against these claims is not typically covered by general liability. Professional liability insurance, also known as Errors & Omissions or Professional Indemnity Insurance, is a type of coverage a service business can add on to its general liability coverage for added protection.
Product Liability Insurance
If you’re a product manufacturer, supplier, wholesaler, or retailer –or any business positioned somewhere along a product’s supply chain -you can end up being liable for any safety defects that product experiences. Product liability insurance will protect your business against any claims that your product caused bodily injury or harm. It can also protect against property damage or other financial losses that a product may cause. Like professional liability coverage, product liability insurance should be added to your business’ general liability policy for more complete protection.
Commercial Property Insurance
Protecting your business needs to include insurance coverage for your building, inventory, and equipment. Commercial property insurance will cover the repair or replacement of items on the insured property if they’re ever damaged or stolen. If you rent commercial office space, expect your landlord to require you have this coverage as well. Look for commercial property policies that include business interruption insurance. If your commercial property is damaged, your business will also lose the ability to complete work for your customers on time. Business interruption insurance will help you bridge this gap and ward off additional losses.
Find the Best Coverage for Your Unique Business Needs
There is no one-size-fits-all solution when it comes to small business insurance. Take your time and research your options. A claim against a small business can have damaging effects, so taking the time to truly understand your insurance needs and read through the fine print is one of your key responsibilities as an owner. When you’re ready to shop for small business insurance coverage, seek out support from other business owners and professionals, like a SCORE mentor. A SCORE mentor will help you anticipate your coverage needs and identify the right policy so your business is protected.
Southwest Regional Vice President, SCORE
Contact a SCORE mentor today. Since 1964, SCORE “Mentors to America’s Small Business” has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 10,000 volunteer business mentors in over 250 chapters serve their communities through entrepreneur education dedicated to the formation, growth, and success of small businesses. For more information about starting or operating a small business, call 1-800-634-0245 for the SCORE chapter nearest you. Visit SCORE at www.score.org.Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.