What Types of Commercial Insurance Does my Small Business Need?
Published on January 10, 2018
Types of commercial insurance
You might be familiar with health and auto insurance, but as a small business owner, there is a whole world of commercial insurance out there for you to consider. Let’s explore the different types of commercial insurance your small business might need.
Business liability insurance
Business liability insurance, also known as commercial general business liability, is very important—it can protect you in case you’re sued by a third party (anyone outside of your business). This policy can help cover costs of legal fees and any settlement or award if you are sued. It might come in handy with covering damages for what you are found liable for, and may help with your legal costs. There are several types of liability insurance policies. Any of these policies may cover liability costs up to the policy’s limit:
|Errors and omissions insurance (E&O)/Professional liability insurance||This insurance might be important for you if your business gives advice, recommendations, designs products, or provides any physical care or help to customers, clients, or patients|
|Employment practices liability insurance (EPLI)||This can cover damages for violating an employee’s civil or legal rights, up to the policy’s limit|
|Directors and officers liability insurance (D&O)||This can protect directors and officers of corporations and organizations if there is a lawsuit claiming they failed to conduct business with proper regard for the rights of shareholders or others|
|Business identity theft insurance||This can protect corporations and organizations in situations involving identity theft or similar types of fraud|
Workers’ compensation insurance
This commercial insurance might actually be mandatory for your small business. In most states, if you have a certain number of employees (3-5 depending on where you live), you must have workers’ compensation insurance. This coverage can pay for any medical care and replace partial wages for an employee who is injured while working. If an employee dies from injuries sustained at work, compensation may be provided for the employee’s family.
Another type of commercial insurance is property insurance. Think physical disasters: fire, theft, flood. That’s what property insurance might cover, depending upon the plan you choose. The property used for the business may be covered for any of these disasters, including “personal property” within the building. Depending on your plan, this might include furniture, inventory, technology, and anything used for your business. This type of commercial insurance is very important, especially if your profit depends on having a physical location, like a clothing store, to make money.
Business auto insurance
Business auto insurance is going to be especially important if you have cars owned by your business. If an employee driving one of your vehicles damages another car or injures someone, your business auto insurance policy would generally pay the costs you are liable for, up to your policy’s limit.
Note: if you are using your own personal car for business, some private auto insurance policies might exclude coverage for an accident if the car is used mainly for business. Double-check with your agent to see if switching to business auto insurance is a safe bet.
There are a few more types of commercial insurance that might be worth purchasing for your small business, depending what type of services you conduct or what products you sell.
This type of commercial insurance might come in handy if you’re at risk of major losses or suits. Essentially, it provides coverage for anything that goes above what your other insurance covers. For example: you get sued for $2 million, and your business liability insurance will only cover you for $1 million. The umbrella policy would typically go towards covering the remaining $1 million, and it can usually be applied to other liability insurance policies as well.
The Terrorism Risk and Insurance Act (TRIA) requires owners of certain types of commercial property to offer business owners the opportunity to buy coverage against terrorist attacks. The TRIA also requires business owner policies (BOPs) to offer terrorism insurance in packages, but small business owners are not required to buy it.
Key employee insurance
Could be used to compensate a business if a key employee dies or is disabled. This might help with lessening any adverse impacts from losing a key employee’s presence.
Difference between group and individual healthcare plans
If your business has fewer than 50 full-time employees, you might not have to offer health insurance to your employees. Still, you can purchase a group health insurance plan to cover your employees.
Group health insurance can provide for yourself and your family, your employees (and their dependents depending on the plan), and there might be tax incentives available depending on your situation. As the employer, you will typically cover a percentage of the employees’ premiums. You need to qualify as a business in your state to get this type of insurance. Talk with your accountant or a licensed tax professional to find out more.
Your own individual health insurance cannot cover your employees, meaning they will have to buy individual plans for themselves if you do not provide a group health insurance plan. You do not need to qualify as a business to get individual health insurance.
Tax incentives aside, it’s important to consider the welfare of your employees. If health insurance is not offered with any full-time positions, you might be missing out on hiring great employees and risk losing the quality employees you already have.
Package deals on small business commercial insurance
In order to keep costs low, it could be a good idea to buy a packaged commercial insurance deal, such as a business owners policy (BOP). This policy combines coverage for most property and liability insurance risks, and a few additional coverages that will benefit most small businesses.
By purchasing a bundled policy like the BOP, you could save on costs and make sure you’re well covered by commercial insurance policies.
This article is only for general information and is not tax or legal advice. Consult your tax or legal advisor for guidance.