Insurance is a vital safety net that businesses simply can't do without. After all, regardless of industry or sector, companies are incredibly vulnerable to accidents, lawsuits, and other unforeseen events, often more so than individuals.
Unlike personal insurance, there are many different types of insurance policies for business enterprises, too. Figuring out what is essential for your business can be hard, especially if you are just entering the world of commerce.
However, just because there are a numerous form of insurance, it does not mean that you need to purchase all of them for your company. Insurance costs can be significant and some of these policies are only applicable in specific scenarios which may not apply to you. Therefore, it's important to understand the purpose of these policies.
Different Types of Business Insurance
To illustrate this, and to give you a better idea of what exactly you should look at purchasing, we've compiled a list of the 11 most common forms of business insurance for small businesses. When selecting what is appropriate, you will have to take into account several factors, such as the level of risk in your business, your annual revenues, your location, and your years in business. You will certainly need the coverage provided by a few of these policies, though, especially if you want to keep your business safe and secure in the long run.
1. General Liability Insurance
Also called business liability insurance, this is a type of policy that provides broad coverage to your company. It can protect you against claims arising out of injury or property damage caused to others during business operations, any damage caused to properties rented by your firm, medical claims, and other types of legal injuries.
Regardless of the kind of business that you run, general liability insurance is almost mandatory. Many clients or companies may even refuse to work with your business if you don't have liability insurance. Do keep in mind that it only covers damage caused to third parties, though – not to your own business properties.
2. Commercial Property Insurance
If your firm owns or leases any buildings or equipment, this kind of insurance can provide financial protection in the event of accidents, fires, storms, and other potentially damaging events. If you run a home-based business, do not depend on home insurance for coverage!
Damages caused to business property is not covered by home insurance policies; therefore, you should consider getting separate property insurance. Remember, too: if you rent out your property to others, you will need separate renter's insurance to cover any damages caused by tenants.
3. Commercial Auto Insurance
This one is only applicable if your business owns or operates any vehicles as part of its day-to-day operations. If the vehicles end up in any accidents or collisions, your company funds and assets will be protected from claims by this insurance product.
4. Worker's Compensation Insurance
If you have any employees, it is highly recommended that you obtain this type of insurance at the earliest opportunity. It covers any claims that may arise from injury, death, or medical treatment of employees.
Even if your business does not involve any high-risk work areas, you should not avoid worker's compensation insurance. Indeed, in many countries and states, it is often a mandatory requirement for all employers.
5. Professional Liability Insurance
Does your business involve providing expert services to customers, such as accounting or medical practice? Failure to provide adequate service due to errors or negligence can result in damage claims from clients. You will certainly require professional liability insurance to mitigate the effects of these claims should they arise, and prevent them from shutting down your firm.
6. Product Liability Insurance
Similar to professional liability insurance, this type of insurance is for businesses that sell any form of product in the marketplace. If a consumer suffers injury or damages due to faulty designs or manufacturing of your product, then the result will inevitably lead to damage claims.
Large corporations have been forced to pay out billions of dollars as a result of such claims, so even if you have a well-designed and tested product, it is always prudent to seek coverage just in case.
7. Business Owner's Policy (BOP)
This is a complete insurance package tailormade for business owners. It can contain everything from general liability insurance to property insurance, auto insurance, business interruption insurance and more.
Most insurance firms that provide this package allow you to cherry-pick the policies that you need. One attraction of a BOP is cost saving; as a bundle, it usually costs less than the combined cost of individual policies bought separately.
8. Commercial Umbrella Insurance
Consider this scenario: you have taken out the most common policies, such as general liability, property, vehicle, and worker's compensation coverage, but you still feel that your business is not adequately covered from claims.
Commercial umbrella insurance is designed to assuage these fears by providing an extra layer of protection, as an umbrella insurance policy will cover any liability that is not fully covered by your other policies.
For example, if you get sued for $1m in injury damages when your firm only has general liability coverage up to $750,000, your umbrella insurance policy would provide the remaining $250,000.
9. Cyber Liability Insurance
Does your business have a strong online presence? Do you handle a lot of client and customer data – especially of a personal or financial nature? These days, cyber attacks, viruses, and data breaches have become a common threat in business. Cyber liability insurance is designed to protect your firm if any lawsuits or damage claims arise due to a data breach.
10. Business Crime Insurance
This type of policy exists because property insurance does not cover damages caused by criminal acts such as fraud, robbery, forgery, and theft. If your firm is particularly vulnerable to these types of crime, then you should consider getting a standalone policy. That way, you get to specify which crimes you need coverage for.
11. Equipment Breakdown Insurance
You can purchase this policy either as a standalone product or as an addition to your existing commercial property insurance. This kind of policy makes sense in firms that have a lot of critical equipment or machinery and covers any losses suffered due to malfunctions or breakdowns due to electrical or mechanical failures.
Other Common Add-On Policies
Some business insurance products are commonly provided as additional coverage features to existing policies, such as general insurance, BOP, and property insurance.
Other examples include:
- Accounts Receivable Insurance: Data loss or fires can restrict your firm's ability to recover payments from clients due to loss of billing information. This is one scenario where this type of insurance product can make a huge difference.
- Business Interruption Insurance: Also known as business income insurance, this covers any income loss suffered by your organisation due to temporary shutdowns, caused by natural disasters, strikes, and other events.
- Business crime insurance and equipment breakdown insurance are also available as add-ons.
This list provides ample proof of the sheer amount of diversification in the business insurance market; there are many different policies and packages that are designed to provide maximum coverage at reasonable costs.
Of course, adverse events are bound to happen sooner or later in business; with careful planning and execution, some of them can be avoided or even prevented altogether. But for the vast majority of unpredictable events, however, insurance is the best defence that you can arrange for your organisation. Just make sure that you know what type of coverage you need.
What other types of insurance should business owners consider? Let us know your thoughts and expertise in the comment section below!