There are some differences in business insurance requirements around the country.
For example, New Jersey business insurance has to include worker’s compensation and commercial auto coverage, at a minimum, while in Texas, by comparison, worker’s comp isn’t required.
While there are particular differences in what’s required depending on where you’re doing business, there are also some similarities and things every entrepreneur should know, no matter where they are.
The following are six important things to know about business insurance.
1. The Basics
Business insurance protects you from financial loss that could come from a number of unexpected events like property damage, loss of income, theft, employee injuries, illnesses, and lawsuits.
If there’s damage or injury, business insurance covers you partially or fully for your costs.
Sometimes, business insurance is referred to as commercial insurance.
Both are umbrella terms. They’re not actually names of a specific policy but instead include several types of policies.
Business insurance helps protect your assets, which can include not only your physical property but also your intellectual property.
If you’re a small business owner, you need to be especially mindful about evaluating your specific risks and making sure you’re covered because you probably have more personal financial exposure if you sustain a loss of any kind.
2. Types of Business Insurance
Some of the key types of business insurance to consider include the following:
- Professional liability insurance protects against negligence claims coming from mistakes or performance failures. There are a lot of different types of professional liability coverage, and the type a business owner decides on will depend on their industry and unique concerns.
- Property insurance is coverage for things like inventory and equipment if there’s a storm, theft, or fire. Property insurance doesn’t cover major destruction events like earthquakes and floods.
- Employee insurance can include worker’s comp, and as mentioned above, most states require this. If an employee is hurt or becomes ill on the job, having worker’s comp will protect you as the employer from being subject to civil lawsuits.
- Product liability coverage is something you should have if you make or sell any type of product. If your product were to cause damages, you could be named in a lawsuit.
- Vehicle insurance just means that you’re insuring any vehicles being used for business.
- Business interruption insurance is also known as continuation insurance. This coverage applies to companies that have a physical location where they do business, like a retail store. Business interruption coverage can provide compensation to a business because of events that disrupt their normal course of business.
- Commercial umbrella insurance is additional coverage for liability.
3. When You Need Insurance
No matter the size of your business or what you do, you’re probably going to need at least some level of protection from insurance. Even as a sole proprietor, you have to consider the risks that are unique to your business and how you can best protect yourself.
Specific situations where you especially need to ensure you’re covered include:
- You have employees. Employees create a lot of areas of possible liability that don’t exist if you’re working on your own. You’ll need, at a minimum, worker’s comp and disability, more than likely, and also possibly employer practices liability coverage.
- Your business is growing. It’s likely that the entire reason you started a business was for it to grow, so if you’re in a growth phase, think about what your liability is currently and what it could be in the future. Maybe you now have more employees or property than you once did or more profit. These things mean you’ll need to update or add to your insurance more than likely.
- You got a new vehicle. If you get a new business vehicle, you need to have insurance just like you would for a personal vehicle.
- To protect yourself in an industry-specific way. There are a lot of industries with available insurance policies that cover things more likely to happen in whatever that line of work is.
- You signed a lease recently. If you just signed a lease, you need general liability insurance. There’s a high likelihood your landlord will even require it.
- It’s the law. A lot of states require some type of business insurance, so you may need coverage to stay compliant.
4. Shop Around
It’s important, as is true with any insurance, that before you buy protection for your business, you shop around and compare. Commercial insurance providers use algorithms to determine risk, and they can actually give some pretty varied prices for the same inputs and information.
You could find substantially cheaper rates simply if you shop around. If you already have business insurance and you don’t necessarily need to change your level of coverage, you should still plan to comparison shop every year.
There’s something called a business owners policy that might be available to you or a BOP. A BOP will combine different types of protection into one plan, and you’re often going to get a lower price than if you got each type of coverage separately. It might, for example, include business interruption, property, and some level of liability protection.
You do need to be careful if you’re choosing a BOP because a lot of them don’t include professional liability insurance or auto insurance, and worker’s comp is almost always going to be separate.
There are different kinds of bundles too. You might, for example, be able to bundle your personal insurance, like your homeowner’s policy, with business coverage.
Finally, is it illegal to operate a business without insurance? The only real answer is that it depends.
You have to find out what your state requires to be legally compliant. In most states, for example, if you don’t have worker’s comp, you can be fined and face penalties. You’d also likely be responsible for paying out-of-pocket for the medical care of your employees if they had a work-related illness or injury.
It’s not really about legality when it comes to business insurance, though—your business could end up losing everything, and you could personally as well if something unforeseen happened and you didn’t have appropriate coverage.