Risk is inherent in doing business, and it’s important to know how to manage it. Having the right insurance can mean the difference between whether your business survives a legal issue or goes under when dealing with an injured employee, negligent service or a harmful product.
“For small businesses, one claim has the potential to end it all,” says Mark Thompson, a strategic advisor at Insureon, an online insurance agency for small businesses. “Even if you win and you’re right, the cost to defend yourself can be prohibitive for small businesses.”
Business insurance policies don’t have to be expensive, and they can help protect against a variety of issues. Here are the kinds of insurance you should consider for your business.
The most basic kind of business insurance, this protects you from claims of personal injury, bodily injury and property damage. For example, this policy protects you if a customer falls and is injured in your store.
This insurance is sometimes included with general liability, Thompson says, but also is sold separately. It’s not always easy to tell, he adds, so be sure to read the policy closely. This insurance will cover your liability if a product you’re selling turns out to be harmful, such as makeup that causes rashes.
Business Owners Policy is bundled insurance that includes general liability and commercial property coverage. If you own the building you’re in, it covers the building, Thompson says; if you don’t, it covers office furniture and equipment. It also addresses business interruption costs if you can’t make money because the building you work out of burns down, for example.
Sometimes known as “errors and omissions,” this policy covers the service you provide if there’s a mistake or you’re negligent in your work. Accountants, health care providers, architects, engineers, programmers and so on benefit from professional liability coverage.
Laws vary by state, but in many cases carrying workers’ compensation is mandatory. Thompson recommends getting it regardless of whether it’s legally required where you work. This insurance covers injuries, illnesses or deaths employees might experience while on the job. A few states also require short-term disability insurance for employees, so check local laws.
Landscapers, janitors and certain other business owners may find out the hard way that their personal auto insurance doesn’t include commercial use. Your personal policy probably has explicit exclusions for commercial use, Thompson says, so if you need to use your vehicle for your work, get commercial coverage.
Employment Practices Liability Insurance provides coverage if an employee files a lawsuit for claims such as wrongful termination, harassment or discrimination, Thompson says. “The legal costs that would be required to defend against these claims can be enough to significantly impair a small business or even cause them to go out of business,” he says.
There isn’t a separate policy for home-based businesses, Thompson says, but any business run out of the home should be covered by a general liability policy or a BOP, similar to a business renting a storefront. “The premiums tend to be lower for home-based businesses, and when buying a BOP there would be no building coverage, but there would be a property limit for business property like computers, tools and so on,” he says.
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