By Mitchell Sharp
It is human nature for a small business owner to wonder how much insurance coverage their business really needs. Granted, to be successful in business you have to be comfortable with some amount of risk. Just taking the first step to open your own business is a risk, so assuming risk is something business owners are at least somewhat familiar with. How much and what types of risk the business is willing to take is completely unique to the industry the business operates in and the philosophy of the business owner. Buty most business owners decide it’s prudent to obtain some level of insurance coverage to reduce risk.
For most businesses, here are 5 coverages every small business owner should purchase and 3 additional coverages you should strongly consider.
General Liability coverage protects your business from damage to third parties not associated with your business. Third parties can include customers, the general public on your property, vendors you do business with or anyone that could potentially be damaged by the actions of your business.
Workers’ compensation is the ‘exclusive remedy’ for injuries that occur to employees as a part of normal business operations. It gives workers the confidence to know that if they are injured on the job, they will have their medical costs and some lost wages covered for the time they are not able to work. Employers benefit from the policy by not having to worry about being sued for injuries that occur as a normal part of business operations.
Business Interruption coverage will protect your business if your business has to be closed for an extended period because of another covered loss. The covered loss is an important part of this coverage. If you are the victim of a hurricane or a flood and you do not have this coverage in place then the business interruption coverage does not kick in. This is typically included as a part of a business owner’s policy (BOP).
Employment practices liability insurance (EPLI)
EPLI coverage is designed to protect your business from lawsuits relating to the employment process. Over the past decade these types of lawsuits have increased significantly. If you stay in business long enough, chances are you will face one. The difficult part of determining if you need this coverage is that a lawsuit does not have to be founded and you do not have to be found guilty for it to cost your business immensely. These costs are in the time it takes you away from your business to defend yourself in court and the legal fees you incur.
Commercial auto or hired and non-owned auto
Coverage for vehicles is needed whether or not your business owns a car. If you own vehicles, then you need to have a commercial auto policy and all drivers need to be listed on the policy with your carrier. If you or your employees use their personal car for business purposes, the business needs to have what is called a Hired and Non-Owned Auto Policy. This is needed because your business is liable for any damages that occur as a result of the time spent driving for the business. This goes for rental cars that an employee may be using as a result of the business.
Here are 5 additional policies that all business should consider purchasing after consulting with a trusted independent insurance agent.
Also referred to as Errors and Omissions (E&O) or Medical Malpractice, this coverage protects professionals who provide advanced services or give technical advice to their clients. It is common for doctors, lawyers, accountants, financial advisers, engineers and architects to need this coverage. The policy is sold on a claims made or occurrence basis, and it is extremely important to know which type your coverage is. Purchasing the wrong type of this coverage could cause you to have a lapse in coverage and be liable for claims. Most independent insurance agents should be able to explain this technicality and help you purchase the proper type of coverage.
Also known as ‘equipment coverage’ or ‘floaters insurance’, inland marine insurance is a specialized form of property insurance. It is designed for specialized equipment that is not a building or a vehicle. It is commonly needed for businesses that have equipment that is intended to be moved. A good example of this is a lawn mower for a landscaping company or any product that is being shipped.
Commercial property coverage is designed to protect a business from legal liability and property damage. It is more extensive coverage than a personal homeowner’s policy. They can be written on an all risk or named peril basis. All risk is designed to cover everything except risks specifically excluded on the policy. A named peril policy is designed to cover only specific incidents and perils listed on the policy. A named peril policy can be less in premium and is best for businesses that have less potential risk than other businesses that might have a higher frequency and severity of claims.
Data breach and cyber liability
Cyber insurance deals primarily with damage that occurs as the result of a data breach. It is sold as two policies that are commonly packaged together. The two types of coverage are divided in to first and third person coverage. First person coverage, commonly referred to as data breach coverage, covers the damage that is caused to you and your business. Third person coverage protects your business from damage done to others.
Umbrella coverage is protection that adds on to existing policies. It is a first person policy like data breach coverage. It only adds on to the limits of other policies that are in place. That is an important part of the coverage. An umbrella policy only kicks in on top of other existing policies. If there is a loss that is not covered, this coverage will not kick in to cover that loss. A prime example of this is when a flood or hurricane causes damage to your property. If these coverages are in place, but they do not cover the full replacement value, an umbrella policy can cover the additional costs up to the limits of the umbrella policy. If the damage from the hurricane is not covered by a coverage you have in place than the umbrella policy will not be activated.
Mitchell Sharp is a Marketing Associate for General Liability Shop. Mitchell has extensive knowledge of workers’ compensation and cyber liability. His passion is in using his knowledge of commercial insurance, social media and content marketing to benefit the small business community.