What Kind of Business Insurance Do You Need?
Business insurance is one of those gray areas. Do you need it or don’t you, and, if so, what kind? For certain businesses – for example, amusement parks and health care related industries – it’s an absolute necessity from the get-go, but what if you run a freelance business or engage in low-risk work? Is business insurance a requirement?
While it may not seem so from the outset, as your business grows and takes on additional risk, business insurance quickly becomes a must. The problem is that many smaller businesses ignore the issue of insurance until it’s too late.
One reason for this is that many small businesses often assume that by forming a Limited Liability Company (LLC), they’ll be afforded protection in the event of a lawsuit. However, while this structure can protect you from personal liability for business decisions or actions of the LLC – the liability protection is limited.
For example, if you inadvertently break intellectual property laws or are sued by an employee, you could face a lawsuit and potential losses that being an LLC cannot protect you against.
Of course, LLCs aren’t the only business structure that can benefit from business insurance. Sole proprietors, partnerships, S-Corps and Corporations all need insurance.
But what kind of insurance do you need? Here are four forms of coverage that you should consider (over and above healthcare insurance and any employer insurance obligations):
General Liability Insurance – This is the silver bullet for protecting you, your business and your employees from any damages incurred as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
General liability insurance is often sold as a catch-all and includes numerous add-ons that you can tailor to your business and its degree of risk. For example, if non-paying clients are a concern, you can add accounts receivable protection to your policy. Inland marine coverage is another option that can protect against loss or damage to business property when it’s not on your premises.
It’s also worth noting that oftentimes a client will request evidence of your certificate of general liability before doing business with you – another good reason to secure a policy before it holds up any potential new work.
Property Insurance – Whether you own commercial real estate or run a home-based business, protect your assets and the equipment, fixtures and furniture inside it. Property insurance is often rolled into general liability insurance, check with your broker to be sure. Home business owners should also be aware that home insurance doesn’t always cover home-based business losses. You may need to add additional riders to your home insurance policy or get other insurance to cover additional risk.
Professional Liability Insurance – Also known as errors and omissions insurance, this insurance protects against errors, malpractice and negligence in the provision of services to your customers. This is often recommended to businesses who provide services such as tax or financial advice, as well as physicians (who are often required by state law to carry this insurance).
Product Insurance – This protects businesses that manufacture, distribute and retail products against any financial loss incurred as a result of a defect product that causes harm or injury. Product insurance can also be tagged on to a general business liability insurance policy.
The Bottom Line
Insurance can be a confusing business. A good insurance broker can help demystify this process and put together a package based on your unique needs. Once in place, don’t forget to keep your policies current and under review (for example, if you take on employees or new assets).
Check out SBA’s Business Insurance Guide for more information and some useful tips on buying insurance.
Disclaimer: The information in this blog does not constitute legal advice. Seek the services of a lawyer if you have any questions about business liability.