When you run a business, you open yourself up to a new level of responsibility and the accompanying liability. That is why you must have the right insurance coverage in place before you get started. Unfortunately, many small business owners fail to secure proper coverage. It may be because they underestimate its importance, or maybe they mistakenly believe coverage will carry over from personal policies. As you build your business plan, be sure to examine whether you need to invest in these five critical insurance policies.
1. General Liability Coverage
Business liability coverage pays for damages if someone is hurt or killed while interacting with your business. It also protects your company’s assets in case it faces a lawsuit. Depending on the type of business you operate, you might consider adding product liability coverage to your policy.
Even if you have solid personal liability coverage, it almost certainly does not extend to business activities. That can leave you with a gap in coverage if someone is hurt visiting your business. Don’t cancel your personal coverage. Instead, add a business liability policy to your portfolio. This helps keep the two separate, which could be an important step in protecting personal assets if you face a lawsuit.
If you offer professional services, consider purchasing professional liability insurance as well. This will protect you against injury claims based on improper conduct or inferior work.
2. Commerical Property Insurance
Any facilities and equipment are typically covered by a commercial property insurance policy. This should have coverage limits sufficient to pay for the loss of listed items. It is also a good idea to check exclusions before choosing a policy.
Property insurance pays for losses due to several situations, including theft, vandalism, fire, lightning, and wind. In most cases, coverage extends beyond buildings to most physical assets of a business, including:
- Computers and other technology items
- Personal property (when located on covered business property)
- Landscaping features (benches, sidewalks, fencing, etc.)
3. Commerical Auto Insurance
Whether you have one company car or an entire fleet of them, you should have a complete and comprehensive commercial auto policy. These usually provide higher coverage limits than personal policies, which help protect a business’ financial assets in the event of an accident.
Carefully consider your policy limits and deductibles when choosing an auto policy. You will also want to be sure that all drivers and vehicles used for business purposes are covered. For example, if employees or volunteers operate personal cars for work, you may need to add hired and non-owned auto insurance to eliminate coverage gaps.
4. Health Insurance
When you work for another company, you often have the option for health insurance. However, when you own a business, you will need to find coverage on your own. You have several possible approaches to this.
First, you can buy a private policy through an agent or state insurance marketplaces. You might also choose to buy a small business health plan for yourself. You can also extend coverage to employees this way. Another option is to choose a cost-sharing program. However, this is not true insurance, so it can be easy to accumulate bills if you have a chronic illness or are injured.
5. Workers’ Compensation
Workers’ compensation insurance pays for medical costs and partial wage replacement if someone is injured on the job. Your need for coverage will vary depending on where you operate. Most states have a workers’ compensation requirement for business owners. This generally requires employers to maintain coverage as long as they meet certain thresholds, such as a minimum number of employees. Rates are based on factors such as your industry, business size, and claim history.
Having the right coverage in place when you operate a small business is critical to protecting assets. Some policies cover physical assets, others offer protection for employees, and others shield you against medical bills or legal fees during a lawsuit. Be sure you understand each type of policy to determine which ones are necessary for your operations.