Small business owners are not only responsible for managing and growing their businesses, but they are also responsible for protecting the assets of the business and its employees. This is why business insurance is important and, quite often, mandatory.
What Are the Different Types of Business Insurance?
General liability insurance protects a business against accidents and injuries that might occur on its properties. Rates depend on the size of your business, payroll amount or square footage and the specific risks related to your industry.
Professional liability insurance, known as errors and omissions insurance, protects the business and its employees against claims from clients for negligence, malpractice and injuries from poor product quality. This insurance would cover the cost of settlements of lawsuits and court expenses up to a specific amount. E&O is standard insurance that you should get no matter what industry you’re in. Each industry has its unique risks that should be covered by a customized policy.
It doesn’t matter whether you lease or own your business space; property insurance is essential. You’ll need coverage for equipment, inventory, furniture, machinery and signage in the event of damage from fires, storms or theft. If your area has a history of floods or earthquakes, standard property insurance rarely covers these risks. You’ll need to get a separate rider for this coverage.
Property insurance is usually written on an all-risks basis but may exclude specific risks. For example, all policies cover losses from fires, but may not cover such things as hail storms and explosions. Depending on your location and type of business, you may want to buy additional coverage for specific risks that are unique to your circumstances.
Whenever possible, you should buy insurance that covers the replacement costs of your properties at current prices. It’s also a good idea to purchase replacement insurance that is adjusted for inflation. This would adjust the policy cap to allow for increased prices from inflation.
Home-based Business Insurance
If you are operating a home-based business, you might think your homeowner’s insurance provides adequate coverage. Unfortunately, it doesn’t. Think about what would happen if the UPS guy slips and falls while delivering a business package to your door. Your homeowner’s policy would not cover that incident since it would be business-related.
A business-owners policy, or BOP, provides the most comprehensive property damage and liability coverage for a home-based business. It would cover office equipment, such as computers and software, and could include liability coverage for products that you sell or install off-premises.
All 50 states require businesses to carry workers’ compensation insurance to cover the medical costs and a portion of their wages for employees who are injured on the job. Generally, states set the rates for workers’ comp insurance, which you must purchase through a private insurer. Rates will vary by industry, amount of payroll and the claims history of the company.
All states also require businesses to carry unemployment insurance. This insurance guarantees that employees will receive a portion of their wages after a job loss or termination.
However, you do not purchase unemployment insurance from an insurance carrier. Instead, companies pay federal unemployment taxes, FUTA, and state unemployment taxes, SUTA. Each state handles this program for businesses and employees. The rate for unemployment insurance depends on the number of employees, the frequency of employee turnover and whether your business is new or established.
One of the worst nightmares for a small business owner is not being able to work as a result of a severe accident or a long-term illness. Disability insurance will pay you a fixed amount of income, usually around 60% of your average wages, while you’re recovering. Since the owner is typically the business’s most vital asset, it’s a good idea to get disability insurance for yourself and key employees as soon as you start the business. A few states require businesses to provide disability insurance for all employees, so you’ll need to find out if your state does require it.
While property insurance may cover losses from hurricanes and earthquakes, as examples, what about the income lost while your business is not operating? For that coverage, you’ll need business interruption insurance. Rates for these policies are based on the income of your business.
If your business has company cars, vans or trucks, you should have vehicle insurance to cover property damage and liability claims from third parties.
If you store any sensitive or non-public information about clients or employees on your computers, you are responsible for protecting that information. A data breach policy will protect against any software attacks or theft of this information.
How to Select the Right Insurance Company
Follow these steps to determine what kind of insurance you need and which carrier will be best for you.
Identify Your Risks
Think about what kind of natural disasters, accidents or lawsuits could happen and would put you out of business. Each business is different, so it’s important to look at your company and identify what kind of specialized coverage you might need.
Find an Insurance Agent
Licensed agents can either be captive and work for one insurance company, or they could be brokers who represent several companies. Be aware that these agents work on a commission basis. So you want to feel comfortable they are working in your best interest and not just trying to make the highest commission.
Premiums and benefits will vary widely between insurance companies. You’ll need to get quotes from several different agents and compare the rates, terms and benefits.
Re-evaluate Your Insurance Needs Each Year
As your business grows and you add employees, your insurance needs will change. You will have more property that needs coverage and your liabilities will increase. Discuss these changes with your agent and learn how they will affect your coverage.
7 of the Best Companies for Small Business Insurance
The best small business insurance companies offer basic coverage, such as general liability and property insurance, but some businesses need more customized policies. These reviews of the best small business insurance companies highlight their strengths and ability to cover unique situations.
State Farm gets high ratings for the best customer service. Since State Farm sells through a nationwide network of captive agents nationwide, you’re not going to get quotes from other insurance companies. Unlike their policies for consumers, you cannot get quotes for business insurance online.
State Farm offers business insurance for general liability, property, professional liability and has an umbrella policy to cover excess claims.
The Hartford offers the best business owners policy, BOP, on the market. It’s the most flexible and comprehensive policy available. Their BOP offers “stretch endorsements,” which means you can add other individual coverages as needed based on the specific requirements of an industry, such as restaurants.
Other insurance companies only include property insurance and general liability under a BOP, but the Hartford goes further, offering business interruption insurance as well.
If your goal is to get the most comprehensive coverage for the lowest-cost, then Insureon is a good choice. Insureon is not a carrier but a clearinghouse with several carriers as partners. You can fill out one questionnaire with Insureon and get quotes from several A-rated carriers. This allows you to compare each carrier in terms of price, coverage, deductibles and customer service.
Since Insureon works with many carriers, it can provide a wide range of insurance policies for small businesses. In effect, Insureon is a one-stop-shop for insurance for small business owners.
If your business relies on delivery or transportation and you have fleets of vehicles, then Progressive would be a good choice for your business insurance. They are the leading commercial vehicle insurer in the country, covering business trucks, cars and trailers in all 50 states. Their adjusters even receive specialized training for handling business vehicle claims.
The downside of Progressive is that they don’t offer a full range of other types of business insurance coverage. However, they do partner with other carriers to provide additional coverage, such as general liability and property insurance.
Nationwide is one of the top-rated business insurance companies, according to JD Power. Nationwide received five-star ratings for overall satisfaction, policy offerings, pricing, billing and payment and handling of claims.
While Nationwide specializes in property and casualty insurance, it also offers a wide range of employee benefits, such as retirement planning and group insurance. This makes it convenient for an owner to get coverage for the business and create a benefits package for the employees with the same carrier.
Also, Nationwide offers BOP coverage for businesses up to $5 million in annual revenue; other insurance companies limit their BOP coverage to small businesses with less than $1 million in revenue.
Farmers separates itself from other insurance carriers by creating coverage for specific types of businesses, especially retail stores like bicycle shops and boutiques. They start their industry-specific plans with a basic BOP and then modify the coverage for each owner’s unique insurance requirements. Farmers offers umbrella policies that can extend your coverage in $1 million increments up to $10 million.
Liberty Mutual has been in business for more than 100 years and has experience working with businesses of all types, sizes and industries. It has extensive experience in managing risks for specific sectors, which gives it an edge for insuring manufacturers. Policyholders can log into the company’s SafetyNet website to view training videos and get other advice on safety practices and procedures that will help to reduce their insurance premiums.