7 Types of Insurance For Your Small Business

It is illegal to drive a car without maintaining auto insurance, and few reputable lenders will fund a mortgage without evidence of homeowner’s insurance on the property. Yet, plenty of first-time entrepreneurs try to build a brand new business without any kind of insurance whatsoever.

Insurance is essential for protecting a business owner’s assets and investments. Whether you are launching your first venture or are a veteran entrepreneur, you may benefit from learning about the seven types of insurance that most small businesses need:

General Liability Insurance

General liability insurance protects a business from claims of property damage, bodily injury or personal injury. During normal business operations, almost every organization opens itself up to these types of risks; a customer might slip and fall in a store, or a delivery truck might damage the docking doors of a warehouse. Without general liability insurance, the business would be responsible for paying these claims out of pocket, and some claims can be upwards of hundreds of thousands of dollars — much more than most small businesses have available in their budgets. Thus, general liability insurance is the most essential type of business insurance for every organization.

Commercial Property Insurance

Next, business leaders need to invest in insurance that will protect their business’s physical property, to include their location, their equipment, their inventory and more. Fires, floods and other disasters can cause expensive damage to commercial property and having insurance to protect these assets can ensure that the organization can maintain operations despite the damage. Along with general liability insurance, commercial property insurance is a common and all but mandatory type of insurance for small businesses, which is why many providers bundle these two policy types together into a business owner’s policy (BOP).

Business Income Insurance

Business income insurance, which is sometimes called business interruption insurance, helps to cover an organization in the event of lost income. Specific policies will outline what types of perils are covered, and different types of businesses may want to prioritize different types of coverage. For example, restaurants — and businesses adjacent to restaurants — might seek coverage of lost income due to fire, and businesses located in high-crime neighborhoods might need coverage of theft. Because there are many variations of business income insurance, business leaders should consult with different providers to determine their needs and costs.

Workers’ Compensation Insurance

Accidents happen in even the safest work environments, and many workers experience work-related injuries and illnesses that make it impossible for them to perform their duties. Business leaders can use workers’ compensation insurance to cover the costs associated with workers’ medical treatment and replace wages lost during their recovery period. In most states, workers’ compensation insurance is mandatory, so business leaders and employees should work together to find the best options for their organization.

Commercial Auto Insurance

Small businesses that maintain a fleet of vehicles — or even a single commercially owned vehicle — need commercial auto insurance. This insurance policy covers vehicles owned by a business just like regular auto insurance does; it ensures that the business will not pay out of pocket for collisions or other types of damage done by or to company vehicles. This type of insurance is especially important for organizations that have workers drive company vehicles, for organizations in the business of leasing or renting vehicles and for organizations that have employees drive their own vehicles for work.

Professional Liability Insurance

Also called errors and omissions insurance, professional liability insurance protects a business from damage caused from mistakes in professional services. As mentioned above, accidents happen, and even expert employees can have lapses that can result in harm to the organization. For example, an employee at a financial institution might offer financial advice to a client, who ends up losing money due to the guidance. Professional liability insurance would cover any legal fees incurred by the institution in the event of a lawsuit from the client.

Data Breach Insurance

Data breach insurance is becoming increasingly important as small businesses become more prominent targets for cyberattack. Cybercriminals are eager to infiltrate small businesses because their cybersecurity tends to be more relaxed than larger organizations and because businesses have larger concentrations of valuable data than the average home user. Data breach insurance can help a small business cover the costs of an attack, such as hiring a public relations firm and offering services to victims of the breach.

Business insurance may seem daunting to entrepreneurs, but it is better to know that your small business is protected from damage before that damage occurs.