For business owners asking themselves, ‘What business insurance do I need?’, the following guide will provide a general overview of the types of insurance policies most small business owners should purchase. Although different countries or states may require specific insurance coverage for businesses, this article will attempt to address universal requirements as well as requisite insurance coverage needed when operating internationally.
When running a business, you assume a series of economic and personal responsibilities, therefore, it is vital that you protect yourself from financial liability. Your business activity may have a direct impact on employees or consumers, making you accountable for your actions and unforeseen mishaps. Insurance safeguards your business financially if employees, customers or assets are harmed by incidents such as accidents, defective products, fire, or at worst, loss of life.
Considering any mishap can financially cripple your business, it is important to protect yourself from unexpected exposure. Most small businesses are required by law to have insurance for certain types of business activities that can affect consumers or employees. Also, if you own or rent a space where you conduct your business, you are generally obligated to have general liability and property insurance. When it comes to employees, insurance can cover worker’s compensation or casualties if your employees operate machinery, drive or handle hazardous products.
Business insurance can vary from country to country, and even from state to state, therefore, you must consult with a certified insurance broker or business association in your area to understand which types of insurance may be required for your business and which types of insurance can protect you from liability.
Business insurance coverage will protect your business from any loss you may incur during your day to day operations. There are many types of business insurance, including coverage for legal liability, employee risk and property damage. As a business owner, you must determine your insurance needs based on your exposure to potential risk, which may depend on the activity you conduct or the environment in which you operate.
Small business owners must carefully assess their business insurance needs to protect themselves from personal liability in the event of a loss. Oftentimes, new business owners are juggling several responsibilities at once, therefore, it is smart to seek the advice of a licensed broker or small business association to determine the type of business insurance you will need. Business insurance can range from professional liability insurance, property insurance, home-based business insurance, product liability insurance, vehicle insurance and business interruption insurance.
Business insurance, which is also known as commercial insurance, can protect business owners from financial loss resulting from property damage, accidents, injury claims or even lawsuits. Essentially, business insurance will ensure that your company can continue to operate after suffering a significant financial loss, such as property damage due to a fire or natural disaster, or bodily injury resulting from accidents. These losses can be extremely costly and easily bankrupt a small business.
In the UK, for example, Independent research, commissioned by the British Insurance Brokers’ Association (BIBA), has shown that millions of small and medium-sized enterprises fail to protect themselves and their employees in the event of emergencies such as fire, flood or an act of terrorism. Government figures reveal that “nearly one in five businesses suffer a major disruption every year.” Further research also indicates that “80% of businesses affected by a major incident close down within 18 months, and 90% of those who lose their data are forced to close down within two years,” according to the British Insurance Brokers’ Association (BIBA).
Business insurance is not meant to cover small, day to day losses, such as slight mishaps or minor property damage, that can be easily absorbed by a company, which is why most commercial policies, much like auto or medical insurance, have deductibles. Larger losses resulting from water damage, fire or serious accidents may be covered by standard insurance policies, however, it is important to note that some natural disasters like earthquakes and floods may not be covered under standard property insurance policies. Coverage for these unforeseen events is often provided under specialized insurance policies at an additional cost.
Each business sector requires different types of insurance depending on the level of risk employees or consumers may face. The following are the most common types of insurance coverage small business owners should have to protect themselves from financial liability.
1. Professional Liability Insurance
Professional liability insurance, also known as errors and omissions insurance, covers businesses against negligence claims as a result of harm uncured from negligence or error. Each industry, depending on its activity, has risks that will be addressed in an insurance policy specifically drafted for the business.
2. Property Insurance
Regardless of whether your business is located in a privately owned or leased space, property insurance is vital. This type of insurance covers equipment, inventory, furniture, signage and other assets in the event of a fire, storm or theft. Oftentimes, natural disasters like floods and earthquakes are often not covered under standard property insurance, therefore you’re advised to ask your insurance broker about a separate policy.
3. Workers’ Compensation Insurance
If you have employees, you should have workers’ compensation insurance to cover medical treatment, disability and death benefits in the event a staff member is injured or dies while performing work-related duties. Even employees tasked with low-risk work should be covered since slip-and-fall injuries or medical conditions like carpal tunnel syndrome could prove costly to employers.
4. Home-Based Businesses
If you work from home, business insurance is also essential since homeowners’ insurance policies don’t cover home-based businesses. To properly protect your business, you should ask your insurance broker about commercial property insurance to cover your equipment and inventory in the event of fire or water damage.
5. Product Liability Insurance
If your business manufactures products that are marketed to consumers, product liability insurance is critical. Even the most innocuous products can be subject to liability if they cause damage, therefore, having product liability insurance will protect a business from loss. Again, each industry has specific types of coverage available, depending on the products you market.
6. Vehicle Insurance
If your business uses vehicles, they should be insured to protect your business from liability if an accident occurs. Businesses should be insured against third-party injury as well as accidents. If your employees use their own cars, their insurance will cover them if they have an accident, yet they won’t be covered if they have an accident while delivering goods or paid services.
7. Business Interruption Insurance
In the event of a disaster, your business operations may be interrupted, therefore, you may suffer a loss of income if your employees are unable to work in the office or shop, make business calls or manufacture products. Business interruption insurance can compensate your business for loss of income during unforeseen events.
In addition to the types of insurance mentioned above, small business owners may want to keep the following types of insurance policies in mind, depending on their sector, activity, installations and assets:
1. Sprinkler Leakage Insurance
Though property insurance may cover damage resulting from sprinkler leakage, it is best to ask an insurance broker if additional coverage may be beneficial. Businesses that deal with important documents might want to consider this type of insurance since losing highly-sensitive documentation can be quite costly. Also, companies with significant electronic and computer equipment will be protected if a sprinkler system should damage expensive equipment. The cost of sprinkler leakage insurance premiums will depend on the replacement costs of documents or equipment.
1. Internet Business Insurance
Loss of data due to hacking or theft can be extraordinarily expensive and can easily bankrupt a company, therefore small- and medium-sized businesses that conduct business over the web will benefit from internet business insurance, a relatively new type of insurance policy, which protects against security and privacy breaches. Also, businesses that have multiple locations which require e-mail and other digital transmissions, may want to consider internet business insurance.
1. Crime and Fidelity Insurance
This type of insurance protects businesses from workplace theft and fraud. Though not very common, crime and fidelity insurance is often demanded by customers of certain businesses, such as art storage, to protect valuable possessions left in the care of another.
Though business insurance is relatively the same regardless of country, companies that operate across borders may require international business insurance if their employees travel to other countries for business-related work, perform service work abroad, have sales or operations offices in other countries, sell services or products abroad, import finished products or finished goods from other countries, use the internet to sell services outside of the country or participate in international exhibitions, trade fairs or conferences.
1. General Liability Insurance
1. While general liability insurance usually provides coverage only in the country where the business is located, general liability insurance in the US usually extends to Canada as well. However, businesses that open an office in another country may also want to obtain local coverage, in addition to an international policy.
2. Professional Liability Insurance
Professional liability insurance is usually international. It offers protection for businesses against claims that the company’s work failed to meet a client’s expectations. Businesses are often required to obtain professional liability insurance before entering into a contract with a client. This type of policy also protects against negligence or alleged negligence and covers a business from actual or alleged omissions and errors made while affording professional services.
Professional liability insurance also covers a legal defence for a claim, personal injury in cases of slander and libel, acts committed while providing professional services, and damages resulting from copyright infringement. This type of coverage for claims for services can be provided anywhere in the world.
3. International Workers’ Comp
International worker’s compensation is often vital for businesses that operate internationally since worker’s compensation for one country doesn’t necessarily provide international coverage. Therefore, a comprehensive international workers’ compensation package is essential if a company has employees who work in other countries.
This type of insurance is indispensable if a company does business or has employees in a third world country since foreign voluntary workers’ compensation will cover endemic diseases, such as malaria and dengue fever, aside from standard medical and indemnity benefits. Also, international business insurance covers emergency medical expenses for management or employees who travel abroad, as well as certain evacuation expenses.
The main reason why business insurance is vital, especially for small- and medium-sized businesses is that it can protect a company from losses resulting from accidents, property damage, liability and claims that could potentially threaten the viability of a business. According to Mitchell Smith, Managing Principal of Vanbridge Insurance Services in Boca Raton, Florida, “Small business owners should consider the ramifications of the loss of revenue and the succession of the business they’ve worked so hard to achieve.” Essentially, business insurance means peace of mind for business owners, allowing them to focus on growing their business without fear of interruption or loss.
It is vital that regardless of your business location or activity, you conduct extensive research before launching your company and consult with a certified insurance broker to ensure that your business, as well as you and your staff are properly covered. According to Eric Galbraith, Chief Executive of the British Insurance Brokers’ Association, “Every business needs to be properly prepared for a worst-case scenario. Small businesses are vital to the UK economy and we simply cannot afford for them to be complacent. I urge every business to urgently speak to their broker to ensure they are properly covered.”