Navigating your insurance needs can get complicated, particularly as your business grows in size. A brand new business may not need the same coverage as one that’s opening new locations and expanding. When it comes to timing, when should a business owner get certain types of insurance, and how does one determine how much coverage is necessary?
Understanding The Most Common Types of Business Insurance
As a business owner, your common liability concerns are going to relate to mitigating risks associated with your customers, your workers, and your business property. There are several insurance types that cover these core areas, however there’s not much “overlap”, so it’s important to understand how exactly each coverage works and when it is applicable to your business (so you’re not unprotected when an issue does arise).
Depending on how developed your business is, there are several commonly utilized policies which may apply to your situation such as General Liability, Workers Compensation, Commercial Property, Cyber Liability, Errors & Omissions and Directors & Officers. We’ll cover the basics of these and when they come into play.
What it is: A General Liability policy primarily helps mitigate your risks associated with bodily harm to customers (or other third parties) or damage to their property related to your business operations. This is one of the most commonly purchased types of business insurance.
When to purchase: You should purchase a General Liability policy when your business has physical interactions with third parties. In particular, if you have a storefront, there’s a variety of potential risks such as the simple slip-and-fall claim that can become particularly expensive for a business to deal with if not covered. This is not a policy that is contingent upon the age or size of your business, although it grows increasingly more necessary as your business grows in size.
What it is: Workers Compensation covers employee medical expenses and wage replacement for the time they’re out of work due to a work-related injury. It can also provide coverage for employers in the case that an employee brings a lawsuit against the company.
When to purchase: Whether Workers Compensation is mandatory for your business is dependent upon the size of your business and the individual requirements from your state. Most states require coverage once a business has 3-4 employees. A business can always purchase this insurance even when not mandated by the state, and indeed it’s often recommended within industries where workplace injuries are more common.
Commercial Property Insurance
What it is: Commercial Property insurance will cover the cost of loss or damage to business property, and may cover your business for lost income due to a business interruption. One thing to keep in mind is that this policy has a certain set of “covered events”, which often won’t include earthquakes or floods, so if your business is located within an area for which these are common risks, you’ll want to look into separate coverage.
When to purchase: If you lease property, Commercial Property coverage with certain limits may be required by your lease agreement. Even if this is not the case, this coverage is generally recommended if you have office space, a storefront, or expensive equipment, as the potential costs when it comes to property damage can be quite steep.
Cyber Liability Insurance
What it is: Cyber Liability insurance provides coverage for your business in the case of a cyberattack. In these cases, businesses often face significant costs having to do with mandatory notifications and legal requirements having to do with compromised personal data of customers or employees. As the average cost is $158 per breached record, Cyber Liability coverage can prove quite valuable, particularly for companies that collect and store payment information digitally.
When to purchase: Businesses that have products which are technology-dependent or that store personally identifiable information (PII) of customers or employees should consider this coverage. Many small businesses don’t believe they have the scale to need coverage, however they’re increasingly facing cyberattacks and a large portion can’t easily cover the associated costs.
Errors & Omissions Insurance (E&O)
What it is: A policy quite common for businesses in the service industry, E&O insurance covers instances in which a claim is made indicating that your company made mistakes during the course of business that resulted in a loss for the customer. This coverage will mitigate the costs associated with legal expenses and potential payouts for E&O claims.
When to purchase: Whether your business needs E&O coverage primarily depends on the type of service you’re performing for customers, as well as your scale. If you’re regularly providing advice or analysis for other companies or individuals, particularly relating to their finances or legal decisions, E&O is commonly recommended.
Directors & Officers Insurance (D&O)
What it is: This insurance policy is designed to help mitigate risks associated with decisions made by the directors of officers of your business. D&O claims include such things as wrongful termination, regulatory noncompliance, and claims of misrepresentation. This policy will cover the costs of investigation, legal expenses, and potential payouts.
When to purchase: Companies often consider D&O liability insurance as they begin setting up a board of directors and increasing their pool of shareholders. In some cases, potential board members or executive hires will request coverage before joining the business, as it will provide them protection in performing their functions for the company.