Your business needs more than a strong business model or a brilliant idea to become (and remain) successful. Even great businesses can be vulnerable to damages beyond their control, such as natural disasters or major accidents, and all it takes is one or two significant incidents to seriously compromise the financial tenability of the business.
Insurance exists to protect businesses and individuals from these types of risks. As an individual, it’s easy to figure out which types of insurance you need; for most people, it’s some combination of auto insurance, home insurance, health insurance, and life insurance. But for businesses, things get a little more complicated. There are many types of policies that could be helpful to your business, and some that are strictly required. Understanding the nature of these policies, and choosing the right policies for your business, can save you money and ensure you aren’t vulnerable to collapse after a damaging incident.
Types of Insurance to Consider
These are the main types of insurance you’ll have to worry about:
Workers’ compensation insurance is a legal requirement for businesses in most states. Even if it’s not an official requirement, it’s usually worth getting. Workers’ comp exists to provide benefits to employees who are injured on the job, regardless of the circumstances surrounding the injury. Even if an employee is responsible for their own injury, workers’ comp will cover the costs associated with it. Typically, an employee cashing in on workers’ comp benefits will not be able to seek legal action against their employer.
Auto insurance is a requirement for drivers of motor vehicles. Therefore, if you have a company car, you’ll need to think about auto insurance. Business auto insurance isn’t usually more expensive than the equivalent policy for personal auto insurance, though there can be some cost discrepancies. Shop around for the best auto insurance policy to make sure you’re getting a reasonable deal.
If your business owns any type of property, you’ll likely need to get property insurance. If you’ve paid for the property with a loan, you may be required by your lender to have a specific type of policy. Otherwise, you’ll need to choose a policy that provides you with the best protection; it’s unwise to operate without property insurance. Most property insurance policies will protect you from things like theft, property damage due to accidents, and some liability issues; for example, you may be compensated for legal costs if you’re sued after someone slips and falls on your floor. However, you should be aware that some property insurance policies are picky about what they cover; for example, they may not cover you for damages sustained in a flood or a similar natural disaster.
Though your property insurance policy may cover you for some liability issues, it may be a good idea to purchase an umbrella liability insurance policy. This type of policy will cover you for legal costs above and beyond what your other insurance policies may cover. You may also need a specific type of liability insurance depending on the type of business you’re running. For example, contractors and other hands-on experts may need professional liability insurance to operate legally, or to provide certain types of professional services.
Product liability insurance
Some businesses that make their own products should also work to get product liability insurance. This policy is designed to protect you from legal issues that may arise from the development and use of your core products. For example, if there’s a design flaw in your product or if there’s a hiccup in production and someone gets hurt using it, this policy will kick in to compensate you for the costs.
Business interruption insurance
If your business is shut down due to damage from a storm or if you’re incapacitated from an injury, you’ll get significant benefits from business interruption insurance. It can compensate you for any work you miss due to circumstances beyond your control.
You may not need all of these insurance policies, or even have a use for them, but you should be aware of them and what they cover if you want to be certain you have all the coverage you need.
Balancing Costs and Risks
“Necessary” forms of insurance are generally easy to adopt; the choice to get these policies is already made for you, and there are usually straightforward options with increasing coverage benefits and increasing costs. Things get more complicated when considering other types of insurance to purchase. If you’re just starting out or are working with a limited budget, you’ll be tempted to adopt fewer policies. However, for the most part, coverage can protect you from the most significant financial risks of business ownership, and it’s worth getting in every major area—even if it’s just a basic policy.