What You Risk Without Small-Business Insurance

If you’re wondering what you’re risking by not obtaining small-business insurance, the answer is simple: everything. One of the most important aspects of protecting the security of your small business, insurance also seems to be the most overlooked. Hard work and creativity are the cornerstones of a successful company, but a simple lawsuit or theft could damage the integrity of your business and attack your personal assets, leaving you in the gutter. Obtaining the right small-business insurance is of utmost importance to the livelihood of your company, and your own livelihood as well.


The Basics of Small-Business Insurance

Getting a grasp on what small-business insurance is and does can be difficult. Simply having any type of insurance is not enough, as various types of insurance come into play in different situations. Most insurance companies offer certain packages that merge protection from chief liability hazards and property risks. These packages are known as BOPs, or a business owner’s policies. As a small-business owner, you would purchase a BOP made for small companies with similar risks. You could then add certain separately sold coverages onto your BOP. Business owner’s policies usually include:

  • Liability: This takes care of any legal responsibilities related to injuries to customers at your office, or any property damage that may occur at your client's location.
  • Property: This insures the workplace and any assets that the company owns.
  • Business interruption: This takes care of anything that might disturb the function of a business, such as fire or other unpredictable events.

You will likely need to add separate coverages onto your BOP. Essential insurance, such as auto, disability, workers’ compensation and professional liability insurance are not included in the business owner's policy, and can be a legal requirement for your business.

Legal Requirements of Owning Small-Business Insurance

Some types of insurance can be a legal requirement for your company, depending on the state in which your business is located. Certain states require workers’ compensation insurance if you hire employees, or have set insurances that must be purchased in order to obtain a business license in that particular state. Look into your state’s legal requirements to ensure that you're not at legal risk.  

Evaluate Your Risks

One of the most important first steps in obtaining insurance is to evaluate your risks. Because unpredictable situations occur daily, it is nearly impossible to predict the types of insurance you might need. The insurance agency you choose will help evaluate your risks according to the type of business you are in, and provide you with a general idea of what insurance you should purchase to minimize or eliminate risks you might be taking. Experienced agents will use both their extensive experience and a survey to analyze your risks and make sure you get the insurance you need.

Some Types of Insurance, and Risks They Minimize or Eliminate

Three basic types of insurance will usually come with a BOP: liability, property and business interruption insurance. Here are details about these, and other types of small-business insurance to consider:

  • General liability: Also known as casualty insurance, this gives protection from any harm that may come to another person or their property that you are responsible for. If someone is harmed on your property due to equipment or anything of the like, you would be covered.
  • Business interruption: One of the most important types of insurance, this is still often overlooked. Business interruption insurance provides coverage against major disasters, such as fires, that render your business non-operational for any amount of time. Therefore, it covers profits you would have received while the business could not operate, as well as utilities, such as gas, water and electric. Insurance agents will guide you on the policy limits for your particular situation.
  • Property: Typically, property insurance covers loss or damage to your property and assets contained on the property. Generally, it is divided into two different groups: "building" and "personal property." Building property insurance provides protection against anything that might happen in the workplace. Disasters such as wind, vandalism or fire are covered, but not general wear of the building, earthquakes or hurricanes. Personal property insurance is coverage for assets inside the building. Agents will guide you through the exact assets this covers.
  • Professional liability insurance: Purchased as separate coverage, professional liability insurance is one of the most important for a small business. Also known as E&O or errors and omissions coverage, it covers any expensive litigation that might result from negligence or inadequacy claims related to services provided to clients. Such lawsuits occur when you, the professional, do not perform the services agreed upon or do not live up to expectations. Professional liability coverage is required by some states and professions. Either way, it is a good idea to carry it, if it's possible that the service your business provides could cause any sort of damage.
  • Workers’ compensation insurance: Purchased as separate coverage, workers’ compensation insurance is just as important as professional liability, property and business interruption insurance. Even if you've made your business as safe as possible, accidents and harm to employees could still occur in the place of business. This is when workers’ compensation comes in handy. Not only does it guard employers from lawsuits stemming from accidents in the workplace, it also covers workers injured on the job, or any work-related impairment or illness. Payments are made to the worker or workers injured, without the need to establish fault. Most of the time, workers’ compensation is required by the state, and each state establishes its own rules as to limits on compensation and related matters.
  • Product liability insurance: If your company produces toys, clothing, food or any other type of product that could potentially cause harm to a customer, consider product liability insurance. In reality, any business that offers a product should look at getting product liability. This coverage protects from any harm caused to a customer by your product. Often this is included in the BOP; if not, its omission can put your business at high risk.
  • Commercial automobile insurance: When using any sort of vehicle for sole business purposes, it is important to have some sort of commercial auto insurance so that those driving the business vehicles, as well as the vehicles themselves, will be protected should an accident occur. Using a personal vehicle for business purposes is also a viable option, sometimes for a simple extra fee. Good agents will evaluate your situation and give you a quote on commercial use of any vehicle.
  • Employment practices liability insurance: This type of insurance will cover you against any claims employees might make about their legal rights being violated. Because these types of claims have been steadily rising, this has become an important type of insurance to consider. Such lawsuits could include discrimination, unjust termination, sexual harassment, unjust authority, emotional distress and many other claims.
  • Umbrella insurance: Umbrella insurance is small-business insurance or auto insurance that covers you when limits on your other liability policy have been surpassed. This minimizes your liability risk even more.

The types of small-business insurance are numerous and complicated. Consult an agent about the risks inherent in your particular business, and allow him or her to advise you on what small-business insurance you need.

Other Things You Can Do to Minimize Disaster

A successful company will not just purchase the right type of small-business insurance, but will plan ahead to bounce back after certain types of disaster. Training your employees for any kind of disaster is important because they are the ones who will be there when it occurs.

Teach all employees about fire safety – especially staff members that are around flammable materials. Keep your electrical system up-to-date, and make sure that your company’s building is fire-resistant and current with building codes.

Put together a post-disaster plan that you and all of your employees know about. This plan could include simple ideas, such as keeping multiple copies of records that you could be legally liable for, or prepping for use of an alternate workplace. Have a list of important contacts, such as customers, contractors, small-business insurance agents, and any other people you might need to contact on a daily basis. Keeping such a list will give you the means to get in touch with those important contacts after a disaster, and help maintain relationships while your business is in transition.

You'll have all the protection you need, as long as you have smart disaster planning and a BOP with additional separate plans, such as professional liability and workers’ compensation. Building an insurance and disaster strategy will not only cover you from losses, but will ultimately boost your company into success.

More Articles and Tips for Small-Business Owners