It is not one size fits all: tips for choosing the right coverage
Starting a small business is not a one size fits all-process. However, one best practice that all small businesses should consider is liability insurance. It is no surprise that most of the information out there about liability insurance comes directly from insurance providers, so it is important to do extensive research to ensure that you are relying on objective information to make business decisions.
The Small Business Administration (SBA) offers a wealth of information on liability insurance for small businesses that can help. Here are a few points to consider as you work to ensure that your business has complete protection:
So, what is liability insurance?
Liability insurance protects you from a variety of legal claims including bodily and personal injury as well as property damage that can occur during day-to-day business operations. If you do not have employees, you may not be required by law to have insurance, but you should still be prepared. A single incident can unravel all of the hard work that you have done to build your business.
What you may not know is that there are different types of business liability insurance for every imaginable risk that your business might encounter. They include:
- General liability Insurance
- Product liability Insurance
- Professional liability Insurance
- Commercial property Insurance
- Home-based business Insurance
General liability insurance
Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits and settlement bonds or judgments required during an appeal procedure.
Product liability insurance
Companies that manufacture, wholesale, distribute and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far less risk than a small appliance store, for example.
Professional liability insurance
Business owners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors and negligence in provision of services to your customers. Depending on your profession, you may be required by your state government to carry such a policy. For example, physicians are required to purchase malpractice insurance as a condition of practicing in certain states.
Commercial property insurance
Property insurance covers everything related to the loss and damage of company property due to a wide-variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism. The definition of “property” is broad, and includes lost income, business interruption, buildings, computers, company papers and money.
Property insurance policies come in two basic forms
1) all-risk policies covering a wide-range of incidents and perils except those noted in the policy;
2) peril-specific policies that cover losses from only those perils listed in the policy.
Examples of peril-specific policies include fire, flood, crime and business interruption insurance. All-risk policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased when there is high risk of peril in a certain area. Consult your insurance agent or broker about the type of business property insurance best suited for your small business.
Home-based business insurance
Contrary to popular belief, homeowners’ insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may add riders to your homeowners’ policy to cover normal business risks such as property damage. However, homeowners’ policies only go so far in covering home-based businesses and you may need to purchase additional policies to cover other risks, such as general and professional liability.
Identifying additional risk
Your business may require additional insurance options to cover things like commercial vehicles, property and medical payments. Speak to an experienced licensed insurance agent to go over the fine details of your business insurance needs on an annual basis. The type of business that you own will largely dictate which type of insurance (and how much) you will need. For example, a florist might not need as much coverage as a Jet Ski-rental company. The perceived risk for the florist is much lower, so they may not need as much coverage.
Does your business utilize expensive machinery, cars, and/or employees? What is involved in your day-to-day operations? No one knows your business as well as you do, so take the time to consider any and all perceived risks and be sure to flag them in the discussion with your insurance agent.
Small business employers are required by law to have certain types of coverage. Each state has its own specific requirements, so it is important to research the laws in New Jersey: www.nj.gov/labor
The three key insurance requirements typically include:
- Workers’ Compensation Insurance
- Unemployment Insurance Tax
- Disability Insurance (in some states)
Last but not least, make sure that you shop around. We often stress the importance of maintaining and utilizing your network—and this is yet another great opportunity to reach out for referrals and to connect with other small business owners regarding their experiences with a licensed insurance agent or provider.
Mariama Bramble is a contributor to the SBA’s blog which can be found at www.sba.gov/blogs