Liability insurance is a must-have for most small businesses that interact with the public in any way. It protects companies from claims that they caused damage or injury.
It’s best to get a policy from a company that has a history of customer satisfaction and is financially stable. Many companies offer bundled policies that include general liability, commercial property and business interruption insurance.
General Liability
Small businesses that buy general liability insurance protect themselves against financial loss resulting from claims of accidental bodily injury or damage to property belonging to third parties. It’s one of the most common types of business insurance, and it can also cover reputational harm (libel and slander) and copyright infringement. Without this type of protection, a single claim could quickly deplete a company’s cash reserves.
Insurance providers price their business policies differently, so it’s important to shop around and compare quotes. Look for an insurer with a strong track record of customer satisfaction and financial stability. Review ratings from trusted sources, such as JD Power and Consumer Reports. It’s also important to consider the amount of coverage you need and your preferred method for buying and managing your policy. For example, many insurers offer the option to pay your premium in monthly or annual installments.
While business insurance isn’t required by law, it can help you comply with contracts and vendor requirements. If you aren’t sure what kinds of coverage you need, talk to an independent insurance agent. A good agent can recommend a policy that protects your business from the most common risks at a price you can afford.
Note that a general business liability policy does not cover your own property, so you’ll need commercial property insurance or a business owners policy to cover equipment and inventory. You can often bundle both of these policies to get a discount on your business insurance costs.
Business Owner’s Policy (BOP)
A business owner’s policy (BOP) is a cost-saving bundle of two important types of insurance for small businesses: general liability and commercial property. While a BOP isn’t right for every business, it’s a good fit for many small firms with low risk profiles and modest property loss exposures.
BOPs typically include coverage for bodily injury, damage to a customer’s property, advertising injury, and the cost of legal fees incurred in responding to frivolous lawsuits. They also typically cover business interruption insurance that pays for lost income if a natural disaster, fire or cyber attack disrupts operations at your firm’s physical location.
Eligibility for a BOP generally depends on your company’s size, industry and location. For example, insurers typically won’t offer a BOP to companies in high-risk industries like retail and construction or locations that are prone to natural disasters.
When shopping for a BOP, consider your potential insurer’s market share rankings and customer satisfaction ratings as well as their financial strength (evaluated by credit rating agencies). In addition, evaluate how much you can customize the policy to your needs by adding coverage enhancements like data breach protection, equipment breakdown and employment practices liability. Also, make sure that the firm you select provides a BOP along with other types of insurance your firm may need.
Professional Liability
Almost any business that works with clients has some risk of being sued for negligence. This includes IT consulting, design services and other professional companies. Professional liability, also known as errors and omissions (E&O) insurance, or malpractice insurance, helps pay for legal costs and damages when a client claims your company’s advice or work led to financial harm.
For example, a real estate agent showing potential home buyers around a house could inadvertently forget to tell them the basement is prone to flooding. The new homeowners sue for damages, and professional liability coverage may help cover their legal fees.
Costs vary based on the type of business you operate and its location. The age and size of the building are factors as well. Premiums are also impacted by the amount of coverage you choose and your business’s history with other policies.
A good way to lower your business insurance rates is by having a strong safety program and making sure employees are well trained. It’s also important to reassess your small business insurance every year to make sure it meets the changing needs of your company. Typically, most types of small business insurance are tax deductible.
Employment Practices Liability
Employment practices liability (EPLI) protects businesses against costly claims of wrongful termination, discrimination and workplace harassment. These allegations can disrupt the operations of any organization, damage the company’s reputation and cost the business financially before even reaching a verdict or settlement. EPLI is often included as an endorsement to a business owner’s policy or offered as a standalone policy.
Commercial property insurance helps cover costs as a result of direct physical loss to your business’s inventory, supplies and office building in situations like a fire or severe weather event. It also covers accounts receivable and your business’s computers and workstations. This type of coverage is typically recommended for small businesses such as computer repair professionals, accountants, house cleaners and photographers.
General and professional liability policies help cover the legal expenses associated with errors and omissions, such as missed project deadlines, misdiagnoses or mistakes made during a service call or job estimate. Workers’ compensation insurance, required in most states, pays for employee medical expenses and death benefits related to work-related injuries and illnesses. And, a business owner’s policy, or BOP, combines general and commercial property insurance into a single package for small businesses that may offer discounts on premiums.