Are you ready if a disaster strikes your small business? Often business owners feel a fire, earthquake or another natural disaster are worth the risk. Yet property theft, cyber security breaches and lawsuits are more common threats to a small business that require adequate insurance coverage.
While the federal government does not generally require business insurance coverage for those with fewer than 50 full time employees, there are many state by state rules on the following most common types of business insurance.
Liability Insurance
According to the U.S. Small Business Administration, there are three types of liability insurance that can protect most small business owners: general liability, product liability, and professional liability coverage.
General liability insurance does just what the name implies – it generally covers a business in case of a lawsuit. If someone were to injure themselves on your property, general liability would protect a business against paying out of pocket for medical expenses or the cost of defending the lawsuit in case the injury was contested. General liability insurance also covers a business in lawsuits concerning property damage, libel, and slander, and other legal procedures.
Product liability insurance deals with products that a business may manufacture, distribute, or sell. Instead of paying to cover defective products that may result in injury, product liability insurance reduces business expenses and protects owners from financial loss.
Professional liability insurance protects small business owners who provide services. Malpractice, error, and negligence lawsuits are covered with this type of insurance. Professional liability may be required in some states depending on the type of services rendered. This type of insurance is often mandatory for attorneys and doctors or other professionals.
Property Insurance
Depending on the policy, property insurance can cover your business in case of property damage, whether it’s damage to your building or the merchandise inside. There are several subcategories of property insurance that are generally covered by business insurance packages. While property insurance may not be legally required, your lenders and investors may view this kind of insurance as necessary in order to protect their assets and investments.
Commercial Auto Insurance
Some states require vehicles used solely for a business to be covered with commercial auto insurance, so make sure to check your state’s regulations before choosing a type of vehicle insurance. There are current controversies on this issue with Uber and Lyft. In the event of an insurance claim, coverage may not be provided by the insurance company if the accident happens while the vehicle is being used for commercial purposes or is owned by an employer.
Workers Compensation Insurance
Most states require businesses with employees to have workers compensation coverage through a state program, a commercial carrier, or self-insurance. Workers compensation provides medical benefits and replacement for lost wages for workers that are injured or killed on the job. A necessity for construction companies, but non-essential to a technology startup.
Choosing the right workers compensation program for your business depends on the number of employees you have, whether your employees have a high risk of injury due to their work duties, and the effectiveness of your state’s program. There are many differences state by state, including how part time vs. full employees are treated, certain industries being required to carry insurance and even payroll exceptions depending on the amount. In the District of Columbia for example, workers compensation insurance is required if you have more than one employee, yet in Texas, workers compensation is optional. View the requirements for worker’s compensation in your state.
Unemployment Insurance Tax and Disability Insurance
In all states, a business is required to pay federal and state unemployment taxes when there are full time employees, there are only a few businesses that are exempt. Qualified employees receive unemployment benefits, such as a stipend to cover lost wages, temporarily when laid off. These benefits are known as unemployment insurance.
Businesses can’t pass off these taxes to employees and employees don’t pay unemployment taxes. This is the only form of insurance for businesses that isn’t obtained and can be viewed more as a tax than insurance.
If your business is located in California, Hawaii, New Jersey, New York, Puerto Rico or Rhode Island, you would also be required to provide disability insurance to employees who are disabled for non-work related illness or injury. This would go beyond workers compensation, as workers comp only covers on the job accidents.
The right business insurance package for your small business depends on a multitude of factors. Most insurance carriers offer packages that can be amended to your individual needs without costing you an inordinate amount of money, called Business Owners Policies (BOP). Business owners who are proactive in protecting their assets with insurance will end up paying less than uninsured businesses in the long run.
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