Did you know that 20% of small businesses fail before celebrating their first birthday? Also, 50% fail by their fifth year.
While there are many reasons for the failure, one of the main contributors is a lack of proper planning. Poor planning means not having the right types of business insurance to protect your business against unforeseen events.
As an entrepreneur, you may realize that starting a business means putting your personal finances, free time, and career on the line. However, you’re likely to ignore that business risks are common and could have devastating effects on your small business. Sometimes, the impacts could lead to the sudden closure of the company you worked so hard to start.
This is why you need to invest in different types of business insurance. Here, we’ll discuss the eight types of insurance your company should have and why you need them.
1. General Liability Insurance
The first type of business insurance that your company should have is general liability insurance. This type of insurance protects your business from third-party claims of bodily injury. It will cover medical payments if your company injures your customers, employees, or other parties.
General liability insurance will also cover property damage and personal injury caused by issues like false advertising. Without this type of insurance, your business would be vulnerable to large financial losses in the event of damage to other people or property.
If you’re a small business owner, you need general liability insurance. When buying a small business insurance policy, you should keep in mind that your premium rates will depend on the nature of your business.
For example, if your business involves manufacturing or selling products, you may want to consider increasing your coverage limit. This is because you’ll have a greater chance of being sued for issues like defective products.
2. Commercial Property Insurance
This type of insurance covers the physical property your business owns. It covers the building, equipment, inventory, and furniture. It also covers any loss or damage due to events like fire, theft, vandalism, or severe weather.
If you own your commercial space, you should have a commercial property insurance policy that covers the replacement cost of your property. If you lease your space, your landlord is responsible for insuring the property. But, you’ll still need to insure your business contents and equipment.
You should keep in mind that this insurance does not cover damage from events such as floods. If your commercial property is in an area that is prone to such destructive events, you’ll need a separate policy. For example, you’ll need a flood insurance policy in addition to your commercial property insurance.
3. Business Income Insurance
This type of insurance is also known as “business interruption insurance.” It will cover the loss of income when your business is interrupted due to a covered event.
It can help you cover the cost of expenses like payroll and rent while your business shuts down. Business income insurance will ensure that your business can continue operating and meeting its financial obligations even in the face of a temporary setback.
While no business is immune from the risk of loss, it can help to mitigate the financial impact of an unforeseen event.
Business income insurance is important because it can help you keep your doors open after a disaster. For example, a fire may damage your store, making it difficult to continue operating. You’ll need this insurance to help you cover the cost of lost income while your store undergoes repairs.
4. Key Person Insurance
Key person insurance is a type of life insurance that protects your business from the financial loss of a key employee.
You need this type of business insurance if your company thrives on the knowledge and skills of one or a few individuals. For example, your company may have a single employee whose experience, understanding, and energy contribute greatly to its success.
You’ll need to insure such people to manage the financial loss your business may experience if they suffer premature death or an illness that affects their productivity. The insurance will cover the time and the finances you need to replace your key person. It will cover you for any loss of profitability when trying to replace the expert.
The policy will pay out a death benefit or disability income. The money will help you cover the cost of recruiting and training a replacement. The policy will also help you offset lost revenue and profits during the transition period.
This type of insurance is important because the death or incapacitation of a key employee can significantly impact your business. Do you need to insure your key people? Click here to learn how the insurance works and how an insurer like Shelter Bay Financial Corp can help you.
5. Commercial Auto Insurance
If your business uses vehicles, you need commercial auto insurance. This type of insurance covers the vehicles you use for business purposes. This can include anything from cars and trucks to vans and buses.
It provides protection if your employees damage the vehicle in an accident. Commercial auto insurance is vital because the liability and damage resulting from vehicle accidents can be costly. Without the insurance, your business would be on the hook for all the accident’s costs.
Commercial auto insurance can help you cover the cost of repairing or replacing your business vehicles. It’s important to note that personal auto insurance policies do not cover damage sustained while using the vehicle for business purposes.
So, you’ll need commercial auto insurance if you use your vehicle for business errands.
6. Workers’ Compensation Insurance
This type of insurance is compulsory in most states. It provides benefits to your employees who are injured or become ill while on the job.
You shouldn’t assume that your company’s environment is low-risk and that you don’t need workers’ compensation insurance. Slips and falls can happen and cause life-threatening injuries. Your employees may develop conditions like carpal tunnel syndrome while working for your company.
Workers’ compensation insurance will protect you from lawsuits that employees file for such injuries. The policy will cover the lawsuits’ costs.
Workers’ compensation insurance is important because it can help you cover the cost of employees’ medical expenses. It will also help you cover lost wages for your employees.
If your employee loses their life due to a work-related injury, workers’ compensation insurance will cover the funeral expenses. It will also cover the cost of ongoing care if your employees need therapy.
It’s important to note that workers’ compensation insurance does not cover injuries employees sustain outside of work.
7. Professional Liability Insurance
This type of business insurance is also known as errors and omissions insurance. It covers your business for damage due to errors or omissions in your professional services. It will cover your company against negligence claims if you fail to perform according to your clients’ expectations.
Professional liability insurance is especially vital if your business provides professional services. Examples include consulting, legal advice, and financial planning. It’s also vital if you offer medical or healthcare-related services.
If clients feel that they have been harmed financially due to a mistake your company made, they may file a lawsuit. For example, if you’re an accountant, you make a mistake on a client’s taxes. If the client suffers financial losses, they may sue you.
Professional liability insurance can help you cover the cost of any damage that occurs. It will cover the cost of legal defense and any damages that the court awards. The insurance will help you cover the cost of settlements.
8. Product Liability Insurance
If your business manufactures, sells, or distributes products, you need product liability insurance. Even when you follow all the quality standards, your products can cause damage to your customers and result in lawsuits. If a product causes injury or property damage, your business may be held liable.
Product liability insurance will protect your business from claims of injuries or damage caused by your products. It will cover the cost of legal defense and any damages that the court may award to the plaintiff.
Product liability insurance is important because it will protect your business from financial ruin in the event of a lawsuit. If you’re a small business owner, the lawsuit costs can be crippling and may lead to your business’s closure. You need product liability insurance to ensure that the legal fees don’t eat into your business revenues.
Your insurer will tailor your coverage to the specific type of product that you sell or manufacture.
Protect Your Company With the Right Types of Business Insurance
There are many different types of business insurance that can cushion your company against risks that could jeopardize its success. The eight discussed in this article are some of the most important. You need to understand your business risks and purchase insurance that will protect you from those risks.
You should work with an insurance broker to help you understand the types of business insurance available. They will help you select the right coverage for your company.
If you’re looking for more business advice, keep browsing our blog.