Protect your small business with adequate insurance coverage.
Protecting a small business with proper insurance coverage is an essential part of starting up, but choosing among the options can be daunting due to unfamiliarity with business insurance types and terms. The right insurance options for your small business will depend in part on the nature and size of the business.
Business Owner Coverage
In an article for the Microsoft Small Business Center, "Protect Your Business: 7 Types of Insurance Coverage," Jeff Wuorio recommends considering this type of "catch-all" insurance for a small business. However, in another article for the center, "The Insurance Basics: Property, Liability and People," David Trahair cautions that the liability coverage in a business owner's policy, which combines property and liability insurance, is adequate for the needs of some businesses but not others. Businesses with greater liability coverage needs, such as a high-traffic restaurant, may not be adequately covered for liability by a business owner's policy, says Trahair.
Property Insurance
Property insurance covers damage to the building that houses your business and to the items inside, according to Wuorio. Trahair explains that property insurance covers against losses due to unforeseen mishaps, including fire, lightning and vandalism. Optional property insurance coverage protects against less likely disasters, like earthquakes and floods, at additional cost. Property policies are either "named-peril" policies, which cover losses from causes named in the policy, or "all-risk" policies, which cover all risks except those named in the policy, says Trahair.
Liability Insurance
Liability insurance is one of the most important types of business insurance, according to Wuorio. This type of insurance protects you if your company is sued for injury to a person or damage to their property, Trahair explains. It covers the cost of damages awarded to the injured party and the costs associated with your defense.
Product Insurance
As much as businesses try to avoid harmful errors, insurance is there to protect against the human error that everyone is capable of. Product insurance is a good insurance option to consider if you make products that could harm another person. It should be considered by a catering business, for example, against the possibility that bad food could make a customer ill, as Wuorio suggests.
Errors and Omissions Insurance
Errors and omissions insurance is also known as professional liability insurance, which Business Insurance Now.com defines as "insurance to protect you and your company in the event a client alleges they have suffered a financial loss as a result of an error or an omission committed by you in the delivery of your professional services" in contrast to general liability insurance, which covers mainly bodily injury or property damage. For example, errors and omissions insurance would protect you against claims of nonperformance of a contract, according to Trahair.
Business Income Insurance
Business income insurance is disability coverage for your business, Wuorio explains. If damage shuts down or limits your business, this type of insurance allows you to get paid. For example, business income insurance covers against income lost due to covered perils such as fire or explosion, according to the Coe Insurance.com glossary.
Automobile Insurance
This option, which offers collision and liability coverage, makes sense if your business uses vehicles, suggests Wuorio.
Worker's Compensation Insurance
According to Trahair, a health plan for workers is optional, but workers compensation insurance is mandatory for job-related injuries and illnesses in every state except Texas. Entrepreneur.com confirms this situation for workers compensation insurance as of 2010. Check with your state's labor department for its definition of "employee," Trahair recommends, to find out if this type of insurance is required for your small business. The definition can include a person who only works a few hours per week. According to Entrepreneur.com, however, in some states workers compensation insurance is not required for companies with fewer than three to five employees.
