Types of Small Business Insurance

As a small business owner, you might be thinking: what kind of insurance coverage may be right for my business? While that answer can vary depending upon the type of business you’re in, there are a handful of coverages that the majority of small business owners should consider.

Workers’ Compensation
Small business owners may convince themselves that they don’t need the added expense of workers’ comp. They might think that an injury could never happen at their company, and even if it did, they would pay out of pocket. But workers’ compensation insurance is an absolute necessity for any small business.

Without a workers' compensation policy in force, damages for injuries incurred at work can soar past thousands of dollars and into the millions. Without adequate coverage, employers leave themselves open to punitive damages, and pain and suffering suits, in addition to astronomical medical bills.

Workers’ compensation insurance is also typically compulsory for a company with more than one employee (check your local requirements). If you compare the cost of a workers’ compensation policy with the potential cost of a lawsuit, it just makes sense to be proactive with the proper coverage, as out-of-pocket expenses that are typically covered by a workers’ compensation policy – from lost wages to medical – can bring major losses to a company. Even in the most careful and safest work environments, accidents resulting in injuries can – and do, happen. It’s always better to be covered and prepared for any accident, however unlikely it may seem.

Businessowners Policy (BOP)
A BOP is a common insurance solution for small businesses because it can offer cost savings for some of the most common business liabilities. BOP coverage makes it easy to maintain all of the common coverages for businesses like yours without thinking twice about it. Instead of managing multiple policies with multiple carriers, a BOP means you have one policy, one carrier, and one easy process for getting claims covered. A standard BOP typically covers three main areas:
  • General Liability – If a customer is injured at your place of business, general liability insurance is designed to cover the potential medical costs and associated legal fees. This kind of coverage also can cover “advertising injury,” which can include offenses like copyright infringement and libel.
  • Property Portion – Ensuring that your property is covered in the event of damage is important for keeping your company up and running. Property coverage can be “named-peril,” “open-peril,” or “special.”
  • Business Interruption Coverage – Major storms, problems with the local electrical grid, or even a hacking incident can interrupt the flow of your business. With business interruption coverage, you can feel confident that your business will be covered through the incident. This coverage is designed to protect your business during covered events and can replace money you would have made or provide funds to operate in alternate location temporarily.

One of the biggest benefits of BOP coverage is that it’s designed with small business owners in mind. Easily customized, a BOP can include types of insurance that are specific for your particular industry. For example, if you have a small team of employees, you’ll likely be required by law to have workers’ compensation insurance. A BOP can be paired with workers’ compensation coverage, as well as disability insurance.

A BOP helps you to protect your company and your assets in the event of an expensive lawsuit. General Liability is typically one part of a BOP, and it is designed to cover third parties who harm themselves or are harmed on your company property. If a product isn’t assembled properly, or a storage rack topples over, your BOP coverage can help ensure that your business is protected.

Commercial Auto
Why do small businesses need commercial auto insurance? Small businesses have a lot of expenses. Employing workers with fair wages, excellent benefits, and stability is expensive. But making sure that your workers and equipment are protected financially and medically is smart business.

While nobody wants to experience any of these incidents, the truth is that the future can be unpredictable. Even the most careful among us get into an accident every now and then. But helping to protect the business by minimizing the risk with a commercial auto insurance policy is an affordable and cost-effective way to keep employees at work, vehicles on the job, and jobs on schedule.

The reality is that any business faces employment-related claims as much as they do a property or general liability claim. If you work with people, your business is a candidate for Employment Practices Liability Insurance (EPLI) coverage. Offered on a stand-alone basis or combined with an existing policy, EPLI helps safeguard businesses against employee lawsuits alleging inappropriate or unfair acts. Even when done unknowingly, violating an employee’s (or contractor’s) rights can have devastating consequences. EPLI can be either claims-made or occurrence-based coverage. Most EPLI policies are written on a claims-made basis, meaning coverage is triggered when a claim is first made against an insured during the term of the policy.
EPLI typically covers the legal defense fees and settlement costs or damages – up to the policy’s coverage limit – whether the employer settles, wins, or loses the case, but coverage options and costs of EPLI policies vary greatly.

If you have employees, vendors or customers, you should consider EPLI coverage. General Liability Insurance, unlike EPLI, will not typically protect your business from employment-related claims filed by your employees or vendors. Every employer, large or small, can be the target of legal action from past, present and prospective employees.

Cyber Liability 
Small businesses are often prey for identity thieves because they typically have less security in place than larger companies. That’s why having a cyber liability insurance policy in place can be crucial, especially for small businesses.

Cyber liability insurance provides coverage for certain losses incurred as result of data breaches. During a data breach, customer data such as credit card numbers, names, phone numbers, addresses, driver's license numbers, health records, and even social security numbers can end up in the wrong hands. A cyber liability insurance plan will protect a business cover some of the costs that can arise from a data breach, such a legal fees and customer notification.

Other Insurance Polices
Depending on your industry, there are other types of insurance to consider. For example, nonprofit organizations may want D&O insurance, which helps protect nonprofit directors, officers and managers against exposures ranging from fiduciary malfeasance to wrongful termination claims. Companies who provide a service for a fee should have errors and omissions insurance, as it covers situations that traditional business liability insurance will not. (Related Post – What is E&O insurance?) There’s also a variety of management liability products, including crime coverage. A knowledgeable insurance agent can help you understand which coverages make sense for your business.

This material is for informational purposes only, summarizes coverages and services that may be available in a policy, and is not legal or business advice.  Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose.  Readers seeking resolution of specific questions should consult their business and/or legal advisors.

Individual coverage may vary and may not be available in all states.  In the event of a conflict with the material herein, the terms and conditions of any issued policy will control.  Claim examples are general, may or may not be based on actual claims, and are for illustrative purposes only.  Any available coverage for a claim will be determined based on the facts and circumstances of the claim as well as the terms and conditions of the policy, including any applicable exclusions or deductibles.

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