6 Types of Small Business Insurance: Explanation and Importance

Having your business insured not only secured your business’ assets such as property and vehicles but also keeps you protected from legal actions against you such as claims.

Every three in four small businesses faced an event in 2020 that fell outside their insurance coverage.

When it comes to protecting your business from potential losses, there are a plethora of insurances in the market today, as specific and as vague as you may need them to be.

But which ones are the ones for you?

In this piece, we take a look at some of the most important types of business insurance that are a must for your small business.

6 types of Small Business Insurance: explanation and importance

Starting a business is an exciting prospect but you need to make sure that you cover all contingencies in advance to protect your business from any potential losses. When it comes to classifying insurance for small businesses, there can be as many as 26 or as few as three.

You need to pick the best insurances that suit the nature and scope of your business while covering every base. Here are the most suitable insurances for small businesses and why they are essential in helping you cover contingencies in the long run:

1. Commercial auto insurance

A commercial auto policy is one of the most important insurance covers for a business. It covers all the vehicles used for your business operations such as cars, trucks, and vans. Having personal auto insurance will not cover any business use you get of a vehicle. So, you’ll require commercial auto insurance to cover all bases.

For example, suppose an employee gets into an accident while on the road in a company vehicle. In that case, your auto insurance will cover any and all losses that arise from that accident. That will include damage to the vehicle and injuries to the employee.

Hot shot trucking

Commercial auto insurance holds immense value for businesses such as hotshot trucking that are constantly on the road. CoverWallet’s insurance for hot shot trucking will not only insure your trucks for seamless operations but also tailor the policy to your specific needs.

2. General liability insurance

One of the most common insurance for businesses, it protects you from three types of claims:

bodily injury
property damage
damage to any belongings of a person

In simple words, it protects you from claims about your business causing damage to a person or their property.

Your business needs tools for day-to-day operations secure in order to function seamlessly. General liability insurance gives you that overall cover to maintain your operations without hassles.

3. Commercial property insurance

The physical premises you use for your business operations is the most important piece of property associated with your business. Commercial property insurance helps you protect this physical location, including the equipment and furniture used.

The insurance works for both owned and rented/leased property as well as equipment in it. It protects your property from things such as theft, acts of vandalism, lightning, and fire. Moreover, it covers the tools, inventory, and supplies used by you on your premises.

The one thing commercial property insurance doesn’t cover is earthquakes and floods. You will need separate insurance for that. So, if your business premises are prone to such natural calamities, you should seek separate insurance for it.

4. Workers’ compensation insurance

You’ll require insurance to look after your employees’ well-being. Worker’s compensation insurance provides a multitude of benefits to your employees as they work for you. It covers them from injuries and sickness acquired on the job.

The insurance will pay their medical bills for sickness or injuries, provide them with wages if they have to miss work due to sickness, and cover costs such as funerals if they lose their life on the job. It will also cover ongoing medical processes, such as therapy.

Most states require businesses operating on the premises to have workers’ compensation insurance. It’s not just good insurance to have, it’s a necessity for your business otherwise you may face fines and penalties.

5. Cyber liability insurance

A staggering 43% of all cyber threats are aimed at small businesses. Over and above getting protection for your business’ digital setup, you also need to insure it to cover losses for the threats that do get through your security.

Cyber liability insurance will help you cover the costs of data breaches and cyber attacks in your digital framework. It will help you identify impacted property and individuals (your associates or customers) and cover the monetary loss from it.

For example, if a data breach happens at your company and confidential information about your employees gets leaked online. Your insurance in this case will help you identify the impacted employees, cover the losses, and pay for the costs if they file a claim against you.

6. Commercial umbrella insurance

This is an important insurance that helps you truly cover all contingencies. It’s an extra layer of protection on your existing insurance. This means that when you reach a limit on any other insurance, commercial umbrella insurance will cover the remaining amount.

This is a great insurance to pair with other insurances such as general liability policy or cyber liability insurance. It’s an umbrella cover that insures other insurances to truly cover all contingencies and not expose your business to unexpected threats.

This is an excellent insurance to add to your roster if you can only afford a few insurances and even when you get a large number of insurances. It can come in handy in any situation and save your business from hefty monetary losses.

Cover all bases with common and specific insurance for your small business

Insurance has emerged as one of the most important requirements of modern small businesses.

They help you cover losses and contingencies that may occur during the operations of your business.

Having your business insured not only secured your business’ assets such as property and vehicles but also keeps you protected from legal actions against you such as claims.

FAQ

What is business insurance?

Business insurance is a type of coverage that protects companies and organizations from financial losses due to various risks, such as property damage, liability claims, and business interruptions.

Why is business insurance important?

Business insurance is crucial because it provides financial security and helps businesses recover from unexpected events, reducing the risk of bankruptcy or closure.

What types of business insurance are available?

Common types of business insurance include general liability, property insurance, workers’ compensation, professional liability, and commercial auto insurance, among others.

How do I determine the right insurance coverage for my business?

The right coverage depends on your business type, size, and industry. Consult with an insurance agent or broker to assess your specific needs.

What is general liability insurance, and why do businesses need it?

General liability insurance protects businesses from legal claims related to injuries, property damage, or accidents that occur on their premises or due to their products or services.

Do I need workers’ compensation insurance even if I have a small business?

In many jurisdictions, workers’ compensation insurance is required for all businesses with employees, regardless of size. It covers employee medical expenses and lost wages due to work-related injuries or illnesses.

What is property insurance, and how does it protect my business?

Property insurance covers damage to business property, including buildings and contents, caused by events like fire, theft, or vandalism.

Is business interruption insurance necessary, and how does it work?

Business interruption insurance helps replace lost income and cover ongoing expenses when a covered event (like a fire) forces your business to close temporarily.

What is professional liability insurance, and who needs it?

Professional liability insurance (also known as errors and omissions insurance) protects professionals and businesses from claims of negligence, errors, or inadequate work in their services.

How can I reduce my business insurance premiums without sacrificing coverage?

You can lower premiums by implementing risk management practices, bundling policies, increasing deductibles, and maintaining a good safety record, among other strategies.

Are there industry-specific insurance policies for businesses?

Yes, many industries have specialized insurance policies tailored to their unique risks, such as medical malpractice insurance for healthcare providers or cyber liability insurance for businesses handling sensitive data.

What does liability insurance cover, and why is it essential for businesses?

Liability insurance covers legal costs and damages if your business is sued for injuries, property damage, or other liabilities. It’s crucial for protecting your assets and reputation.

Is business insurance tax-deductible?

In most cases, business insurance premiums are tax-deductible as a legitimate business expense. Consult with a tax professional for specific details.

Can business insurance protect against lawsuits from employees?

Yes, employment practices liability insurance (EPLI) can protect businesses from lawsuits related to employment issues, such as discrimination, harassment, or wrongful termination.

What is a business owner’s policy (BOP), and who should consider it?

A BOP bundles general liability and property insurance, providing cost-effective coverage for small to medium-sized businesses.

Are there insurance options for home-based businesses?

Yes, home-based business insurance or endorsements can provide coverage for business-related liabilities and property damage in a home office.

Can business insurance cover losses due to natural disasters like floods or earthquakes?

Standard business insurance policies typically do not cover flood or earthquake damage. You may need separate policies or endorsements for such coverage.

How does the claims process work for business insurance?

To file a claim, notify your insurer, provide necessary documentation, and cooperate with their investigation. The insurer will assess the claim’s validity and payout accordingly.

Are there insurance policies that protect against data breaches and cyberattacks?

Yes, cyber liability insurance helps businesses recover from data breaches, cyberattacks, and related losses, including legal expenses and customer notification costs.

What is key person insurance, and when is it beneficial for a business?

Key person insurance compensates a business for financial losses resulting from the death or disability of a crucial employee or owner. It helps mitigate the financial impact of losing a key contributor to the company’s success.

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