Your business wasn’t built in a day. It’s through careful planning, investment and a lot of effort that you got it started, and as your business grows, you’ll accumulate assets that require small business insurance. But are these assets really protected, or are you more vulnerable than you think?
The answer often depends on the type of coverage you have. No matter how big your small business is, how much profit you’ve made, or what industry you’re in, you’re at risk. It’s important to manage them, but you’ll also need a good safety net in case a legal, financial or environmental emergency threatens to sideline your operations and deplete your resources.
If you know everything there is to know about your small business’s insurance needs, that’s great! If you’re not sure how to best insure your business.
Here are five main types of small business insurance that can help you when it matters most.
1. Commercial liability insurance
What is it about? As a small business owner, you may be held responsible for damages caused to others (or to the property of others) by your activities. This is called civil liability, and it is not always possible to avoid it: even companies that have done no wrong can find themselves embroiled in a civil liability suit. Commercial liability insurance (also called CGL) is very useful when someone files a lawsuit against your business. This type of insurance is designed to protect you and your business if you are held legally responsible for claims that arise from bodily injury or property damage caused to a third party by your products or services.
When is it useful? An RCE policy comes into play when someone sues you after being injured or suffering property damage. If a customer breaks their wrist falling down the icy steps in front of your business or one of your employees breaks a piece of furniture while providing catering services elsewhere, your business could face hefty legal fees.
2. Product liability insurance
What is it about? Generally, this protection is part of your CCE policy, but it may be relevant to explain its specific nature. It is about your responsibility to customers, suppliers and others with whom you interact in your business activities when your product has caused bodily injury or property damage to someone.
When is it useful? If your customers are writhing in pain over a bad batch of cookies or an unfortunate typo on a pile of posters makes your customer angry, you may have to pay damages.
What happens if you don’t have it? If a problem or disaster is attributed to your product, your bill could be hefty: after all, you will have to recall or destroy the rest of the products, then manufacture new ones, not to mention the threat of a major claim in liability (especially if the product problem affected more than one customer). The coverage provided by product liability insurance does not extend to recall costs, but it can ease the burden of legal fees.
3. Business Property Insurance
What is it about? As the name implies, business property insurance insures your workplace as well as all sorts of things inside and outside. Regardless of the type of business you operate, the nature of your location (whether you own or rent your space) and your assets, such as equipment, inventory, furniture, and electronics, must be protected from fire, flooding and property damage.
What happens if you don’t have it? Property losses easily cost thousands of dollars, even for small businesses. If a flood submerges everything from your computer equipment to your floorboards overnight, you could deplete your savings on replacement costs and lose your income due to business interruption. Without financial support, your business would be in serious trouble.
4. Professional liability insurance
What is it about? Also called technology-related errors and omissions liability insurance, professional liability insurance is used to protect businesses if a problem with their services results in a lawsuit against them. When you work in the professional services industry, such as software development, web design, management consulting, health or beauty, an error or omission on the job can have big (and costly) consequences.
When is it useful? Professional liability insurance can be beneficial in several common situations. For example, if your mistake results in financial losses for your client, they could ask you for compensation. If you happen to miss a critical detail that disrupts service or harms the finished product you promised, your customer could sue you for damages. And if you’re involved in a lawsuit, professional liability insurance could cover some of the related legal costs.
What happens if you don’t have it? Without this insurance, the costs of litigation and lost revenue during business interruption can quickly overwhelm your small business. Civil liability (errors and omissions) insurance can help you pay legal fees and thus alleviate some of your financial burden.
5. Cyber risk insurance
What is it about? Businesses that rely on technology and data are vulnerable to cyber risks, which are getting worse every year. Astounding as it is, 45% of small business owners have unknowingly been victims of a cyberattack , and only a quarter of small businesses are well prepared. Cyber risk insurance can cover a portion of losses from data breaches, hacks and malware.