Is Liability Insurance Enough for a Small Business?

Managing risk can be an important part of building an enduring business. From employees getting injured on the job to an earthquake destroying a warehouse, there is no shortage of costly scenarios for a prudent business owner to imagine. Fortunately, there are products available to help protect your business in nearly any situation.

General liability insurance applies to injuries or property damage caused by you or your employees, and can cover lawyer fees and some types of legal settlements. The amount of coverage is determined by the policy you purchase. While popular, general liability insurance will generally not protect a business from all claims. Tweet This

For example, the loss of inventory due to theft may not be covered by a general liability policy. Instead, you could make the claim on a property insurance policy as discussed below.

As with any financial decision, taking time to get familiar with your options is preferable to wasting money on the wrong policy. Here we’ll take a look at seven insurance options to consider, including several that may be required by law.

Property Insurance

If you own the building that houses your business, property insurance can be a wise investment. Under most policies, the structure is covered against damage or destruction, as are tools, inventory, and equipment. Property insurance can also guard against many types of natural disasters, as well as theft or vandalism. There are two types of property insurance policies that provide different levels of coverage: all-risk and peril-specific. As always, you’ll want to pay close attention to situations that may be excluded from your policy.

Commercial Auto Insurance

The road can be a dangerous place for a business. The vehicles used in the course of conducting your business should be covered by a commercial auto insurance policy. This applies equally to a big rig or your personal car. In addition, you can be liable for damages caused by employees using their own vehicles to conduct business. If workers regularly rely on their own transportation while they work, consider adding these vehicles to your policy or purchasing non-owned auto liability coverage. It’s important to be diligent about vehicle use in order to stay within the limits of your coverage and state law.

Errors and Omissions Insurance

Errors and omissions insurance, also known as professional liability coverage, is designed to protect service providers from damages that can result from mistakes, negligence, or malpractice. Many medical professionals are required to carry this type of insurance, but it can apply to any service business. General liability insurance may not protect you if the injury occurs as the result of the service you provide, so errors and omissions insurance can be crucial to protecting your company from expensive claims.

Directors and Officers Liability Insurance (D&O)

Directors and Officers (D&O) liability insurance can be especially beneficial if your company’s leadership is accountable to shareholders, investors, and/or creditors, but small businesses shouldn’t turn a blind eye to these policies. D&O coverage is designed to indemnify directors and officers against legal judgments and costs arising from acts such as poor investment decisions, reporting errors, improper hiring or firing actions, and failure to comply with regulations or laws. While this may sound like a policy aimed squarely at corporate clients, small business owners can face similar claims brought by customers, vendors, and lenders. Notably, D&O coverage only insures the protected parties against financial claims, not bodily injury or property damage.

D&O policies are complex insurance instruments, so it’s important that you shop around and familiarize yourself with the coverage provided by your insurer. The right policy can provide executives and managers with the peace of mind to make important decisions that may have negative or unforeseen consequences.

Workers’ Compensation Insurance

Most businesses with employees are required by law to carry workers’ compensation insurance, available through the state or private insurers. This type of policy guards against claims brought by employees injured on the job. It provides wage replacement and medical benefits in exchange for the employee forfeiting his/her right to sue the company. No amount of training can prevent all accidents, so the requirement to buy a policy is intended to protect both employers and workers. Failure to purchase workers’ compensation insurance can result in serious fines.

In addition to workers’ compensation coverage, the law may require your business to carry unemployment and disability insurance.

Data Breach Insurance

If your business stores personal information regarding customers, clients, or employees, you could be vulnerable to a data breach. Stolen credit card or social security numbers facilitate identity theft, and this can result in real costs for both the victims and your business. Data breach insurance can cover expenses you incur in order to notify affected parties of the cyber attack. It can also pay for legal expenses that arise from the crime. Many major companies have found themselves at the center of massive data breaches, but small businesses are not immune to opportunistic thieves.

Life Insurance

A sole proprietor can have an additional concern when it comes to his/her business. Should you pass away unexpectedly, the non-transferable business will stop functioning. This can leave your family or dependents in a precarious situation. Purchasing the appropriate level of life insurance coverage can provide financial resources to your survivors.

Business Owners Policy (BOP)

business owner’s policy combines several types of coverage into one package. Property, business interruption, and liability protections are usually part of a BOP. This can be a convenient option for a small business owner. However, not all concerns are covered by a business owner’s policy, so it’s important to discuss the details with your insurance agent.

Remember that insurance policies will vary, and your level of coverage is dependent on the premium you agree to pay. Take time to review your options in order to find the combination that’s right for your business. It’s also helpful to note that some insurance carriers will pull your business credit report to help decide whether or not they can offer you a policy and at what terms. Learn more about your business credit here.

Photo Credit: Pinningnarwhals, Twenty20