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Things go wrong. People make mistakes. Natural disasters are a fact of life. Protecting your small business from these unforeseen events with the right insurance policies could mean the difference between prosperity and going belly up.
Here are five types of small business insurance policies that every small business owner should consider.
1. General liability insurance
General liability insurance covers your business in the event that accidents, injuries, or claims of negligence puts your business in court. These policies will generally help cover legal expenses, as well as any potential financial payments required due to these lawsuits.
General liability coverage is your baseline protection in case there is any suit claiming bodily injury, property damage, medical expenses, libel, slander, and any settlement bonds or judgments.
2. Property Insurance
Alongside general liability coverage in your basic small business insurance toolbox is property insurance. Just like you purchase coverage to protect your home against fire, wind, hail, vandalism, and other physical damage, you should also buy commercial property insurance to protect your business' facilities.
Commercial property insurance is an extremely powerful risk management tool. It's broad and flexible, and it can provide specific coverage you wouldn't be able to get anywhere else.
With an all-risk policy, you have protection from all risks except those noted in the policy as being excluded. Talk about one size fits all. Or, you could elect to go with a peril-specific policy that only covers the specific events as listed in your policy.
The key is to consider the risks presented by your facility's location, and then to ensure you have enough coverage to protect your business in the worst-case scenario. For example, a facility in the flood plain should absolutely have flood insurance, which may be excluded in a generic all-risk policy. In that case, a flood-specific policy would be required.
3. Business interruption insurance
In the event of a flood, fire, tornado, or hurricane, many business owners find solace in their commercial property insurance to protect them from damage. It's only after the storm when they realize that the rebuilding process could take many months, and the business won't have any income during that time span. That's where business interruption insurance can be a lifesaver.
This coverage covers the lost income when a business loses its facilities to a disaster. Instead of going bankrupt during the rebuilding phase, the business would have the income it needs to survive until normal operations can resume. This insurance can cover lost profits, fixed costs, and other ongoing cash needs. Unfortunately, business interruption insurance is often overlooked until it's too late.
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4. Product liability insurance
For businesses that sell a product, product liability insurance protects against lawsuits if a defective product causes harm to customers. This applies to retailers, distributors, and wholesalers, along with the products of the actual manufacturer.
It doesn't matter if the defect is a result of a manufacturing flaw, design flaw, or even a failure to warn consumers about a potential risk. The seriousness of this risk is far, far greater for a small business than the multinational corporation with tons of cash in its coffers. Without product liability coverage, the financial hardship of such a lawsuit could bankrupt many small businesses. Appropriate product liability insurance makes sure that doesn't happen.
5. Professional liability insurance
Not all businesses sell a product. Many sell services instead, and the risks of providing those services also warrant specific insurance coverage. Doctors uniformly carry malpractice insurance, just like many lawyers or financial professionals carry errors and omissions coverage.
At the heart of each is protection against a negligence claim in court and, just like in the product liability section above, a trip to civil court without these insurance policies could easily force a small business to close its doors.
Appropriate insurance coverage helps you sleep well every night
Small business owners work exceptionally hard to build and grow their own American dream. But some things are outside the control of even the most diligent and cautious owner operator.
In those instances when life gets in the way, appropriate insurance coverage can save the business from bankruptcy. It starts with the foundation of general liability and commercial property coverage, and it ends with the specific policies needed to protect your business based on its specific risks.
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