Operating a small business without proper insurance is a bit like walking a tightrope without a net. One misstep can spell disaster.
As small and medium-sized businesses scramble to regain momentum after the pandemic-related 2020, they need business insurance to protect them from the unexpected. Having the right coverage frees owners to focus on what matters most—running their businesses effectively.
Some companies that have no insurance and have to pay “out-of-pocket” for an incident are able to recover. Unfortunately, every year many do not. That’s because being found liable in a lawsuit easily can cost a business tens of thousands of dollars when you add up the judgment and legal defense costs—and judgments of six figures or more aren’t uncommon.
But what types of insurance do small businesses need?
Peter Shelley, president at biBERK, a Berkshire Hathaway company, answered that question in an exclusive statement for The Network Journal. “The one thing all businesses—large or small—have in common is that they need business insurance. The risk of operating without it is just too high. But the types of insurance needed vary based on the kind of work a company does and other factors,” he says.
Because every business faces a unique set of risks, the coverage insurers offer typically is divided into different policies. That way, companies can get the insurance they need, but only the insurance they need. Most businesses can protect themselves from unforeseen financial burdens by having some combination of the following seven policies:
- General liability insurance. Also called commercial liability insurance, this type of policy covers damages and legal costs associated with injury claims from non-employees (customers, for example), medical expenses associated with these incidents, and damage to the property of others. It also covers slander, libel, and copyright infringement.
- Business owners policy. Frequently referred to as a BOP and also known as property & liability insurance, business owners policy combines general liability insurance with protection for company property. It can cover an owned building or leased space, and other property that a company owns or has in its care, such as product inventory or a customer’s property. It also covers business interruption and lost income resulting from property damage, as well as costs associated with resuming business operations after suffering property damage, like the use of a temporary location.
- Workers’ compensation insurance. This coverage, which is typically required by law for companies with employees, protects a business if a worker is injured, gets sick, or dies as a result of an on-the-job incident. It can cover medical costs, legal fees, and lost wages.
- Professional liability insurance. Also called errors and omissions (E&O) insurance, this type of policy is designed to protect individuals or companies that provide professional advice or services. It covers the cost of damages and legal fees if someone claims a business made a mistake or failed to perform a service, and their company suffered financial harm as a result.
- Commercial auto insurance. Businesses that own or lease vehicles need this type of insurance. It covers liability associated with accidents caused by company employees or others authorized to drive the vehicles, and it also covers the vehicles themselves. It is different from personal auto insurance, but can cover the cost of damages even if the vehicle is used for personal activities outside of its primary business use.
- Commercial umbrella insurance. Every insurance policy has a maximum amount it will pay if a covered incident occurs. Umbrella insurance provides an extra layer of protection, covering costs that exceed the limit of another policy, up to its own limit.
- Cyber insurance. Purchased as an add-on to a BOP, general liability, or professional liability policy, this insurance covers costs related to situations where a network breach or system hack has resulted in sensitive information being stolen and fraud has occurred or there is a reasonable expectation that it might occur.
“Insurance premiums vary based on the type of insurance, the chosen limits, and other aspects of the policy, but good coverage is often available for just a few hundred dollars per year,” Shelley adds. “When you consider what’s at stake, it’s a tremendous value. And the peace of mind that a business owner and their employees have knowing that a financial safety net is in place—and that a single incident won’t bankrupt the company—is truly priceless.”