When you started your business, you were probably preoccupied with cash flow, staffing and growth. At some point, though, investing in business insurance becomes essential. This insurance protects your assets and acts as a safeguard against personal lawsuits.
Unfortunately, many small businesses think they are protected from lawsuits simply by forming a limited liability company (LLC). While these entities do protect the business owner’s personal assets in the event of a lawsuit, they do not always offer protection in cases of intellectual property law violations and employee lawsuits.
This guide will answer your preliminary questions about business insurance and help you find the right plan and provider for your company.
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Owning a small business means expecting the unexpected. One day, your business could be thriving, and the next, it could be the victim of a cyberattack from which you must spend tens of thousands of dollars to recover. Or your employee could be injured in a car crash while driving a company vehicle on your behalf. In both cases, your company is on the hook for the costs involved — and without appropriate insurance plans in place, you’ll have to pay these costs out of pocket. [Read more about SMB issues: Report Examines SMB Pandemic Challenges, Tech Trends and Future Planning]
Small business insurance provides a safety net for unforeseen events that substantially impact your bottom line.
Small businesses can be insured in many ways, and not every business needs every type of coverage. Here’s a brief rundown of the most common ways business owners insure their companies, though there are other types of plans as well.
Common business insurance types include business owner’s policies, cyber insurance, general liability insurance and workers’ comp.
What is the difference between general and professional liability insurance?
Most businesses should buy general liability insurance, whereas professional liability insurance is mostly a concern for consultants and finance professionals. That’s because general liability insurance covers your company in the event of property damage, personal injury or advertising injury claims — all circumstances that any business could experience. Professional liability insurance is more specific, covering your company if a client claims that your services led to financial hardship for them or their clients.
The type of insurance you choose should depend on the way you conduct business, the types of products and services you offer, the size and physical setup of your business, and various other factors that are impossible to flesh out in a short article. However, these basic steps should help you find the right type of insurance coverage for your unique small business — we recommend doing all four.
To help you decide which types of insurance to buy, consult experts and others in your industry.
No two small businesses will spend the same amount of money on insurance. Costs depend on company size and especially industry, as certain insurable events are far more likely in some sectors than others. Despite these variables, small business insurance provider Insureon lays out some average monthly costs for a useful reference point:
These average numbers add up to $144 per month. As you add more insurance policies, your monthly costs may reach into the higher hundreds or perhaps low thousands of dollars.
Once you know the types of business insurance you plan to purchase, you can get quotes for price comparison and choose a provider from those. If you already have a preference, it’s fine to continue doing business with the same institution you use for other products, but we recommend getting at least three quotes as a best practice.
Comparison shopping can pay off in the form of better coverage as well as lower rates. It’s also not a bad idea to let the reps you’re talking to know that you’re shopping around. Plus, during the sales process, you can vet each company by paying close attention to not only their prices but also their general level of customer service.
Although the vast majority of your business activities will lead to great outcomes, things can occasionally go wrong. Rarely, they’ll go very wrong — and just one of these moments can expose you to tremendous liability. Business insurance is worth obtaining to minimize or eliminate your financial obligations in these stressful times.
Editor’s note: The contents of this article do not offer legal, business or insurance advice related to the needs of any specific business. Please consult your attorney and/or small business insurer to discuss your situation and coverage.
Max Freedman contributed to this article.