Small Business Demands Big Insurance Requirements

Small businesses take risks every day to evolve, grow and profit. Risk is inherent in everything from hiring a new employee, to expanding into new office space, to developing new products and services. While small business owners cannot always guarantee success in those endeavors, there are several types of business insurance available to protect them from other risks and liabilities losses.

What does business insurance cover? All sorts of important, unpredictable and unexpected things. Here are six types of insurance a small business needs most to protect itself and its employees.

Workers’ Compensation

Workers’ compensation insurance is a strategic investment that protects small business owners and their employees. Importantly, laws about workers’ compensation are different in every state. Small business owners should familiarize themselves with state regulations where they operate.

Most states require small businesses to carry workers’ compensation insurance to cover medical expenses, physical therapy expenses and lost wages for employees who get sick or injured at work. Benefits sometimes also include compensation for economic loss (past and future) and benefits payable to the dependents of workers killed on the job or in the course of employment.

Notably, workers’ compensation insurance policies generally do not include damages for pain and suffering or punitive damages for employer negligence. Premiums vary by business and are determined by factors including payroll, location, classification, and experience rating.

Owners who fail to offer the coverage in states where it is mandated leave themselves open to regulatory penalties. Failure to meet a workers’ compensation coverage requirement could leave a business exposed to the full costs of workers’ compensation claims.

Commercial General Liability

Commercial general liability insurance (CGL) is one of the types of insurance for small businesses that helps business owners protect themselves from lawsuits related to non-professional bodily injury or property damage. Customers sustaining an injury at a job site or a worker damaging a customer’s property while on the job are among the many common scenarios that could lead to a financial disaster for a business owner. Liability insurance can provide financial compensation to the aggrieved party and offers financial protections to the small business owner.

However, general liability does not cover claims made by employees and it does not cover a small business’ every need. Owners are encouraged to buy supplemental insurance coverage for specialized risks based on their specific needs, industry type or location.

Professional Liability

Professional liability insurance (PLI) is sometimes also referred to as errors and omissions (E&O) insurance. For certain professionals, such as doctors and lawyers, it is commonly known as “malpractice insurance.”

Any small business that works directly with its customers while providing services should strongly consider having this insurance. It can protect small businesses from negligence claims related to mistakes or failure to perform while offering a professional service. Most policies cover only economic or financial losses, not bodily injury, property damage claims or criminal prosecution.

Product Liability

One of the other types of insurance for small business that protects small business owners from litigation costs is product liability insurance. Generally speaking, it protects owners against third-party claims of personal injury or property damage related to products they sold or supplied. Insurers can adjust and amend product liability insurance to fit specific products. Some small businesses that make hazardous products, such as weapons, chemicals and pharmaceuticals, often have trouble securing liability insurance from their insurers. In these cases, they must buy insurance from a specialty insurer.

Property Insurance

This type of insurance for small business is essential regardless of whether the owner leases or owns the workspace. It can cover damage to equipment, furniture, and inventory related to fires, storms, earthquakes, explosions, theft, or terrorism. The property is insured either as open perils (covers loss not excluded in a policy ) or named perils (covers only actual causes listed specifically in a policy). Property insurance offers three types of coverage:

• Replacement cost – pays the cost of property replacement or repair with similar kind and quality regardless of depreciation or appreciation.
• Actual cash value – pays the replacement cost minus depreciation.
• Extended replacement cost – pays more than the coverage limit if construction costs for construction have risen.

Business Income Insurance

When a small business location suffers damage after a fire or natural disaster and operations must be shut down for a significant amount of time, business income insurance, also called business interruption insurance, becomes invaluable. It typically covers the profit that would have been earned if the business did not have to close for repairs and restoration, as if no loss had occurred at all. Coverage can include reimbursement for operating expenses, including rent, payroll, taxes and utility bills. Further, it can cover expenses incurred during the repair period and the costs of actions taken to mitigate losses.

All these types of insurance for small business help protect owners from unforeseen expenses that, in some cases, could be burdensome enough to put a company out of business. In sum, insurance is a wise investment in a small business’ long-term well-being.

EMPLOYERS is committed to helping small businesses operate safer, more efficient workplaces. Contact EMPLOYERS® today to learn more about our cost-effective workers’ compensation insurance.

The information provided is intended to provide a general overview. This information is not legal advice and should not be relied on as such. EMPLOYERS® makes no warranties for the accuracy, adequacy, or completeness of the information provided, and will not be responsible for any actions taken based on the information contained herein. If you have legal questions or need legal advice, please consult an attorney.