Most kinds of business insurance are optional, but local laws may require you to purchase specific coverage if you’re in a certain industry or need LLC insurance. Let’s take a look at the types of coverage that the best business insurance policies should include so you know what to look for when choosing a policy for your business.
What the Best Business Insurance Should Include
Business insurance policies vary depending on the scope of the coverage and needs of the business. But many companies bundle different types of insurance coverage to generate affordable, comprehensive policies that cover a wide range of situations. Here are five benefits that a typical business insurance policy should include.
Commercial property insurance
Commercial property insurance covers your business’s physical assets. These include your store or office, supplies, furniture, machinery, or inventory. If your business or equipment gets damaged due to a fire, storm, theft, vandalism, or system failure, your commercial insurance policy can replace the value of the damaged items.
General liability insurance
This protects your business from claims of bodily injury and property damage. If someone gets hurt on your company’s premises or an employee damages a customer’s personal property, general liability insurance can help pay for the customer’s medical bills or for repairs to their property.
In addition, a general liability insurance policy can shield your business from the financial hardship of a lawsuit. This type of insurance typically covers any costs associated with legal defense, including any settlements or judgments.
Business income insurance
If the Covid-19 pandemic taught small businesses one thing, it’s that even a temporary loss in income can turn into a financial disaster. While business income insurance won’t necessarily protect you from losses due to Covid, it can cover your business from loss of sales or profit if your business has to shut down due to an unexpected event.
Also known as business interruption insurance or BI, this type of insurance typically covers lost earnings due to a fire, theft, weather-related damage, or explosion. It may also include coverage for expenses related to temporarily moving your business to a new location until you can resume normal operations.
Errors and omissions insurance
Errors and omissions insurance provides you with protection from legal claims made against your business. Also known as professional liability insurance, errors and omissions policies can pay for legal defense costs, settlements, and judgments that stem from mistakes your company made during the course of your work.
These types of policies typically focus on costs associated with cases involving misrepresentations of facts, giving incorrect advice, or breaches of trust or fair dealing. If your company provides a professional service or advice of any kind, errors and omissions insurance relieves you from having to pay for legal expenses out of pocket when a client accuses your business of malpractice or negligence.
Workers’ compensation insurance
Workers’ compensation insurance, or workers’ comp, protects not only your business but also your employees. It provides benefits to employees that get injured on the job, such as paying for their medical treatment and covering their lost wages while they are out of work.
Additionally, this insurance limits your company’s liability for lawsuits brought by an employee that got sick or injured from a work-related accident or incident.
Many states require businesses to carry some form of workers’ compensation insurance for all eligible workers. That said, requirements can vary depending on the state, industry, and category of employee.
How to Pick the Best Business Insurance
With so many types of policies to choose from, finding the right business insurance is easier said than done. Whether you’re shopping for the best business insurance for LLCs or looking for a complex array of coverage options for a multinational conglomerate, here are some things to focus on to ensure you get it right:
Consider your business needs
The first step is to consider the needs of your business. Most businesses are required to carry a minimum amount of insurance, such as workers’ compensation insurance. However, insurance requirements can vary depending on your state and industry, or the size and scope of your business.
For example, if your business owns or operates trucks, vans, or cars, you’ll likely need commercial auto insurance to cover those vehicles. Similarly, a consultation or design firm may be required to purchase professional liability insurance before doing business in a certain state.
Your vendors or clients may also ask you to get insurance before they’ll do business with you. For example, if you plan to rent commercial real estate, your landlord may require you to purchase a general liability policy before signing the lease. This protects the landlord if someone sues them over accidents or injuries that occur on the property your business is leasing.
Identify risks
In addition to creating an inventory of your business insurance needs, you’ll want to perform a risk assessment of your business. No two businesses are exactly alike, so you can’t simply rely on a template that recommends the minimum amount of coverage you need to legally operate.
Conducting a risk assessment involves identifying the main types of risk your business faces. These could include data breaches, product failures, transportation delays, workplace injuries, property damage, or service issues.
More than likely, your business will have greater exposure to some risks over others. Once you have identified your main vulnerabilities, prioritize getting additional coverage to protect the areas of your business with the most risk exposure.
For instance, if you own or operate a restaurant, you probably don’t need an expensive professional liability or cybersecurity insurance policy. Instead, you should prioritize commercial property insurance to protect your physical location, equipment, and inventory.
You’ll also want to consider purchasing general liability insurance to protect your business against claims made by customers who get injured on your property or who get sick after eating your food.
Determine your coverage limit
Next, you’ll want to figure out exactly how much coverage you need to limit your risk exposure. While you can never completely eliminate risk, you can reduce it to the point where you don’t have to worry about a lawsuit or accident completely ruining your business.
You’ll need to account for several factors when determining your business insurance coverage needs, including the size of your company, industry, location, risk, and assets you want to insure.
Additionally, you’ll need to make some projections about your future income potential and how long an accident or temporary business interruption could affect your business’s production levels.
With this information, you can estimate how much coverage you need to get your business through a temporary relocation or rebuild, as well as how much money you’d need to protect your company from a lawsuit or legal claim.
Compare prices
When it comes to choosing business insurance, you don’t want to choose the first cheap business insurance policy that you find. At the same time, you want to remain sensitive to price. The higher your coverage limits, the more expensive your annual premium. This is why it’s so important to accurately identify your business insurance needs, risks, and coverage limits.
Once you’ve found some policies that match your basic criteria, evaluate their terms, benefits, and rates. Every insurance provider has their own way of structuring insurance coverage, so don’t just assume that similar policies from different brokers will contain the same list of costs and benefits.
If you need several types of business insurance, bundling policies together can save you time and money. Additionally, it doesn’t hurt to ask providers if you can secure lower premiums by making updates to your business, such as installing new fire alarms or security systems.
Contact an insurance broker
If you simply don’t know where to start, consider reaching out to a reputable insurance broker. They can help you find a policy that fits your business’s individual needs.
Your insurance broker can provide you with advice as to what forms of insurance you need to protect your business, as well as what forms of insurance you can do without. Brokers can also help you secure discounts by helping you identify changes or updates you can make to lower your annual premium. By developing a positive relationship with your broker, you can save money on your business insurance without sacrificing coverage or benefits.
Conclusion
There are many types of business insurance, including general liability, commercial property, business income, errors and omissions, and workers' compensation insurance. Knowing what type of policy to choose boils down to knowing state and industry regulations along with understanding your company's unique needs and risks. If you're having a hard time comparing policy coverage limits and term, a knowledgeable broker can help you figure out exactly what and how much insurance your company needs.
Over time, your company insurance needs may change as your business does. At the very least, you should reevaluate your business insurance needs and risks annually to determine if you need to increase your coverage limit, purchase additional insurance, or reduce your coverage.