The Best Insurance Type for Your Small Business

By Katherine Wood, HomeownersInsurance.com

Unexpected events, even seemingly minor ones, could hit your small business much harder than you expect. That’s why you need to protect your hard work by purchasing the right type and amount of insurance. For a new small business owner, the insurance landscape can be difficult to navigate.

Here’s a guide to the basic requirements and other options available for safeguarding your successes.

Big picture requirements

Any business, big or small, needs at least some of the following basics. It doesn’t hurt to have a working knowledge of these types of coverage so you’ll know what you’re paying for and how fully you’re covered.

• Property: Whether you locate your business at home or in a commercial building, you’ll need a structural and contents policy. Property coverage typically provides protection against fire, theft and other events for your building and essential business contents such as office furnishings, inventory, materials, machinery, and computers. There are two types of policies – a named perils policy that covers only specific events and an all-risks policy that covers everything except perils specifically excluded (such as floods and earthquakes).
• Liability: All companies need general liability coverage in case they face legal action. It protects you in case someone gets hurt on your property or one of your employees causes property damage or injuries. Other types of liability are product and professional.
• Workers compensation: Workers compensation is a legal requirement when the company’s number of employees exceeds a set limit, usually three. This coverage helps when workers are hurt on the job.
• Business auto: If you use a vehicle your company owns for business, cover it properly.

BOP for the BOSS

A business owner’s policy, or BOP, is a composite policy that includes the four main components of small-business insurance listed above. BOPs do, however, have add-ons that you could use to better preserve your business. Damage to outdoor signs, for example, or interruption to e-commerce, aren’t normally covered with a BOP but can be added.

Other potential additions include:

• Errors and omissions or professional liability: A lawsuit due to your company’s failure to properly perform its job—due to malpractice, errors, or negligence—falls under professional liability. The carrier helps compensate for the judgment and any legal defense costs.
• Employment practices liability: When you, as the employer, potentially violate an employee’s rights, this liability coverage helps pay for the legal defense and damages.
• Directors and officers liability: If a small business, even a nonprofit, mismanages its business without regard to others’ rights, the lawsuit comes under directors and officers liability.
• Key employee Insurance: If one of your top performing employees dies or becomes disabled, this coverage compensates the company for income lost.
• Umbrella policy:  If all of the liability policies above aren’t enough, you can cover your business beyond typical policy limits with an umbrella policy. It provides overarching security for risky or overly cautious small businesses.

When you’re starting an enterprise, it’s important that you become familiar with small business insurance. Navigate through numerous options by first mapping out your business’s particular type of risks and then finding the coverage fit that works best. The right protection could help your “little engine that could” transform into the “little engine that did.”

This article was contributed by Katherine Wood, a writer for the HomeownersInsurance.com Blog. The HomeInsurance.com blog serves as a resource center for insurance consumers and homebuyers across the country.