Picking the Right Insurance For Your Small Business (Solopreneurs too)
With so many types of insurance, it can get a little murky on what’s best – or even required – in terms of coverage for your small business, particularly for new and solo entrepreneurs.
Here’s what you need to consider for insurance coverage, including a look at the common types of insurance for small businesses.
Generally, business insurance can help protect you from unexpected costs associated with running your business, such as accidents, disasters and even lawsuits.
And like insurance for your health or home, your aim is to “cover” the things you wouldn’t be able to pay for on your own.
“Insurance coverage is available for virtually every conceivable risk your business could face,” says the NFIB, a national nonprofit group that advocates for small and independent business.
What Do You Need?
If your business is structured as an LLC or corporation, you may already have some risk protection in place.
But that legal structure may only protect your personal property and even that protection is limited, cautions the U.S. Small Business Administration.
“Business insurance can fill in the gaps to make sure both your personal assets and your business assets are fully protected from unexpected catastrophes,” the SBA says on its website.
Further, the SBA notes, in some instances you may be legally required to purchase certain types of insurance for your business. For example, if you have employees, you’re required by the federal government to have workers’ compensation, unemployment, and disability insurance.
There are also state laws that require specific insurance for certain businesses so it’s important to check with the state and local offices where your business is located for mandatory insurance rules for small businesses.
Beyond The Requirements
Maxine Rieman, director of online channel producing marketing for CoverWallet, believes having comprehensive insurance coverage is essential for a business of any size, even if you’re a home-based solo entrepreneur.
“Risk management isn’t just for big corporations – small businesses need to ensure they’re properly protected from disastrous situations as well,” she writes in a CoverWallet blog shared on SCORE’s website.
When choosing the type of insurance your business needs, first assess your risks, the SBA says.
“Think about what kind of accidents, natural disasters, or lawsuits could damage your business,” the agency advises.
Most Common Types of Insurance
General Liability is typically the first type of insurance a small business will purchase, says Rieman, particularly for businesses that operate from a physical location. That’s because it helps protect you from third-party injury claims.
“This type of insurance is essential if you own a storefront or office where customers or other external parties visit,” she says in the post shared by SCORE.
For example, Rieman says, general liability insurance could help cover litigation costs and settlements if your business is found liable for damages after someone slips on a wet floor while shopping at your business.
Another common insurance for business is Commercial Property Insurance, which insures your physical assets, ranging from office space to machinery.
This type of insurance is recommended if the equipment you use while doing business is valuable.
“It offers coverage in case of a natural disaster, vandalism or theft, and will cover costs related to repairing or replacing property and equipment,” writes Rieman.
There are scenarios, however, that may not be covered, such as flooding or earthquakes, so she advises small businesses understand the limitations of their commercial property policy.
Insurance industry experts and agents also suggest small businesses consider cyber insurance, which generally covers your business' liability for a data breach involving sensitive customer information such as credit card and driver's license numbers.
Nationwide Insurance reports 55 percent of small businesses have experienced a data breach and 53 percent have had multiple breaches.
Cyberattacks, particularly email phishing scams, happen every day to businesses of all sizes, according to Lauren Patrick of Curricula, which specializes in cyber awareness training for employees.
“Regardless of size, every business needs to have some type of cybersecurity insurance. Don’t think 'it can't happen to me',” says Patrick in a SCORE blog by Brett Farmiloe.
“It’s important to remember no business is too small or too big to become a victim of business email compromise that leads to a data breach and ransomware attack.”.