By Katherine Jones, Coterie Insurance
What would happen to you and your business if you severely injured a customer or caused extensive damage to their property? Where would you get the money to fight a lengthy and costly legal battle following an allegation of libel? How would you afford to rebuild your building and replace all of your equipment after a devastating fire?
For many small businesses, small business insurance seems like just another expense. However, commercial insurance coverage is a useful tool for protecting the longevity of something you’ve worked so hard to build.
Unless you sleep on a literal bed of cash, small business insurance isn’t something you should ignore or skimp on. It may not be exciting as a shiny new work truck or feature-heavy piece of equipment, but it can prevent your business from going under following a covered event, such as a fire, lawsuit, or allegation of negligence.
Why Small Businesses Need Insurance
Every small business — whether you’re a contractor, freelancer or other self-employed professional — is exposed to a variety of hazards during day-to-day business.
Some of these risks are due to the nature of your job. Others include mistakes or oversights. Certain hazards come from factors outside of your control, such as vandalism or extreme weather. And many risks are the result of litigation, whether or not a lawsuit has merit.
No matter how careful you are, risks are present in any industry and situation:
- Plumbers may fail to properly solder two pipes together, causing a homeowner’s kitchen to flood.
- An electrician in a rush may not fully tighten a screw down onto a wire, causing arcing to occur and a dangerous housefire to break out.
- A housekeeper may accidentally leave out a toxic cleaning product that the homeowner’s child finds and imbibes, leading to costly medical bills.
- One of your employees may sustain an injury on the job, requiring medical care and therapy and causing the employee to lose out on income.
What would happen if you injured a customer or caused damage to their property? A broken leg alone may cost up to $7,500 to treat, with a three-day hospital stay totaling around $30,000. Repairing damage — to a flooded kitchen, for example — may also cost upwards of thousands or tens of thousands of dollars.
In either situation (and plenty of others), you may also need to defend yourself from a lawsuit. This could include lawyer’s fees, court costs and any potential judgment or settlement. And you don’t need to be a millionaire to get sued like one.
Small business insurance pays out for a covered claim and protects you against costly litigation, helping to protect your business from going bankrupt and closing up shop.
What Insurance Coverages Do Small Business Owners Need?
Small business insurance isn’t an all-in-one policy. It’s made up of individual policies that, together, protect against different sets of risks. This allows you to custom-tailor your coverage to meet the unique needs of your business. And you won’t end up paying for more insurance than is necessary.
There are four types of insurance coverages that all small businesses need to properly protect against different types of threats.
General Liability Insurance
General Liability (GL) Insurance is the most basic small business insurance coverage and is often required by law or mandated by industry regulations. In other cases, your clients or customers may require you to have GL coverage before deciding to work with you.
A General Liability policy covers:
- Bodily injury, including death
- Property damage (including coverage for products completed)
- Personal or advertising injury (or reputational harm, such as libel and slander)
- Legal fees, including judgments and settlements
- Medical payments (good-faith coverage that pays out shortly after an injury is sustained via a covered event, designed to dissuade the injured party from pursuing litigation)
General Liability Insurance does not cover damage done to you, your employees, your business, or your property. However, it protects you against claims made against your business for damage or harm done to your customers or clients.
Though GL coverage protects against claims arising from physical damage, it’s often perceived to be an insurance product for “blue-collar” professionals. However, it’s especially important for small businesses that physically interact with customers.
However, even small businesses who rarely interact with customers face-to-face or work on customer property can benefit from GL coverage. Especially when considering its protection from claims of reputational harm (or the odd event of a customer tripping over a snag in your office carpet).
Business Owners Policy
A Business Owners Policy, or BOP, is designed to be more comprehensive than General Liability coverage. Business Owners Policies provide the same coverage as General Liability Insurance, as well as:
- Commercial property coverage for your physical building (whether you own or rent)
- Business personal property coverage for the contents of your building (tools, equipment, etc.)
- Business interruption coverage (lost income as a result of an interruption to your regular business and added expenses incurred via disruption to your business)
- Equipment breakdown coverage
Essentially, a BOP combines General Liability coverage, property coverage, and business interruption coverage into a single package.
Business Owners Policies are highly customizable to fit the unique needs of your small business, regardless of your industry, specialty, or customer base. A BOP may be customized through optional add-ons, called riders or endorsements, to meet the unique requirements of your business.
Available endorsements depend on your insurer and industry and may include (but aren’t limited to):
- Professional Liability coverage, which protects against claims of negligence, contractual breaches, malpractice, and errors and omissions
- Cyber Liability coverage, which protects against data breaches, hacking, data loss, malware, and other computer- and network-related incidents
- Employment Practices Liability insurance, or EPLI, which protects your business from employee claims alleging sexual harassment, discrimination, wrongful termination, and other legal rights violations
Business Owners Policies protect both your customers and clients through its General Liability coverage. It also protects your business through its property, contents and interruption coverage. It’s insurance coverage that’s the best of both worlds for many small businesses.
And because BOP coverage is so easily tailored to meet your exact needs, you can be sure you’re not paying for insurance you don’t want or need. At the same time, you’re protecting against any hazards that may threaten your business.
Professional Liability Insurance
Professional Liability Insurance, or PL insurance, is also referred to as Errors and Omissions coverage or Medical Malpractice Insurance, depending on the industry.
In contrast to General Liability coverage, which protects you from being held liable for physical damage done to a third party, Professional Liability Insurance protects you from liability arising from your profession. PL covers claims of:
- Errors and omissions (mistakes and oversights)
- Incomplete or inaccurate work
In other words, PL insurance covers breaches of contract — promises you agreed to and, for whatever reason, failed to deliver upon, resulting in economic or financial damages to the hiring party.
Though the focus of Professional Liability Insurance may seem to be protection from litigation, it does protect against claims of physical damage — bodily injury and property damage — that occurs as a result of your profession, such as a yoga teacher who gives bad advice to a student who follows through with the advice and becomes injured.
Professional Liability coverage isn’t just for white-collar professionals, either. Most small businesses face some or all of the hazards covered by PL insurance, even if those risks are less likely. As with General Liability Insurance, some regulatory bodies, clients or customers may require you to hold PL coverage before working with you.
Workers’ Compensation Insurance
Workers’ Compensation Insurance, formerly referred to as “Workmen’s Compensation,” is insurance that pays out when an employee has been injured or becomes ill on the job regardless of fault.
Following a workplace injury or illness, Workers’ Compensation provides coverage for:
- Medical expenses, including medication, therapy, and hospital visits
- A portion of lost wages
- Rehabilitation or retraining to teach a worker a new skill if they can no longer return to their previous role
- Funeral expenses
Workers’ Compensation coverage shifts the burden of compensation from your business to your insurance policy following a covered event. Though your business is still partially responsible for your employees’ Workers’ Comp coverage via your policy’s premiums, your business isn’t on the hook for covering an injured employee’s medical care, lost wages, or death benefits.
In turn, employees give up their right to sue you for compensation. This compensation bargain guarantees an employee’s compensation versus a potentially costly lawsuit, in which they could possibly lose (and thus receive no compensation). It also prevents your business from defending itself during costly litigation which could, potentially, lead to a significant judgment or settlement.
In other words, Workers’ Compensation is a win/win for both parties.
Your business is required to carry Workers’ Compensation Insurance if you employ more than one non-owner or non-partner employee. (Texas is an exception.) Workers’ Comp is regulated on the state level, so minimum coverage limits vary on a state-by-state basis.
Failure to carry adequate Workers’ Compensation coverage can lead to significant fines. In some cases, you could be looking at jail time, as defined by your state law.
How to Buy Small Business Insurance Coverage
Though small business insurance may seem like an added expense, it’s a safe, practical and budget-friendly way to protect your business from the costly and unexpected expenses of a claim.
And because business insurance is easily customized to cover the exact risks that threaten your business, you’re only paying for the coverage you need.
Purchasing small business insurance is a quick and easy process. Through Thryv’s partnership with Coterie, you can get a small business insurance quote in just a few minutes. Simply enter some basic details about your business, industry and needs. Coterie’s tool will provide you with the information you need to make an informed decision.
By protecting your business with small business insurance coverage, you’re protecting everything you’ve worked so hard to build. Same goes for the employees, clients and customers who depend on your continued success.