Small businesses are the backbone of this country, yet the sad truth of the matter is that 90 percent of all small business startups fail.
Small businesses are the backbone of this country. Yet, the sad truth of the matter is that 90 percent of all small business startups fail.
This incredibly low success rate stems from a number of different causes. And while you can’t mitigate all risks and overcome every challenge, you can protect your business’ future by leveraging the right insurance policies.
And while you can’t mitigate all risks and overcome every challenge, you can protect your business’ future by leveraging the right insurance policies.
Below are seven types of insurance you should consider purchasing as a small business owner.
Related Article: The 8 Types of Insurance Your Business Actually Needs
The Need for Adequate Business Insurance
The scary thing about owning a business is that there are so many variables involved. From industry changes and competition to natural disasters and issues with employees, a number of things can go wrong at any given time.
Take, for example, the fact that 25 percent of all businesses that close down following a disaster never open their doors again. This means one out of every four businesses isn’t properly prepared for a natural disaster. But natural disasters are only one variable to the equation. You also have to think about cyber security, physical security, premises liability, and other risks.
Safety has a lot to do with preparedness. It’s impossible to stop a hurricane from making landfall and damaging your building, but you can ensure your business is protected with the right safety measures.
You can’t always prevent a sophisticated hacker from compromising your server’s data, but you can implement the appropriate systems to alleviate subsequent damage.
7 Types of Insurance to Consider
Insurance does very little to prevent an unwanted act from occurring; however, it can help offset some of the negative consequences that stem from these instances. While you’re probably required to have certain types of policies in order to operate within your industry, it’s possible that you’re still not secure enough. If you want your business to experience maximum protection, then it’s time to consider the following types of insurance.
1. Property Insurance
One of the first insurance policies you should consider is property insurance. Business property insurance covers the loss and damage to company property that results from different events, ranging from storms and fires to vandalism and break-ins. Every policy is different, though, so it’s important to understand what a given policy covers before making a decision.
Company property is an extremely broad term and can refer to anything from buildings and equipment to business records and supplies. Often, businesses will purchase a very specific form of property insurance to cover an individual risk, such as flooding.
When choosing a property insurance policy, it’s imperative that you consider all of your options. The monthly premium you pay is only one part of the equation. You must think about which risks your business might be exposed to and how you can make financially smart moves to protect your interests.
2. Trade Credit Insurance
“If you’re a business that sells goods and services on credit terms, a substantial percentage of your working capital is probably tied up as accounts receivable,” says the QBE Insurance Group. “With Trade Credit insurance, you can protect your accounts receivable from losses due to credit risks such as insolvency or protracted default.”
Trade credit insurance goes by a variety of other names – including debtor insurance, insolvency insurance, export insurance, bad debt insurance, and trade indemnity cover – but each of these terms essentially refers to the same thing. Trade credit insurance protects your business against bad debt that could potentially damage your business if unsatisfied for too long.
The beauty of trade credit insurance is that it frees your business up to focus on the things that truly matter. This policy allows you to approve credit limits quicker, obtain more working capital, enhance your customer relationships, and, quite honestly, sleep better at night knowing that your receivables are insured.
3. General Liability Insurance
Every business, regardless of whether it’s a Fortune 500 corporation or home-based startup, needs general liability insurance. These policies provide both defense and damages if your products, services, or employees cause anything from property damage to bodily injury to a third party.
General liability is important because of the extent of coverage it provides. An insurance policy protects against medical expenses, slander, libel, the legal costs of defending lawsuits, and more. You can spend a lot on general liability insurance, but it’s worth every penny in most instances - even if it’s only for peace of mind.
Related Article: Does Your Business Need Insurance for Social Media?
4. Professional Liability Insurance
Your general liability insurance policy won’t cover everything, though. General liability insurance has its limitations and it’s important that you also invest in professional liability insurance coverage to ensure your business is fully protected.
Commonly referred to as errors and omissions (E&O) insurance, professional liability insurance protects a business against negligence claims due to harm that results from a product or service failing to perform. Many industries require a certain level of liability insurance even to start a business, but there are a vast array of options and coverage levels to choose from.
5. Workers’ Compensation Insurance
Workers’ compensation insurance isn’t always required, but it’s typically necessary. “A general rule is that if you have employees who aren’t owners of the company, you probably need workers’ compensation insurance,” according to Entrepreneur.com.
Workers’ compensation insurance covers lost wages and medical expenses if an employee is injured or becomes sick as a result of their employment with your business. Different states have different requirements for what level of coverage is required, so it’s a smart idea to study these laws before making a decision regarding the policy you purchase.
6. Data Breach Insurance
According to IBM’s tenth annual Cost of Data Breach Study, the average total cost of an isolated data breach is $3.8 million. This represents a 23 percent increase since 2013. When you break the numbers down, this means the average cost of an individual stolen record containing sensitive or confidential information is $145 to $154.
While implementing smart cybersecurity practices is the best solution to this problem, it’s challenging to avoid all instances of data breaches. In the 21st century, smart businesses are investing in data breach insurance to protect themselves from the costly nature of dangerous breaches.
Data breach insurance provides protection against the loss of sensitive or non-public information about both employees and clients that occurs on a company’s servers, computers, or paper files.
7. Business Interruption Insurance
Business interruption insurance compensates companies for a loss of income during interruptions that are caused by natural disasters that make it difficult to conduct regular business operations. While it doesn’t make sense for all businesses to invest in one of these policies, it should be considered in situations where a business is often exposed to high levels of risk.
Related Article: To File or Not to File: A Business Insurance Claim
Protect Your Business Today
As a business owner, it’s your responsibility to ensure everyone and everything within your organization is cared for and protected. While it can seem like a nuisance at times, this means researching and purchasing the right insurance policies.
Every business is unique – and no two face the same risks – but the seven types of insurance mentioned in this article should be considered by every organization, regardless of industry or location. While you may find that you don’t need liberal levels of protection, it’s always a smart idea to invest in some amount of coverage for safety and peace of mind.