When Insureon.com polled 1,200 small businesses in 2017, only 28% of them had a business owners policy, and a mere 21% were protected by professional liability insurance.
These business owners say they can't afford the coverage they need. If you're among those who have no insurance or are underinsured, you're playing Russian roulette with your assets, because not having insurance can cost much more than the annual premiums if adversity strikes.
Whether you have some insurance or no insurance, it's time to talk with a trusted insurance broker about your current business needs. They may be able to design a plan you can afford. Of course, your needs depend on the type of business you run. However, for general-purpose insurance, we talked with James Nevers, CFP and senior advisor at Soundmark Wealth Management, to find out what the different types of business insurance are and what they can do to cast a safety net around your business.
You may think you're protected against claims with your personal home and auto policies. Nevers said this is a common misconception. According to the Insurance Information Institute, most homeowners policies specifically exclude business liabilities. The same holds true for your personal auto coverage.
Your business and personal life must be separate, Nevers said. "If a customer visits your home office and slips and falls on your driveway, your personal homeowners might not pay the claim. If you use your car for work and while you're driving to a supplier's warehouse to pick up parts, you get into an accident, your personal auto policy might not cover you either. It's best practice to have separate business, auto, property and liability policies as well as your personal home and auto coverages."
Coverage essential for all businesses
Whether you sell goods or services, consider investing in the following types of insurance to shield your enterprise from disaster:
- Professional liability, also known as errors and omissions, protects you from mistakes you might make. If, Nevers said, you're negligent or fail to provide the product or service promised to a customer for some reason, this insurance covers you.
- Property insurance protects the assets of your business from theft and damage.
- Business interruption insurance compensates you for the business income you lose during and after a natural disaster, or in case of an unexpected event that causes your business to close, Nevers clarified. With this coverage, you should be able to pay ongoing bills and compensate your employees during the time your business is shuttered.
- Workers' compensation is a legal requirement in almost all states if you have employees. It covers work-related injuries or illnesses sustained on the job. Some states offer this through insurance companies, Nevers said, while a few provide it directly from the state. [Related: 6 Things You Need to Know About Workers' Compensation Insurance]
Not all these policies have to be bought separately.
What is a business owners policy (BOP)?
Designed for small and midsize businesses, a BOP combines property and liability insurance, Nevers said. It often includes business interruption insurance as well.
Package policies or BOPs are usually generated for businesses that face the same kind of challenges and degree of risk.
"It's a catch-all," Nevers said. "If you have a BOP, it's much easier to add workers' comp and general liability later."
Additional coverage you may need
Depending on the type of business you operate and if you have employees or not, you might consider these types of insurance:
- Cyber liability or cybersecurity insurance protects you from lawsuits caused by security breaches. Nevers said this insurance can help cover the costs to restore your data, crisis management (informing your customers) and income lost because of such an event.
- Key person insurance provides either a lump sum or ongoing payments if one of your very important employees is no longer able to do their job due to death, injury or illness. Nevers explains it like this: If you have one key salesperson who generates 80% of your revenue, you would have to close your doors if that person died unexpectedly or was unable to work due to illness or injury. If you insure that person, chances are good you can remain open.
- Commercial umbrella insurance goes above and beyond the basic liability limits to provide an extra layer of security for your business and protect you from possible catastrophic claims.
Insurance is never a one-and-done process. As your business develops and changes, you need to keep in contact with your insurance broker, who can let you know when or if you need to update your policies and coverages, Nevers said.
"You don't need to become an expert in business insurance yourself," he said. "Focus on your business and your family, and let someone else do the insurance work."