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You’re starting a business — what kind of insurance will you need?

Posted on August 20, 2020 by Allen Brown

The purpose of insurance is to transfer financial risk to another party. With so many other things to think about when starting your business, it is a great relief to know that you won’t have to pay out of your new business for claims of bodily injury, property damage, reputation damage.  

 Let’s face it: you have to be brave to start your own business. Competition is tough, with just under 550,000 new businesses starting up every month in the U.S. A more frightening statistic is that only 50% of small businesses survive more than five years.

Reduce New Business Risks

Investing in insurance is one of the easiest (and most affordable) ways to mitigate your risks and give your new business a good start. But what kind of insurance policies do you need? 

What are the biggest risks? Going out of business; loss of income; legal action against your business; reputation damage; pressure on your marriage; your kids’ college fund – these are just some of the risks you have to safeguard against.

Six Must-Have Policies for Your New Business 

 So to help new business owners avoid these and more risks, we’ve compiled a list of insurance policies that new business owners should have. Let’s get started.

  • General Liability Insurance

If you own a business, even if home-based, this should be your top priority.  General Liability Insurance can help pay for medical expenses and legal costs (like the attorney fees and settlement amounts) related to a variety of third-party claims.  For instance:

  • Bodily injury, property damage, or personal injury caused by your business
  • Advertising injuries like copyright infringement and misappropriation of advertising ideas resulting from your business’s advertising 
  • Reputational harm resulting from slander, libel, malicious prosecution, wrongful eviction, violation of the right of privacy.

 

  • Commercial Property Insurance

According to the Federal Emergency Management Agency (FEMA), about 40% to 60% of small businesses never reopen after a natural disaster. Commercial property insurance can help your business recover financially after severe property damage from a fire, vandalism, theft, storm, lightning, smoke damage, or other covered loss. 

Depending on your policy, the coverage can help pay for damage to your:

  • Business’ physical location (owned or leased)
  • Tools and equipment
  • Furniture
  • Inventory
  • Valuable papers and records
  • Signage
  • Personal property

Commercial property insurance can also help cover loss of income if your business is unable to operate because of a covered loss. Beware though: most policies don’t cover mass-destruction events like floods and earthquakes. 

Tip: Property Insurance may be purchased separately or as part of a Business Owner’s Policy (BOP), which includes both property and liability insurance.

  • Workers Compensation Insurance

Most states require that businesses with employees carry Workers Compensation Insurance, also known as Workers Comp. The policy covers medical expenses, lost wages, rehabilitation benefits, and death benefits should an employee suffer a work-related injury, illness, or death. 

According to the U.S. Department of Labor, private industry employers reported 2.8 million nonfatal workplace injuries and illnesses. Additionally, there were reportedly 5,250 worker deaths recorded in the same year.

  • Commercial Auto Insurance

Will your business lease, rent, or own vehicles? Or will you or your employees use your personal cars for business purposes? Commercial auto insurance helps pay for the property damage and medical expenses in the event of an auto accident where you or your employees are found liable. 

Note: This policy covers any vehicles used to conduct business activities, be it four-door sedans or large trucks.

  • Professional Liability Insurance

Professional Liability Insurance is also known as Errors and Omissions (E&O) insurance. It covers claims of negligence, misrepresentation, and inaccurate advice you may give in the course of business.

General Liability does not provide this protection. So, if you offer professional services directly to customers or regularly give advice to clients, you’ll want to get a Professional Liability Insurance policy. 

  • Cyber Liability Insurance 

Cyber Liability Insurance is coverage against financial losses that result from data breaches and other cyber-attacks. You may store sensitive data belonging to customers, employees, or vendors. If this data is lost or compromised, the owners might sue your company for damages. And seeing as 60% of small businesses go out of business within six months of a cyber-attack, it’s a policy worth owning.

 

The High Cost of Being Underinsured

Underinsurance remains a growing problem in the United States. It is estimated that 75% of businesses in the U.S. are underinsured by 40% or more!  Underinsurance results from having the wrong or insufficient coverage for your business. You might feel that you are protected because you have purchased the policies listed in this article, but have you bought the right amount of coverage? 

No matter how safe you try to run your business, accidents can happen and lawsuits are commonplace. It would be very risky to start your business venture without the right coverage in place. 

 

REFERENCES

https://www.entrepreneur.com/article/241026

https://www.forbes.com/sites/thesba/2012/01/19/13-types-of-insurance-a-small-business-owner-should-have/#376277ef20d3

https://www.thehartford.com/business-insurance/what-is-business-insurance

https://www.businessnewsdaily.com/8558-important-business-insurance-coverage.html

https://smallbusiness.findlaw.com/liability-and-insurance/different-types-of-commercial-insurance.html

https://amtrustfinancial.com/resource-center/understanding-small-business-insurance/what-is-commercial-insurance

https://99firms.com/blog/small-business-statistics/#gref

 




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