The prospect of launching your own business can be an exciting one, especially if it allows you to develop financial and professional freedom in the process. That being said, starting a business requires careful consideration to make sure you’re prepared for any unexpected developments that could impact your work.
One of the main priorities for every business is having the right insurance coverage. Insurance is legally required, it protects you and your employees from financial loss and uncertain events, it helps cover the costs of lawsuits, and it can even help you secure a loan. When you’re starting a new business, making sure you have the right insurance should be one of your top priorities.
But as a business owner, it can be challenging to determine which insurance policies are necessary. If you’re looking to help protect your business, here are five insurance policies you must have. You should consider all these types of insurance to help make sure your business is covered no matter what.
#1 Business Liability Insurance (AKA General Liability Insurance)
One of the most essential insurance policies to purchase for your business is business liability insurance. Business liability insurance offers widespread coverage, helping to protect you and covering any damages in the event that you find yourself faced with a lawsuit (such as, a customer who has experienced any injuries at your place of business).
Business liability insurance covers a wide range of potential damages, which means that you’ll receive comprehensive rather than focused coverage, something that is very important if you work in certain fields. Some businesses will find that business liability insurance provides all the coverage they need, while others may need to supplement this insurance line with additional insurance coverage options.
Make sure to do your due diligence and carefully examine each insurance policy to better understand what protection they offer and whether or not that coverage is suitable for your business needs.
#2 Property Insurance
If you operate a business where you work from home, this recommendation may not apply to you (although you’ll want to consider an alternative like renter’s insurance or homeowner’s insurance, depending upon your individual situation). However, if you’re a business owner that owns or leases their workspace, one of the most important policies to purchase is property insurance.
Property insurance is designed to cover any damages if your business is affected by events like theft, or fires. Generally, this insurance will help cover items like your furniture, equipment, and other inventory. There is one caveat, however: property insurance for businesses typically won’t protect you from natural disasters, such as earthquakes, flooding, or tornados. If you’re looking to receive coverage for these types of events, you’re going to need to purchase another policy designed specifically for these disasters.
If you aren’t covered by any type of insurance at your home office, you’ll end up having to pay for those damages out of pocket, which can be very costly for most small business owners or sole proprietors. You should consider what (if any) natural disasters are common in your area and purchase supplemental lines of insurance designed to cover those disasters specifically.
With this in mind, it’s important to consider costs as well. While you should purchase comprehensive coverage for all issues that could reasonably arise, you shouldn’t purchase insurance policies you won’t need. If you decide to purchase an insurance policy for an extremely rare event, you may end up spending extra money and getting very little benefit from your chosen insurance plan. Carefully research each policy that you’re considering for your current work environment to understand how it will support you should an emergency arise in the future.
#3 Product Liability Insurance
One of the most important focus of a product-based business is ensuring that the final result is safe for the consumer. However, despite your best efforts, some unforeseen errors may still make their way into the final product, unintentionally causing damage to the person who purchased it or to someone in their household. To help ensure that you’re protected in the event of a product causing harm to a consumer, you’ll want to purchase a product liability insurance policy before sending your products out onto the market.
A few examples of product liability issues include, if you’ve accidentally failed to warn consumers about dangerous substances in the product or if it’s not intended to be used a certain way, if there is a defect in your product that makes its design and function harmful to users, or if there is a malfunction that causes an injury to a user.
Having product liability insurance will help you settle the damages should your product result in someone being harmed. No matter how careful you may be or how confident you are in the finished product, this is a necessary type of insurance, as you can never truly prevent all possible defects during or after production.
#4 Professional Liability Insurance
Professional liability insurance, which is sometimes referred to as errors and omissions insurance, is especially suited for the working professional operating a service-based business rather than a product-based one.
Professional liability insurance is designed to help working professionals deal with claims such as negligence, misrepresentation, or malpractice. This type of insurance covers issues like breach of contract, financial losses, issues where the company did not provide the services promised, and errors and omissions, as the insurance policy name suggests.
Professional liability insurance typically does not cover items like property damage, acts that are intentionally harmful or illegal, claims of harassment, or items that would typically fall under business liability insurance or workers’ compensation insurance (which we will be discussing below). If you’re looking to avoid these claims as a working professional, take the time to determine which types of policies will protect you in these situations (as well as finding ways to prevent your business and its workers from facing such issues).
Who takes out professional liability insurance? This type of insurance policy is often taken out by lawyers or doctors, and it’s crucial for a wide range of businesses, including contractors and other companies in the construction industry. With this insurance policy on your side, you’ll be better protected if your services do not yield the expected results for you and your customers. No matter how hard you try to deliver optimal results every time, we’re all human, and this type of insurance covers gaps in other insurance lines to help provide financial protection when mistakes are made.
#5 Workers’ Compensation Insurance
Many businesses operate in such a way where the potential for injury is low, which can leave business owners with a false sense of security. Regardless of how safe you believe your workplace to be, worker’s compensation insurance is one of the most vital policies to take out as a business owner if you anticipate growing your small business and bringing on additional employees over time.
This type of insurance policy is especially crucial in industries where physical labor is required or heavy equipment is needed to achieve a variety of tasks. If you work in an environment where hazardous materials are involved, a workers’ compensation insurance policy will help you cover damages related to an employee’s medical treatment, disability claims, and even death benefits. Because there’s a higher probability of your business facing these issues, this insurance line should be at the top of your list of priorities.
Are you safe if your workspace consists of office chairs and desks rather than construction equipment? The truth of the matter is that injuries can take place even in an office environment. Workers’ compensation insurance can also cover you for slip-and-fall injuries or for health issues that may develop over time as a result of the work being performed. No matter what may take place, having workers’ compensation insurance will keep you protected in the process. Even if your business requires minimal manual labor, this insurance line is crucial to help protect you and your employees from financial loss in case of injury or death.
As you can see, many types of insurance claims could impact your business financially. If you want to help keep your business protected against these damages, purchasing the right insurance policies ahead of time should be a major focus of your business development plan.
To help you get started, use the guide above to learn about which policies you should focus on, how each of them will help you avoid dealing with the monetary consequences of each potential issue, and how you can rely on each to create a safer business model.