What kinds of Insurance does a Small Business need?

Often when new businesses start, the owners ask their personal insurance agent for commercial products. Sometimes, the agent is not savvy on commercial products or the company will not insure your industry. A good commercial insurance agent is a necessity for a business.

It is hard to state specifically what a business needs without knowing more details, but here are the most common types of business insurance:

1. General Commercial Liability: General commercial liability insurance (“GCL”) covers most problems caused by a business’s operation, including property damage and personal injury. This is the basic insurance policy, but it won’t cover everything. You may need specific riders (add-ons) for risks specific to your industry or situation. Examples of these riders would be employment practices liability, errors and omissions or directors and officers liability.

2. Automobile: You should get this if you have employees who drive as part of their job. If you are using your personal vehicle for work, talk to your insurance agent.

3. Workers' Compensation: This is required by the state when you get your third employee, counting yourself and any part-timers. If you don’t have 3 employees, price it out anyway, because you are still liable for on-the-job injuries even if you don’t have 3 employees. The rates are based on the industry risk, so office environments are lower premiums than construction environments.

4. Errors and Omissions (or malpractice, depending on the industry): E&O (or malpractice) is a type of professional liability insurance that protects corporations or LLCs and their employees against claims of inadequate work or negligent actions. You would need this if your business gives professional advice or provides a service. Real estate agents, insurance brokers and financial planners should consider E&O, and any licensed professional.

5. Cyber Liability: Cyber liability insurance covers losses from data breaches and other cyber events. This is a fairly new product and the law is evolving as well, so policies vary widely. Look for coverage of out-of-pocket expenses directly incurred as a result of a breach (first-party coverage). This includes hiring someone to figure out how the breach occurred and what was taken, costs of notifying customers and costs of repairing your systems. You can also get third-party coverages for damages or settlements to the people you harmed by being breached.

6. Umbrella: I call this $500-a-year-so-the-entrepreneur-can-sleep-at night. Umbrella insurance is extra liability insurance that “pops up” when your underlying GCL has been exhausted. It can cover property damage or personal injury, automobile accidents with uninsured or under-insured drivers, etc. This can be tailored to your business and your specific risks.