What does small business insurance cover?

Your business wouldn’t be much without your customers and clients. Unfortunately, interacting with them brings the risk of costly lawsuits. The good news is there are several business insurance policies to help manage the risks presented by clients and the public.

Consider these scenarios when reviewing insurance options and determining what will be the right coverage for your company:

• Slip-and-fall accidents: A customer has an accident on your property. General liability insurance can help pay for immediate medical expenses, repair costs, and lawsuit expenses if a non-employee (a third party like a customer or vendor) sues you over bodily injury or property damage. This is often the first policy a small business or an independent contractor purchases.
• Professional mistakes: Your client loses business income after taking your professional advice. Professional liability insurance (also called errors and omissions insurance) generally pays for your legal defense and settlements if a client alleges you're responsible for a mistake or oversight that caused them financial loss or damage.
• Data breach: An employee loses their laptop, exposing your clients' financial information. Cyber insurance helps cover the cost of data breach response, including forensic investigations, customer notification, credit monitoring, and regulatory fines if sensitive digital information is compromised.
• Alcohol-related damage: An overserved patron hurts someone at your bar. Liquor liability insurance can help manage the risks of being held liable for alcohol-related damages, including fighting injuries and property damage, which is a risk in all 50 states.

Employees and managers help your business grow, but they also introduce more risks to your daily operations. For example, when you hire employees, you can be liable for their workplace injuries and potential claims of employment law violations.

Here are a few situations where business insurance can help:

• Workplace injuries: Your employee is hurt on the job. Some industries are inherently safer than others, but even office workers can be exposed to work-related injuries. Nearly all states require employers to carry workers’ compensation insurance, which covers employees' medical expenses and lost wages resulting from a work-related injury or illness.
• Discrimination claims: An employee sues your business over workplace discrimination, wrongful termination, or harassment. Employment practices liability insurance (EPLI) can cover disputes stemming from the employer-employee relationship.
• Management misconduct: Businesses with a board of directors or an advisory board may want directors and officers insurance. D&O addresses disputes over decisions made by managers, officers, and the board on behalf of the organization.

It's easy to imagine how fire, burglary, or theft could devastate a small business. For that reason, small business owners often purchase commercial property insurance. This coverage is important whether you own the building or are a tenant, and it protects your other valuable business assets, often called business personal property (BPP), like equipment, furniture, and inventory. It helps cover the cost of repairing or replacing your damaged or stolen property when covered weather events or disasters strike.

Many small and medium-sized businesses are eligible for a business owner’s policy (BOP), which bundles property insurance and general liability. It’s usually less expensive than buying the policies separately.

Larger businesses with higher risks often purchase a commercial package policy (CPP), which offers more flexible protection options.

Other useful property insurance policies you should consider include:

• Inland marine insurance covers products, tools, machinery, and equipment while they are mobile, such as when being transported over land or stored off-site.
• Tools and equipment insurance, also known as equipment floater insurance, helps contractors cover the cost of replacing tools and equipment that are lost, stolen, or damaged while in transit or at a job site.
• Business interruption insurance helps with the cost of day-to-day expenses, lost revenue, and relocation from a business interruption.

Small business owners are often unclear about the coverage they need for vehicles used for work. Driving a personal car for business purposes without the right coverage can be a costly mistake if you or an employee gets in an accident. Vehicle claims average $45,000 for small business owners, according to a study by The Hartford.

That's why it's smart to carry additional coverage, especially if:

• You have a business-owned vehicle. Whether you have a fleet of delivery vans or a single automobile, a vehicle registered in your business's name requires commercial auto insurance.
• You ask employees to drive their personal vehicles for work errands. Your business can be liable for accidents involving personal vehicles that are used for business purposes. When that happens, hired and non-owned auto insurance (HNOA) can help cover lawsuit expenses.

For more information on these two policies, read “Commercial auto vs. hired and non-owned auto insurance.”