Starting a business for the first time can be a daunting task and sometimes planning for Insurance is the last thing on your mind. However, it’s important to realize that even though your business may not be worth millions when you start, there’s always a scenario where you can cause damages to others that exceed your business’s income. Beyond liability, you may also have a need to protect property that’s on or off your premise. If you have employees, you will most likely need or want Workers Compensation and Employment Practices Liability Insurance. Below are the types of Insurance that every new business owner should at least consider.
General Liability Insurance
General Liability (GL) Insurance protects your business from claims of bodily injury and property damage arising from work that you’ve done or a product you’ve sold. Liability insurance only pays out to “the other guy” and never pays to your business. One important benefit of GL insurance is that it pays for defense costs even if the lawsuit is groundless, false, or fraudulent. General Liability Insurance is usually the first type of insurance a business will get and many consider it the most important. Some examples of claims that GL Insurance would pay for are below
- A customer enters your store and slips on a wet floor that had just been cleaned and sues for his medical bills.
- Your employee forgets to turn off the water before replacing a faucet in your customer’s bathroom and floods part of the house. The customer sues to fix the damages caused by the flood.
Property Insurance is a pretty broad term and can cover lots of different property. However, it can be broken down to 3 main categories for most businesses.
- Building Coverage – Covers the structure of a building owned by the company (roof, walls, foundation, carpet, etc)
- Business Personal Property – Covers the contents inside of the building (furniture, computers, tools, etc)
- Business Income – Covers the costs to do business in the event of a loss that prevents business being conducted (relocation costs, income from rent or production, etc)
Commercial Auto Insurance
In my experience, a lot of startups don’t have company owned cars, but that doesn’t mean you shouldn’t consider a Commercial Auto policy. One easy and fairly inexpensive coverage to carry is known as Hired and Non-Owned Auto coverage. This coverage protects your business from liability claims in the event that you or one of your employees causes damage while driving for business reasons. It’s important to note that this coverage does not protect the driver personally. Of course, if you do have company owned vehicles, a commercial auto policy can protect you from both liability and physical damage to the owned vehicles.
Inland Marine Insurance
Inland Marine Insurance is another broad coverage that can covers property in transit and away from your business locations. Regular property coverage usually only protects property that stays on your company property and doesn’t normally include property owned your customers. In the following cases, there is a need for Inland Marine Coverage.
- Coverage for tools that you travel with (An air compressor or a camera that you take from job to job).
- Coverage for a customer’s property (a dry cleaner’s customers’ clothes)
- Coverage for a home you are building for another person.
If someone gets hurt or disable on the job, the employer could be liable to pay for medical costs arising from the injury. For this reason, most states require Workers’ Compensation for any business that has employees. In most cases, payment is made to the employee no matter who was at fault for the injury. Because the employees are covered for injuries on the job site, they are usually unable to file suit against the employer.
General Liability Insurance protects you if you cause bodily injury or property damage, but what if you’re sued for making a mistake or omission that causes damage that’s not bodily injury or property damage? Well, that’s where Professional Liability Insurance comes into the equation. Professional Liability Insurance is sometimes referred to as Errors and Omissions (E&O) or in certain industries, Malpractice Insurance. This type of insurance is usually pretty specific to the type of industry of the business that is purchasing it. The coverage for a software developer’s policy will look very different from a doctor’s office’s coverage. Below are a few examples of claims that a Professional Liability policy might cover.
- A software developer updates his client’s website and an error in the code reduces the price of several items by 50%. The client is demanding the difference.
- A hair stylist accidentally dyes her customer’s hair the wrong color. Her customer is getting married tomorrow and sues you.
- A security guard wrongfully detains a man walking home from work and the man demands compensation for your mistake.
Like General Liability Insurance, Professional Liability Insurance also covers defense costs even if the lawsuit has no merit.
Employment Practices Liability Insurance
Employment Practices Liability Insurance commonly referred to as EPLI protects your business from claims arising from wrongful employment process including wrongful termination, discrimination, sexual harassment, and retaliation. Like the other liability coverages mentioned above, EPLI coverage includes defense costs. Most companies offer limits starting at $50,000 but they can go up to $1,000,000 or more.
The Business Owner Policy
This really isn’t a type of Insurance but it’s worth mentioning as a large portion of new businesses start with this type of policy. A Business Owners Policy is a package of liability and property coverages that can include the aforementioned types of Insurance (except workers compensation). These types of policies are usually but not always less expensive than a typical commercial package policy and can give you very broad coverage. Not all companies are eligible for a Business Owners Policy but its good to ask as it can help simplify the Insurance process.
These coverages may not all be required for your business but it’s a good idea to at least know that they exist as you grow your business. Have a conversation with your agent about your business so they can understand exactly what you do and they can make sure you get the right coverage.