Despite the fact that we specialize in small company insurance, we're here to help and educate our clients on a variety of topics. One way we achieve this is by providing useful materials aimed at assisting you in running a successful and growing small business, such as this guide to the most common forms of small business insurance

It's crucial to know what additional types of commercial insurance your small business can require as a leader. Accident recovery, loss reduction, and strategic risk management may all be aided by having the correct sorts of small business insurance policies in place.

What are the major types of small business insurance?

What types of insurance do you need for a small business?

You may be thinking about what sorts of small business insurance you need to provide for your firm and employees as a small business owner. Almost all small companies opt to acquire general liability, property, and workers' compensation insurance if they employ people.

Depending on the sector, other types of small company insurance, such as small business health insurance or particular types of liability insurance, may be optional. Despite the fact that small businesses are not needed to obtain every type of small business health insurance available, such plans can nevertheless protect them from unforeseen losses and accidents.

Small company insurance plans, on the whole, are useful tools for employers because they provide a safety net that protects firms from liability and risk while also allowing them to move forward in the face of uncertainty.

The primary forms of small business insurance, as well as the factors that determine average small company insurance costs, will be covered in this guide to small business insurance.

What are the different types of small business insurance?

The major types of small business insurance available to employers include:

General Liability Insurance

The majority of small companies prefer to invest in general liability insurance, which protects their assets in the event that they are sued by a third party (any person or entity outside of the business). If your small business is sued, general liability coverage may assist cover legal fees as well as any settlement or award.

A general liability insurance coverage often covers claims originating from a small business's actions or operations, such as:

Legal expenditures such as compensatory damages, non-monetary damages, punitive damages, legal defense costs, and settlements are also covered by general liability insurance. Whether filed by a person or as part of a class-action lawsuit, most general liability plans cover such claims.

Because general liability insurance is designed to cover damage claims filed by third parties outside of the business (such as a customer sliding on a wet floor in a store), it often does not cover employee medical bills or damage to the firm's property. One of the most essential reasons for a small business to acquire general liability insurance is the high expense of lawsuits. According to courtstatistics.org, a premises liability lawsuit can cost as little as $54,000, with the trial phase being the most expensive aspect of the process.

A Small Business Association (SBA) Office of Advocacy report found that:

The impact of litigation on a small business can go beyond financial loss from damages and legal bills, according to the SBA research, and can often result in severe emotional anguish for the business owner.

General liability insurance protects small businesses from the most typical expenses and hazards involved with third-party litigation, regardless of industry.

Errors and Omissions Insurance or Professional Liability Insurance

Errors and omissions insurance, also known as professional liability insurance, is a type of small business insurance that may assist protect a company against financial losses resulting from lawsuits and claims brought by customers and clients, as well as pay for judgments and settlements.

Professional liability insurance protects you against accusations of carelessness, incorrect advice, misrepresentation, and bad faith. If your small business relies on technical skills to give suggestions, guidance, or any type of physical treatment that might put consumers, patients, or clients at risk, you'll probably require this type of insurance.

Because the same type of small company insurance coverage is used in a variety of professions, the terms professional liability insurance and errors and omissions insurance are commonly used interchangeably. A medical errors and omissions policy, for example, is a type of malpractice insurance for doctors.

Lawyers and physicians are frequently obliged to obtain errors and omissions insurance, depending on state legislation.

Errors and omissions insurance or professional liability insurance is commonly used by professionals in numerous areas, including, but not limited to:

Your small business has two sorts of coverage options when it comes to errors and omissions or professional liability insurance:

Errors and omissions coverage may be a necessary kind of small company insurance for sectors that specialize in expert advice and technical suggestions, given the severe nature of professional liability claims.

Small Business Health Insurance

Employees are covered by small business health insurance, often known as group health insurance, which offers medical coverage and perks. The Affordable Care Act (ACA) states:

If a small firm has less than 50 full-time equivalent employees, it is normally not obliged to provide group health insurance.

A company with 50 or more full-time equivalent employees must provide group health insurance to its employees and cover at least 60% of employee premiums.

A business must have at least one full-time equivalent, common law employee who is not the owner, the owner's spouse, or an independent contractor to qualify for small business health insurance. According to state legislation, a firm must also be properly registered as a business. A lone owner with no workers is not eligible for group health insurance and must instead get individual health insurance.

If a company agrees to provide small business health insurance, the company must divide the cost of monthly premiums with its employees (usually 50 percent of premiums in most states, although businesses can choose to cover a higher percentage).

In most jurisdictions, the decision to cover the cost of premiums for employees' dependents under the company's small business health insurance plan is left to the small business owner.

There are several types of small company health insurance plans, such as HMOs, PPOs, and POS plans, as well as various metal levels that represent the various levels of coverage for each plan.

One of the key benefits of small company health insurance for both employers and workers is that, on average, group health insurance rates are less expensive than individual health insurance coverage.

Because of the risk pool advantage, which is a key insurance concept that states that when more people enroll and pay into a health plan, an insurance company is better able to spread the risks across the entire covered group, or "pool," of individuals, small business health insurance plans tend to be less expensive. As a result, the insurance company will be able to pay the high cost of a single person's medical treatment more effectively.

Other advantages of providing health insurance to small businesses include:

A business owner can also opt to offer additional types of small business health insurance to his or her employees, such as group dentistry and group vision plans, in addition to medical insurance.

Small company health insurance policies can be purchased through public or private health exchanges, as well as through a certified insurance broker such as eHealth, the largest online marketplace for health insurance plans.

Workers’ Compensation Insurance

Workers' compensation insurance may assist a small business to safeguard its employees by paying for medical treatment and even replacing a portion of an employee's salary if they are injured or ill while on the job. This form of small company insurance may be able to compensate the employee's family if an employee dies as a result of work-related injuries.

Workers' compensation insurance may be required by law in most states if a small firm employs at least a minimum number of people. The majority of states require all firms with one or more employees to obtain workers' compensation insurance, according to the Insurance Journal, but some states do not need employers to have coverage until they reach a specified number of employees (usually between 3-5 workers depending on the state).

Certain employees are also exempt from workers' compensation coverage in each state; while these exclusions differ by state, examples include agricultural laborers and seasonal or casual workers. Workers' compensation may be waived for a sole proprietorship with no employees other than the owner.

Workers' compensation insurance may cover additional costs in addition to medical bills, such as:

Workers' compensation insurance, on the other hand, may not cover the entire cost. Most of these claims are limited to certain dollar amounts, and a company may be required to pay a deductible or other types of cost-sharing. It's crucial to remember that workers' compensation ends when the injured worker returns to work, and that benefits are normally tax-free.

Keep in mind that workers' compensation only covers injuries and illnesses that occur on the job. Employers may want to consider enrolling their employees in a small company health insurance plan to help safeguard their health outside of work.

The bulk of the country's workforce is covered by workers' compensation. Workers' compensation insurance covered an estimated 86.3 percent of all positions in the employed workforce in 2015, accounting for more than 135 million workers, according to a National Academy of Social Insurance research.

Workers' compensation is not only a mandatory sort of small business insurance for most organizations with employees, but it may also protect a small business from bankruptcy if a worker is seriously injured on the job.

Property Insurance

Property insurance may cover physical calamities such as fire, theft, or vandalism, depending on the plan chosen. This form of small company insurance is particularly important for companies with a physical site or storefront. Property insurance covers the business's assets, such as furniture, merchandise, and technology, and will usually cover the expenses of restoration and repairs.

A company's property insurance coverage may provide the option of adding business interruption insurance. For example, if a fire burns down a business, business interruption insurance may cover the loss of income as a result of the fire, while property insurance may cover the fire's damages. Overall, small company insurance plans that protect property and lost revenue are crucial choices to consider for business owners.

Commercial Auto Insurance

A small business that owns or utilizes automobiles is usually required by law to obtain commercial auto insurance, also known as business auto insurance, at the state-mandated minimum level.

A commercial vehicle insurance policy would normally pay for the costs the business is liable for, up to the policy's limit, if an employee drives a car owned by the company and causes damage or injury.

Small companies can choose between two forms of commercial vehicle insurance:

Keep in mind that if a car is primarily used for business, certain private auto insurance plans may not give coverage. Consult a professional small business insurance agent to see whether switching to a commercial vehicle insurance coverage makes sense.

Businesses that rely on automobiles for delivery, education, or staff transportation may find commercial auto insurance to be a desirable small business insurance coverage option.

Commercial Umbrella Insurance

Commercial umbrella insurance is designed to cover accidents that are not covered by a small business's existing insurance policies. For example, if a company was sued for $2 million but only had $1 million in general liability insurance, commercial umbrella insurance would be able to cover the remaining $1 million.

Umbrella insurance is frequently used in conjunction with other forms of liability and small company insurance. Overall, if a small firm faces the potential of big lawsuits or losses, it may make sense to pursue commercial umbrella insurance.

Business Owner’s Policy (BOP)

A business owner's policy (BOP) is a form of small business insurance package that covers the most common property and liability insurance risks, as well as various additional areas of coverage. Because a BOP is a packaged kind of small company insurance, it might be a cost-effective option for small firms looking to ensure they have the coverage they need.

A small business can also choose to add other forms of insurance to its policy via a BOP, resulting in a tailored range of coverage. A business owner's policy, for example, might only cover general liability and not a professional liability; nevertheless, employers would most certainly be able to add professional liability coverage to their BOP. As a result, a company owner's policy may be able to assist organizations in finding a more cost-effective option for their small business insurance needs.

Additional types of small business liability insurance

Small companies can choose from a variety of specialist liability insurance options. Small business liability insurance, for example, is a popular example.

Cyber Liability Insurance

Due to the development of digital dangers, cyber liability insurance, which is a relatively new kind of small company insurance coverage, is becoming increasingly important. Cyber liability insurance protects a company's digital data from online threats including hacking, data breaches, and cyber extortion. For some types of firms, this type of small business insurance will be necessary.

For organizations that handle personal data of clients, such as credit cards, financial accounts, medical records, or contact information, cyber liability insurance is likely to be a necessary kind of small business insurance coverage.

According to a 2019 analysis by The Hanover Insurance Group and Forbes Insights, 18 percent of small company owners have had a data breach in the last five years, with 63 percent of those who have experienced a cyber breach expecting to face another claim in the next five years. According to the research, 67 percent of small businesses agree that as their firms grow more digital, they become more exposed to cyber security problems.

It's important for small business owners to remember that hacking isn't the only method their data may be stolen. According to a Ponemon Institute Research Report based on a survey of small to medium-sized firms, the most prevalent causes of data breaches in 2016 were incompetent workers or contractors (48 percent) and third-party errors (41 percent).

Finally, cyber liability insurance might be a useful tool for small firms in a range of industries that want to secure their clients' and workers' information.

Product Liability Insurance

A product liability insurance coverage covers injuries and losses caused by the use of a company's manufactured, sold, or transported products. This sort of small company insurance often provides more precise protections from product-related legal claims than general liability plans, which normally only cover product liability claims in restricted circumstances.

The following are some examples of firms that can profit from a product liability insurance policy:

Product liability lawsuits can be extremely costly for a company, depending on the sector and kind of firm. Based on the personal injury damages awarded by juries, product liability cases may be regarded as one of the most expensive kinds of litigation, according to data obtained by the Insurance Information Institute.

A product liability policy may be an especially important sort of small company insurance for enterprises in certain sectors, given the potentially large legal expenses and personal damage judgments coming from product liability claims.

Directors and Officers Liability Insurance

This type of liability insurance can cover corporate and organizational directors and officers in the case of a lawsuit alleging that they conducted business without respect for the rights of shareholders or others.

Because being a director or officer exposes executives to additional dangers, organizations may choose to get this sort of small company insurance. In most cases, directors' and officers' liability insurance does not cover criminal conduct or poor business judgments.

Employment Practices Liability Insurance (EPLI)

EPLI (Employment Practices Liability Insurance) is a sort of small business insurance that can pay damages for infringing on an employee's civil or legal rights, up to the policy's limit. An EPLI policy may cover a variety of employment litigation claims, including

Litigation, legal fees, judgements, and settlements arising from employment practices-related cases are often covered by Employment Practices Liability Insurance.

Liquor Liability Insurance

If you own a bar or sell alcohol in any manner, you need to pay special attention to this small business health insurance coverage. Alcohol-related occurrences are frequently excluded from general liability insurance coverage. As a result, a small business selling or serving alcohol may be required to acquire liquor liability insurance. In fact, in order to obtain a liquor license, several states require businesses to carry liquor liability insurance.

A liquor liability insurance policy may include coverage for incidents such as:

Because each state has its own legal and evidential standards connected to third-party injuries, the specifics of what occurrences are covered by liquor liability insurance differ based on the location of a company.

If a small business decides to serve alcohol at corporate events on a limited basis, it can obtain a liquor liability insurance policy that only covers those events and, as a consequence, may have reduced rates.

Other types of small business insurance

Each tiny company has its own set of goals and hazards. Additional forms of small company insurance that are important can give efficient protection for

Key Employee Insurance

If one of a company's important employees dies or becomes handicapped, key employee insurance can assist offer compensation. Executives and leaders who play a significant role in a company and cannot be easily replaced are examples of important personnel. Key employee insurance may help organizations mitigate the financial effect of losing a key employee by providing financial support. It's especially useful for firms that need to emphasize succession and continuity planning.

Business Identity Theft Insurance

When it comes to identity theft and other sorts of financial crime, identity theft insurance may assist safeguard small companies and organizations. Identity theft insurance coverage may aid with recovery by providing legal and settlement services, depending on the policy.

According to the Consumer Sentinel Network, which is run by the Federal Trade Commission (FTC), 1.4 million (or 48 percent) of the roughly 3 million reports received in 2018 were linked to fraud, while 444,602 (15 percent) were related to identity theft. In 2018, credit card fraud was the most common form of identity theft, according to the study.

Terrorism Insurance

The Terrorism Risk and Insurance Act of 2002 (TRIA) compels commercial property owners to provide company owners with the option of purchasing insurance coverage against terrorist attacks. The TRIA also made it mandatory for business owners' plans (BOPs) to include terrorist insurance in their packages, however, small company owners are not obligated to do so.

Commercial Flood Insurance

Small businesses can be covered by commercial flood insurance in the case of water damage caused by floods. This small company insurance is designed to cover portions of a structure and property that might be flooded, such as walls, floors, ceilings, equipment, and inventory.

Flood damage from unexpected sources, such as melted snow, blocked drainage systems, or flash floods from unexpectedly intense rainfall or storms, can harm even businesses that are not prone to yearly flooding. If a company's commercial property insurance doesn't already cover floods, it can be worth looking into getting this form of small business insurance.

How much is small business insurance?

The average cost of small business insurance depends on several key factors, including:

Industry and perceived risk - Certain sectors, such as those that require the use of heavy machinery, are more at danger than others. As a result, small company insurance rates are more likely to be higher in industries with a higher risk of accidents.

Scale of the company — A company with a bigger number of employees may be more vulnerable to dangers than one with fewer employees. Similarly, the quality and size of a company's property or structure have a significant effect in determining insurance prices.

The business's location – Municipal and state rules, as well as the area frequency of natural catastrophes, all have an impact on the cost of small business insurance.

Claims history - A company with a low number of insurance claims may pay cheaper rates than one with a large number of claims. A company that has fewer workers' compensation claims, for example, may be operating more safely than others, resulting in a cheaper insurance rate.

Overall, the cost of small business insurance varies based on the type of small business insurance chosen, as well as the specific demands and features of each company.

Where to find small business insurance

While choosing the correct policy for a small business might be difficult, it shouldn't be. A professional certified insurance broker will be your finest source of information when looking for small business insurance. Brokers may give pertinent information to assist you in selecting the best small business insurance coverage for your firm based on your budget, industry, risk factors, and preferences.

If your small business decides to offer group health insurance, eHealth can assist you in finding high-quality, low-cost plans. With free, no-obligation quotes, our website makes it simple to compare and shop for small business health insurance, and our certified health insurance agents can assist answer your questions with informative, unbiased guidance. Learn more about your alternatives for efficient small business health insurance coverage for yourself and your employees by visiting Lifeinsurancetemrs.net

This page is for general information only, and it is possible that it will not be updated after it is published. Instead of relying on this article for tax, accounting, or legal advice, consult your own tax, accounting, or legal adviser.