If you’ve been operating a business for even the smallest amount of time, you’ll know that you should expect the unexpected. When it comes to lawsuits, small businesses are especially vulnerable (accounting for a large majority of all lawsuits annually filed in the US).
Yes, many lawsuits are frivolous, however, they still need to be defended (which translates to your business paying for an attorney/law firm, paying the court fees, etc.). These costs can quickly add up, which is why having the proper type of liability insurance for business can mean the difference between your company surviving a lawsuit or being financially ruined.
But what type of business insurance should your company purchase? How much is it going to cost? These are all valid (and important) questions that one should ask themself before purchasing a policy (or even starting to look for one, for that matter).
Luckily, there are a few ways to determine exactly what type of insurance you need, how much it will cost, and what it will cover. Below we cover all of these topics as well as other relevant information related to coverage types.
The Main Types of Business Insurance
There are quite a few different types of insurance that businesses can purchase to protect them from liability-related issues. Many of these are specialized according to a business’s specific industry, however, the types listed below are seen across numerous industries (and are some of the more common policy types found in the US):
- Commercial vehicle
- General liability
- Errors and omissions
- Workers’ compensation
Each of the aforementioned policy types provides different types of coverage for very specific types of liabilities. For example, commercial vehicle policies protect your business from legal costs originating from company-owned vehicle accidents. Workers’ compensation provides coverage for the cost of your employees’ medical treatments (should they get injured while working for your business).
Determining which type(s) of insurance your business requires is a very important step in the purchasing process. Does your business have a fleet of vehicles, or do employees use their cars for work-related purposes? You’re going to need a commercial auto policy. Do you provide consulting services for other businesses? Purchasing an errors and omissions policy would be in your best interest.
Those are some of the most common forms of business insurance, however, the more specific your industry, the more specific your insurance needs will be. You’d be surprised at some of the less common insurance types available, some of which are highlighted below:
- Terrorism insurance (usually used for businesses operating in high-risk areas/industries)
- HAZMAT insurance (if your business is involved in transporting dangerous liquids/materials)
- Excess casualty insurance (used for additional coverage not found among typical policy options)
- Directors insurance (often referred to as officers insurance) – a type of insurance used to insulate managing directors of a company from legal responsibility (should the company experience negative growth under their direction)
How Much Does Business Insurance Usually Cost?
There’s no one size fits all option when it comes to business insurance. The cost of your premium depends on a variety of factors such as the history of your company, size, location, industry, etc. Generally speaking, it’s highly recommended to not just go with the first low premium that you find. Often times, having a lower premium simply means having a lower level of coverage.
Price is just one factor to consider when shopping for business insurance. Other variables that need to be considered include specific coverages and coverage limits. These two factors are equally as important as price because if your business is sued, your level of coverage (and its associated limit) will decide exactly how much the insurance will cover.
The best way to determine exactly which type of insurance your business needs is to start by making a list of your business’s vulnerabilities. Details such as your industry of operation, what risks your business inherently faces, which risks your specific operation makes your company vulnerable to, etc. Performing this task will provide you with a better picture of your coverage needs.
One of the most important things to keep in mind during your search for a business insurance provider is that low-cost premiums do not always make the best financial choice in the end. Imagine choosing a low-cost policy, and then being sued, and then realizing that your policy doesn’t have the necessary coverage level to even be of any use.
Such situations happen all the time, unfortunately. So, do your due diligence, consider all the factors, and make a researched, well-informed purchasing decision.