If you are an adult, you probably have some kind of insurance- health, life, auto, or homeowners. Insurance helps protect us from financial ruin in an unexpected loss. Similarly, small business insurance helps protect small businesses from potential legal and financial ruin.
Most small business owners are unsure of the many types of insurance available to them and often purchase insurance that does not fully protect their business. This post will provide a complete guide to small business insurance in the USA so that you can make an informed decision about the right insurance for your business.
Do You Need Small Business Insurance?
Some businesses appear to be inherently hazardous. If you operate an in-home childcare center or heli-skiing company, liability concerns are undoubtedly on your mind.
But what if you run a small consulting business out of your home? Do you need small business insurance in Lubbock?
The simple answer is yes; all businesses need some form of insurance.
Even if your business doesn't seem risky, there are always potential liabilities- from third-party injuries on your property to errors and omissions in your professional advice.
And, of course, there is always the possibility of a lawsuit.
No matter how careful you are, your business is always at risk. However, the right insurance policy can help reduce that risk and protect your business in the event of an unexpected loss.
Understanding Liability and Your Business Structure
Before we get into insurance specifics, it's important to note that how you've organized your company will impact your liability.
Sole Owner
If you are a sole owner or have a partnership, there is no legal distinction between you and your business. If your business is sued, your assets- like your home, car, and savings account- are at risk. In the United States, the statute of limitations for creditor judgments varies greatly by state, but it is generally between 10 and 20 years. So if you're sued today, your assets may be exposed for up to 20 years. A lot can happen during that time.
Limited Liability Company (LIC)
If you're incorporated or have established an LLC or LLP (limited liability partnership), you've removed yourself from your finances. Your company is a separate entity solely accountable for its debts and obligations. This is frequently known as the “corporate shield” since it protects the owner's personal assets from the business.
Unless your organization is particularly complicated or you're dealing with hundreds of thousands of dollars in startup costs, you should be able to incorporate or form an LLC using your computer.
If you're a freelancer in the United States, it's typically better to incorporate in the state where you reside or have a physical presence. The LLC is a fantastic alternative for the small firm since it protects the owner's personal property without requiring corporate documentation and formalities.
LLCs and Personal Liability
However, don't assume that if you form an incorporated business, it will protect you from personal responsibility unconditionally. Whether you operate a corporation or a single proprietorship, there are several situations where you may be personally responsible, such as when you:
- Personally secure a loan for your business: This is a typical occurrence because banks typically want a personal guarantee until your company's credit rating improves.
- Commit a crime or operate an illegal business: If you violate the law, your corporation or LLC will not save you.
- You don't run your company as a distinct entity.: If you mix your personal and business finances, your “corporate shield” may be pierced, exposing your assets.
- You make someone unhappy with your actions.: To protect against malpractice or negligence claims, many professionals (i.e., doctors, drivers) obtain professional liability insurance.
So when it comes to liability, keep in mind that an LLC or corporation does not make you immune from personal responsibility. You will need to take precautions and insure yourself against potential risks.
What Kinds of Small Business Insurance do You Need?
The type of insurance you need is determined by your company sort and risk tolerance, but the following are the most frequent types:
General Liability Insurance
This is the one you should get if you're only going to get one type of insurance. This coverage benefits every company, whether big or little, on a job site, in an office, or at home.
Basic liability insurance is a form of coverage that protects your company in the case of an accident, injury, or negligence lawsuit. It can assist with the following:
- Medical bills.
- Attorney fees.
- Damages if someone gets hurt on your company premises.
- Claims of deceptive advertising, defamation, and copyright infringement.
Your line of business will determine the amount of coverage you'll require. A home developer, for example, would require more insurance than a web designer because there are greater chances of harm or damage occurring.
The company's insurance policy will specify the maximum amount the business insurance provider in Laredo will pay in the case of a claim. Just make sure this figure is appropriate for your line of business.
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects organizations from negligence allegations resulting from mistakes or failure to perform. Businesses that provide a service, such as consultants, lawyers, or accountants, are the most likely to benefit from this policy.
It covers you against non-coverage under your general liability insurance. For example, assume a client sues you for giving bad advice or providing a service that damages their business or reputation. If that's the case, this is insurance to consider. Companies have various concerns and requirements, generally addressed with specific needs policies.
Commercial Property Insurance
Assume your company owns or leases any real estate, such as a facility, office, high-tech equipment, etc. Property insurance will be required to cover any losses or damage caused by fire, smoke, vandalism, etc.
Assets covered by a commercial property insurance policy include:
- Signage
- Furniture and other equipment.
- Loss of revenue when a business is shut down owing to a covered disaster.
You can customize your commercial property insurance to your business needs by adding endorsements for equipment breakdowns or business interruptions.
Commercial Auto Insurance
If you or your workers use an automobile for company goals, you should consider purchasing commercial auto insurance. It covers some of the costs associated with an accident if you or an employee is to blame. It can also help with the following:
- Car repairs or replacement.
- Medical bills for people injured in an accident.
- Damages caused by an uninsured driver.
You can ask for an auto insurance quote to see how much premium you'll need to pay.
Commercial Umbrella Insurance
This additional liability insurance can be used to pay for expenses beyond your general liability or other liability policy limits. For example, it may cover legal costs, medical bills, and repair costs. If you believe the cost of a claim may exceed your liability limits, this coverage is useful protection.
For example, suppose a contractor runs a workshop with lots of hazardous equipment and heavy employee and client traffic. In that case, they might want umbrella insurance to ensure they are fully protected in an accident.
Homeowners Insurance
Do you operate your business from home? It's essential to know that a standard homeowners' insurance policy rarely covers a home-based firm.
For example, if your home is burglarized and your computers and other technology are stolen, your standard policy may not cover the loss. Because you neglected to disclose a home-based business, your insurance company might terminate your coverage.
The most simple and cost-effective method to safeguard your home-based business is to get an add-on to your current policy. Many of these plans give around $2,500 in additional coverage, which may be sufficient for a single firm with little valuable equipment that many people don't often visit for business purposes. However, if you require more coverage, an in-home business insurance policy might cover the equipment and responsibility of individuals coming and going.
Do you operate a small company out of a rented home? Homeowner's insurance companies include detailed coverage for these situations. It guards against property damage, contents, personal harm on-site, and any legal responsibility for off-site accidents.
Data Breach Insurance
Consider a data breach policy if you handle delicate information about staff or clients. In this case, you should consider having a data breach policy to protect you from either an electronic (e.g., cyber assault/hacking) or physical (e.g., stolen files) attack. This is especially vital if you collect, store, and keep customer data and conduct business online.
As bigger companies apply increasingly advanced security measures, hackers are turning their attention to small and medium-sized enterprises. Because a single cyber assault might cost a company up to $15,000 and harm its reputation, this is one contemporary-day insurance you should strongly consider.
Business Owner's Policy (BOP)
A business owner's policy is a package containing property, general liability, and automobile insurance, all in one plan. Some businesses, such as small retailers and office-based firms, may be eligible for this policy.
A BOP can save time and money by consolidating your insurance needs into a single policy.
Workers' Compensation Insurance
If you have any full-time workers, you'll need this coverage to protect your employees from work-related injuries or illnesses. It can also include their medical care coverage, missed income, and disability compensation. Also, it can help pay for your legal expenses if an employee or their family files a lawsuit. Contact the insurance provider to learn more about this particular type of insurance and get a quote.
Business Interruption Insurance
After a calamity, the last thing you want to be concerned about is running a business. You certainly will not be able to consider it with life-or-death issues on your mind. Business interruption insurance protects you or your employees from missing income due to business closure. It's critical for firms that need a physical place to conduct business. Also, the coverage may assist with paying rent while the facility is being remodeled or rebuilt.
In Conclusion
As you can see, there are numerous types of small business insurance in the USA, and the best way to determine which is right for your company is to speak with an insurance agent. They will help you understand your risks and exposures and create a custom policy to protect your business.
No matter your business type, it's essential to have the right insurance in place. The last thing you want is to be caught off-guard by a lawsuit or natural disaster. By being prepared, you can focus on running your business and leave the worrying to us.
