Some small business costs are predictable, like utilities, equipment, marketing spend, and payroll. You can plan and budget for these expenses ahead of time, but other costs — like lawsuits and accidents — can crop up unexpectedly, threatening your company’s financial stability.
While it’s important to build an emergency fund to mitigate unanticipated strains on your budget, the cost of such incidents will sometimes exceed your savings. The Small Business Administration estimates between 36 and 53 percent of small businesses are involved in litigation during any given year. In addition to shifting time and focus away from the business at hand, this can bring hefty attorney fees and legal damages.
Because it’s impossible to prevent every accident or lawsuit, it’s crucial to protect yourself ahead of time against their financial ramifications. Here are five types of insurance businesses need to consider for this exact reason.
General Liability Insurance
A General Liability insurance policy covers financial loss related to:
- Bodily Injury: A client or other third party gets injured or ill due to your negligence.
- Personal/Advertising Injury: A company or individual sues your business for copyright infringement, libel or slander, malicious prosecution, or intellectual property theft.
Property Damage: Your company’s or employees’ actions damage someone else’s property.
Accidents happen. A visiting customer could slip and break their arm the one time you forget to put a caution sign in your freshly mopped lobby. If you have General Liability insurance, your policy will cover the cost of their medical bills, time off from work, and rehabilitation — and possibly render a lawsuit unnecessary.
Without a policy, you’ll likely end up paying for everything out of pocket.
Commercial Property Insurance
Whether you’re running a home-based small business or operating out of a commercial space, property insurance exists to protect the value of your premises and belongings.
The exact perils against which you’re insured will depend on the nature of your property and policy, but common causes covered under a policy include: fire, lightning, wind, smoke damage, third-party damage from a vehicle, vandalism, and some kinds of water damage.
Professional Liability Insurance
General Liability insurance covers common negligence. But what about complaints and lawsuits stemming from the specific services your company performs? Professional Liability insurance, also known as errors and omissions insurance, covers claims related to:
- Professional negligence
- Violation of good faith and fair dealing
- Inaccurate advice
Say you’re an IT consultant hired by a company to advise them on their tech and cybersecurity needs. You make your professional recommendations and the client implements them. Everything seems fine until you get an angry call a week later — the programs you recommended and helped them install left your client vulnerable to a data breach. They’re threatening to sue.
Professional liability insurance is similar to malpractice insurance for doctors, but for all kinds of professionals. It protects the advice and services rendered by your business.
If you’re a sole proprietor, you won’t need workers’ compensation insurance. It’s a different story if you have employees. Many states mandate some degree of workers’ compensation coverage, some requiring coverage for even one employee. Carrying a policy will help you stay in compliance with state regulations and protect yourself from a lawsuit if an employee gets injured on the job.
Commercial Auto Insurance
Personal auto insurance policies will cover the car you use for commuting to work. But if you use your vehicle for tasks related to your business, you’ll need a separate commercial policy. A landscaper or contractor with a work truck will need to insure it. So will a caterer with a van or a rideshare driver. There are different levels of coverage available, from simple liability to comprehensive collision insurance.
Paying the premiums for small business insurance over time tends to be much cheaper than paying for an accident or lawsuit. Protect yourself with the policies you need now, before an expensive incident occurs.