Is It Required To Have Insurance for My Business?
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Business insurance is required if you employ workers, you or your employees drive a company car or a job contract demands it. Other types of insurance are not always required but may be useful depending on your business. Learn about the various insurance types you can purchase and their cost.
When Do You Need Business Insurance?
Every business owner will need some level of business insurance if they want protection against potential risks. We’ve compiled several scenarios along with the types of business insurance coverage that can protect your assets.
You’re Held Liable for a Third Party’s Losses
- Example scenario: A customer walks into your store and slips, causing them to fall and hurt their back. Your business is held liable for their $1,000 medical bill.
- What coverage you need: General liability insurance protects your business from bodily injury or property damage caused by you or an employee.
- Average monthly cost: $88
Your Business Property Was Damaged or Stolen
- Example scenario: Vandals break into your warehouse and damage your inventory and steal some of your equipment.
- What coverage you need: Commercial property insurance covers damages to your physical business assets, including equipment, inventory and the building itself if you own it.
- Average monthly cost: $25-$100
Your Business Has To Temporarily Close
- Example scenario: Your restaurant has to close due to a fire that caused severe damage to your property and equipment, causing thousands of dollars in lost income and temporary relocation costs.
- What coverage you need: Business income insurance, also called business interruption insurance, covers lost income and operating expenses of a business due to a covered event (e.g., fire or vandalism).
SMART TIP: General liability, commercial property and business interruption insurance are often bundled together and sold as a single insurance product called a business owners policy. The average monthly cost is $261.
You Made a Professional Error
- Example scenario: Your accounting firm makes an error in preparing a client's tax return that results in the client being audited by the IRS.
- What coverage you need: Professional liability insurance (errors and omissions) covers claims of negligence, misrepresentation, inaccurate advice and personal injury such as libel or slander.
- Average monthly cost: $42-$83
Your Employee Was Injured on the Job
- Example scenario: One of your construction workers falls from a ladder and suffers a broken leg.
- What coverage you need: Workers' compensation provides benefits to employees that can help them recover from a work-related illness or injury.
- Average monthly cost: $70
You or Your Employees Drive a Company Car
- Example scenario: You own a plumbing company and one of your workers is driving a company car to a job site and causes a car accident, injuring the other driver.
- What coverage you need: A commercial auto policy will provide liability coverage when an employee is at fault for hurting someone or damaging another’s property while driving a company car. May also include first-party benefits, like physical damage and medical coverage.
- Average monthly cost: $50-$200
You Need to Transport Physical Business Assets
- Example scenario: You are transporting livestock and farming equipment to your farm and they are injured during transit.
- What coverage you need: An inland marine endorsement to your commercial property policy will cover your equipment and tools while they’re in transit between job sites.
- Average monthly cost: $61
Your Employees Suffer a Disability
- Example scenario: An employee goes through preventative treatment for cancer and is unable to work for several weeks while they recover.
- Coverage you need: Disability insurance provides income replacement to an individual in the event that they are unable to work due to a disability or illness that is not caused by work.
- Average monthly cost: $25-$500
You Store Sensitive Information Electronically
- Example scenario: Your virtual private network company suffers a cyberattack that results in your client’s personal information being stolen.
- Coverage you need: Cyber liability insurance protects businesses from financial losses due to cyber attacks or data breaches.
- Average monthly cost: $125
Your Product Injured a Customer
- Example scenario: You sell rechargeable batteries that recently started catching fire, resulting in injuries and property damages to your customer.
- Coverage you need: Having product liability will protect your company from losses resulting from defects or problems with the products your business manufactures, distributes or sells.
- Average monthly cost: $99
Your Business Is Vulnerable to Lawsuits
- Example scenario: While driving a company car, your employee causes $30,000 in damages but your commercial auto policy only covers up to $20,000.
- Coverage you need: A commercial umbrella policy provides additional liability coverage beyond the limits of a company's primary liability policies, such as general liability and auto liability. Alternatively, you may want to consider an excess liability policy, which provides coverage beyond the limits of a specific liability insurance policy.
- Average monthly cost: $73.60 for commercial umbrella or $1000 per every $1 million of insurance for excess liability
Is Business Insurance Legally Required?
There are several scenarios when business insurance would certainly be useful but not all types are actually required. Actual requirements — either state-mandated or contractual — will usually consider your state’s laws, your business size and its industry.
You Need It To Get Licensed
Certain professions such as lawyers, doctors and accountants may be required by their licensing board or professional association to carry specified types of coverage. For example, California’s Medicaid program requires doctors to carry at least professional liability and general liability.
You Employ Workers
Workers’ compensation is typically needed for businesses that have employees, though requirements are based on the number of employees, which will vary by state. For example, Hawaii requires businesses to carry workers’ compensation insurance if they employ just one worker, but Mississippi sets the minimum at five workers.
You Own Work Vehicles
Similar to driving a personal vehicle, it is illegal to drive a commercial vehicle without auto insurance. The risk of not having appropriate insurance can result in a liability claim that is 400% higher than a personal auto claim.
You Are Contractually Obligated
Contracts with clients, vendors or landlords may require you to carry certain types of insurance coverage as a condition of doing business. For example, contractors may need to supply a certificate of insurance before they can bid for a job or contract.
How Much Does Business Insurance Typically Cost?
The cost of business insurance can be as low as $500 with prices being over $1,000 per month depending on the types of coverage you include in your policy. Some of the common factors that influence the calculation of your business insurance are:
- Business type and size: Companies with hundreds of employees or those engaged in high-risk operations like construction or transportation may pay greater premiums than a tiny retail outlet.
- Location: Your insurance premiums may be higher if your company is situated in a region with a higher crime rate or is more vulnerable to natural disasters.
- Coverage types: Your premium will increase if you decide to include more types of coverage in your policy.
- Claim history: Premiums will be higher for businesses with a recent history of multiple claims.
- Deductible: Opting for a higher deductible will usually lower your monthly premium.
How Do I Get Business Insurance?
Look for insurance providers that specialize in commercial insurance. Once you do, follow these steps to get the coverage your business needs:
- Identify which types of business insurance you need: You should think about whether you need to get a general liability insurance policy, property insurance, professional liability insurance, worker's compensation insurance or any other liability insurance policy.
- Research insurance providers: To focus your search, you can look online, ask other business owners for recommendations or speak with an insurance broker.
- Compare quotes: Get quotes from the insurance companies by contacting them. To select the best option for your business, look at the coverage, rates, deductibles and other terms and conditions of several providers.
- Apply for insurance: The insurer may request information about your company, like its industry, number of employees and annual income, in order to deliver your final rate.
- Pay premiums: You can pay the premiums on a monthly, quarterly or annual basis.
- Review and renew: Check your insurance policy on a regular basis to make sure it still fits your needs. If it does, renew your policy.