With small businesses occupying such a prominent place in the United States’ economy, small business owners must remain conscious of the various risks that those businesses face. With the threat of losses seemingly hovering around every corner, how should businesses respond? Business insurance can help protect against these various losses.
What Is Business Insurance?
While businesses of all types and sizes, including global corporations, utilize business insurance, according to the U.S. Small Business Administration’s 2019 Small Business Profile, a full 99.9% of all businesses in the United States are small businesses. So, what exactly is small business insurance?
Primarily, what we know of as business insurance is actually a combination of different types of coverages. All are geared towards helping companies protect themselves from losses related to circumstances outside the ordinary as well as everyday business activities. These insurance policies can protect against physical and intellectual property losses, and the financial assets of the companies that purchase them.
Business Insurance Types
Just as there are myriad types of businesses operating in the US, there are multiple risks unique to each business industry and individual company. As a result, a broad selection of different business insurance options exist. Companies typically craft a unique business insurance plan consisting of the coverages that best fit their needs, including considerations like number of employees, the sector of business involved, vehicles or materials used, and more.
Building a business insurance policy that covers all significant areas of risk is an essential way to protect a company from incurring losses should the worst happen. Companies typically choose from these general types of small business insurance:
- Businessowners Policy (BOP). Designed to be coverage-rich with small business owners in mind, a BOP conveniently combines business property and general liability into one blanket policy. A BOP allows business owners to obtain broad base-level coverages or custom crafted coverages that protect against their industry specific risks.
- Property insurance. An essential type of insurance for small businesses, property insurance protects companies from losses due to damage to physical property loss as well as other kinds of financial losses. This type of insurance covers loss due to theft, fire, storm, or vandalism, but usually does not cover loss due to flood or earthquake. Most businesses purchase a separate policy for these incidents.
- General liability insurance. This crucial insurance type protects companies against liability from many common claims resulting from daily business activity. Liability insurance can cover damages because of accidental injuries, medical expenses, or property damage caused by products, employees, or even the general operation of the business itself
- Professional liability insurance. For companies providing a professional service to a set of clients, professional liability insurance protects against liability for malpractice, mistakes, and negligence related to those services. Most often, professional liability insurance is utilized by service providers including, but not limited to, doctors and lawyers.
- Product liability insurance. This type of insurance is important for companies that manufacture and sell products. Product liability insurance protects against losses and lawsuits surrounding faulty or defective products that harm consumers.
- Workers compensation insurance. Also known as “workers comp”, this type of insurance covers medical bills and lost wages for an employee if they are injured on the job. Workers compensation insurance is often required by the state for companies with a certain number of employees.
- Business interruption insurance. Especially important for companies that require a brick and mortar location to do business, such as restaurants and retail stores, business interruption insurance protects against reduction of income when a covered business premises is lost or damaged because of a covered cause of loss.
- Commercial auto insurance. Similar to how personal vehicle owners must carry auto insurance, companies must also insure every vehicle used for daily business activities. At a minimum, states require businesses to carry liability insurance, but comprehensive insurance can provide additional protection if employees operate the vehicles for delivery or transport purposes.
How Does Business Insurance Work?
While the above insurance types are general, most insurance companies offer a wide range of business insurance products that can be combined to create a custom business insurance policy. This policy serves as a contract between the business and the insurance provider in which the provider agrees to share some of the business’s risks in exchange for regular premium payments. If the business experiences a covered loss, the owner will need to file a claim with the insurance provider.
Business Insurance Is Essential
Some types of business insurance – such as disability, unemployment, and workers compensation insurance – are legally required to protect employees. Other types of insurance may be necessary as well, depending on state and local jurisdiction.
It is also essential to protect a business’s financial assets. Business insurance can help keep a company running in times of fire, natural disaster, or economic uncertainty. Just as importantly, business insurance protects against liability from lawsuits as a result of product or service issues. Although policies are often not inexpensive, paying for business insurance now can protect against potentially devastating losses in the future.
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