We all know that if you drive a car, you need car insurance, and if you own a home, you need homeowner’s insurance. But what about if you run a business? Do you need insurance for that, too?
It’s an entrepreneurial gray area that depends largely on what type of work you do and how many employees you have. In general, though, it’s a good idea for any business owner to have at least a minimal level of coverage to protect in the case of things like lawsuits, which can happen in any industry.
Here, we’ll go over a few of the most common types of business insurance and discuss some cases where you might need it.
If you’re a solopreneur and you do a low-risk type of work, like public relations or graphic design, you might think you don’t need insurance because your work doesn’t put you in many precarious situations.
And you might be right. But to play devil’s advocate, what if you inadvertently violated a contract with a client or broke intellectual property laws. What then? This is where liability insurance becomes a godsend.
Professional liability insurance covers your legal defense and the cost of judgements against you if you’re taken to court over your work, up to the limits of the policy. This, of course, under the stipulation that the act that got you into trouble wasn’t committed intentionally.
Designers, consultants, engineers and real estate agents are a few of the professionals who can benefit from professional liability insurance.
There’s also general liability insurance, which covers you if you’re sued over an accident or injury that happens on your premises or is caused by one of your products or employees. For example, if someone slips and breaks their arm while in your store, you’d certainly want general liability insurance to help cover any resulting medical expenses.
We touched earlier on homeowner’s insurance, which covers the repair or replacement of your property if there’s a catastrophic event like a fire or flood. Property insurance works the same way for business property.
If the building you work in is damaged by things like fire, water, or wind, or if you’re the victim of a break-in, your property insurance policy will cover the building and the materials goods like furniture and office supplies inside it.
Note that if you work from home, your homeowner’s insurance policy likely does not cover equipment used for business purposes.
Also under the umbrella of property insurance is business interruption insurance, which covers the loss of earnings if you have to pause operations as a result of one of the above incidents. Let’s say a fire forces you to temporarily close your restaurant and you lose a week’s worth of profit. Business interruption insurance would cover those lost earnings (based on last month’s earnings) up to the llimit of your policy.
Finally, if you’re forced to work in a temporary location while your business is under repair, business interruption insurance can cover that cost, too.
By law, businesses that have employees are required to hold worker’s compensation insurance, while some are also required to pay unemployment insurance tax and carry disability insurance. Yep, being an employer is pricey!
Worker’s compensation insurance covers you if one of your employees is injured on the job. You can purchase this through a private employer or through your state. The amount you’ll pay and your coverage levels will depend on the type of work you do; obviously jobs like construction with more risk for physical injury will need greater coverage than, say, an accounting firm.
According to the Department of Labor, most businesses must pay both state and Federal unemployment taxes if they
- Pay wages to employees totaling $1,500 or more in any quarter of a year
- Or, if they had at least one employee any day of a week for 20 weeks in a calendar year, regardless of whether the weeks were consecutive
Some states have their own set of rules, though, so check with your state’s unemployment agency to see if you’re required to pay.
Finally, disability insurance protects the people in the business and the business itself in the case that an employee or key member of management becomes disabled outside of work. There’s key-person disability, which pays the business to replace the person (say, your business partner) who is unable to work, and there’s and personal disability, which provides an income benefit to the person who has become disabled.
The Wall Street Journal has a great breakdown on why you should consider disability insurance even if you think you’d never need it here.
If no one in your company drives a vehicle for work purposes, you can skip right on over this section.
But if they do—you guessed it—you need commercial auto insurance. Just like your personal car insurance policy, this covers the cost of any damages or collisions involving your work vehicles as well as injuries caused when driving the vehicle.
Even if your employees are driving their own cars for work purposes, it’s wise to cover them with non-owned auto liability to protect yourself in case one of them has inadequate personal coverage.
Whew! That’s a lot to consider, but hopefully this article has helped you realize that insurance is your business’ safety net. In a best-case scenario you’ll never have to use it, but in a worst-case scenario you’ll be glad you have it.
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