Business Insurance Essentials
Key insurance policies every business owner should have to protect their company.
Running a business involves inherent risks, from property damage and lawsuits to employee injuries and data breaches. The right insurance portfolio protects your company from financial losses that could otherwise threaten its survival. Here are the essential policies every business owner should understand.
General Liability Insurance
General liability insurance is the foundation of business protection. It covers claims of bodily injury, property damage, and personal injury, such as slander or defamation, that arise from your business operations.
If a customer slips and falls in your store, if your product causes injury, or if your advertising inadvertently infringes on a competitor’s trademark, general liability responds. It covers legal defense costs, settlements, and judgments, protecting your business assets from the financial impact of lawsuits.
Most general liability policies provide coverage of one million dollars per occurrence and two million dollars in aggregate. Depending on your industry and risk profile, you may need higher limits. Landlords, clients, and contracts often require proof of general liability insurance before you can lease space or secure business agreements.
Commercial Property Insurance
If your business owns or leases physical space, commercial property insurance protects the building, equipment, inventory, furniture, and other business property against covered perils like fire, theft, vandalism, and certain weather events.
Coverage can be structured on a replacement cost or actual cash value basis. Replacement cost coverage pays to replace damaged property with new items of similar kind and quality, while actual cash value accounts for depreciation. For critical business assets, replacement cost coverage is almost always the better choice.
Business interruption insurance, which is often included as part of a commercial property policy, covers lost income and ongoing expenses if your business must temporarily close due to a covered event. This coverage can be the difference between surviving a disaster and going bankrupt.
Professional Liability Insurance
Also known as errors and omissions insurance, professional liability protects businesses that provide professional services or advice. If a client claims that your work or advice caused them financial harm, this coverage pays for legal defense and any resulting settlements or judgments.
This coverage is essential for consultants, accountants, architects, engineers, IT professionals, and anyone whose expertise forms the basis of their business. Even unfounded claims can generate significant legal costs, and professional liability insurance ensures these do not come out of your pocket.
Coverage limits and premiums vary widely by industry and firm size. Work with an insurance advisor who understands your profession to ensure your policy adequately addresses the specific risks you face.
Workers Compensation Insurance
If your business has employees, workers compensation insurance is legally required in nearly every state. It covers medical expenses and lost wages for employees who are injured or become ill as a result of their job.
Workers compensation also protects employers from lawsuits related to workplace injuries. In exchange for receiving guaranteed benefits, employees typically give up the right to sue their employer for negligence. This trade-off benefits both parties.
Premiums are calculated based on your industry classification, payroll, and claims history. Implementing strong workplace safety programs can reduce both injuries and premiums over time. Many insurers offer experience modification ratings that reward businesses with fewer claims.
Cyber Liability Insurance
In an increasingly digital world, cyber liability insurance has moved from a niche product to an essential coverage for businesses of all sizes. A single data breach can expose your company to regulatory fines, notification costs, credit monitoring expenses, legal fees, and significant reputational damage.
Cyber policies typically cover first-party losses, like forensic investigation costs and business interruption from a cyber event, and third-party liabilities, like lawsuits from affected customers and regulatory penalties. Given the rising frequency and sophistication of cyberattacks, this coverage is no longer optional for any business that stores customer data electronically.