Insurance isn’t something that people typically like to think about, especially when they see how many different types are available. However, there are a few that might apply to your small business that you should consider in the event you run into a situation where you need it. Let’s go over the basics.
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Why Do You Need Insurance?
My wife and I recently purchased a brand new Volvo XC90 Recharge to replace our 10 year old SUV and I’ve got to say it’s a great car. With the electric vehicle tax credits it was a really good deal and came with a lot of features that didn’t even exist 10 years ago. One of those features is called “assisted parking” and is meant to help you steer into a tight spot when parallel parking.
If you read the manual for the car it will tell you how to use this feature, but of course being a programmer for 25 plus years I don’t read manuals – and that came back to bite me.
We were going out to lunch with my wife’s father and I had to parallel park in front of the restaurant. I thought this was a great opportunity to try out the new assisted parking feature, so when the screen prompted me if I wanted to try it, I pushed the yes button and let go of the wheel. The car proceeded to reverse in high speed, spinning the wheel and throwing the vehicle into the parking spot. Unfortunately, it also threw us into the car behind.
The whole maneuver happened so fast and I kept thinking, “when is it going to apply the brake?” Never, apparently. I assumed it would do that for me because it does in cruise control and other automated driving features, but not in assisted parking. Ouch.
That was the first accident that I’ve ever been in that could be considered my fault. Even the best drivers can have an accident that costs thousands of dollars as this one did and luckily I had insurance that covered most of it.
When it comes to running a small business, I think the topic of insurance is not that different of a value proposition from your auto insurance. You probably have the best of intentions and plan on offering your customers the best products and services available; however, sometime things don’t quite go right, possibly through no fault of your own. If you run up against this you may find that the cost to fix the problem would have been better paid by insurance than your bank accounts.
There are many different types of business insurance and chances are you won’t need most of them, but it’s a good idea to take a look at the couple that might apply to you. Having a little bit of insurance can help to protect your business assets and if you’re not adequately separating your business from your personal, your personal assets as well.
Let’s go over a few of the business insurance types available:
General liability insurance.
General liability protects your business from claims related to bodily injury, property damage and other mistakes that your company might make. It typically covers legal expenses, medical costs and any settlements if you end up being taken to court.
Let’s say your meeting with a client at your home office and they slip and fall on a step, breaking their wrist. General liability insurance would cover that. Or what if you’re on location at the client’s house and accidently knock over that rare expensive vase, shattering it into a million pieces? Again you’re covered.
Essentially if you think you could ever be at risk for any injury or property damage this is the insurance to buy.
Professional Liability Insurance
Professional Liability is a little bit different. This insurance is more to protect you from claims of negligence or errors and emissions. In fact, it’s often called “errors and emissions insurance” for that very reason. If you are a service-based business this is probably the type of insurance you need.
Let’s say you’re a graphic designer and you’ve created the coolest logo for a customer who excitedly implements it immediately. Unfortunately, your logo turns out to contain some copyrighted element and your client is sued for copyright infringement. Naturally they turn around and sue you for damages. That’s where professional liability insurance would kick in.
I’ve been writing software for 25 years or more which is 100% a service business. I also don’t repair or sell computer and networking hardware anymore so there isn’t much chance I’ll be the cause of some hardware type failure. But a software glitch that could cost the client thousands of dollars? Sure it could happen and if it does I’m counting on my professional liability insurance to kick in.
Business Property Insurance
Do you have a physical location somewhere outside of your home? If you do, then you probably want property insurance or “business office insurance” as it’s sometimes called. This insurance covers the equipment that you have, like your computers, printers, office furniture, etc… in the event of fire, theft, vandalism, and most other issues. This is similar to your home insurance and you’ll need to read the fine print to see what’s covered and what isn’t.
Workers Compensation Insurance
Do you have employees? If you do (other than yourself or your spouse) you’ll need to provide workers compensation insurance to cover workplace injuries. This type of insurance provides coverage for medical expenses and lost wages if an employee gets injured while performing on the job. It also protects your business from lawsuits related to such injuries as well.
I once had an employee who was only with the company for a month or two, but after he quit he filed a workers compensation claim against my company for the stress of working. Now I’d like to think I’m a pretty chill boss and none of my other employees have ever complained. We’re programmers in a pretty relaxed environment where, most of the time, management leaves us alone and we get to code all day on some really cool stuff. I think the reality is that he didn’t understand or like the work we were doing and couldn’t keep up with the learning curve. Filing a claim was a convenient way for him to get a partial income when he quit just because he didn’t understand the job.
But here in California that counts as stress. Had I not had worker’s compensation insurance any related medical expenses would have come to my company instead of through my insurance. When a claim is made your workers compensation insurance premiums go up too of course. I’ve only ever had the one claim and I don’t feel that it was my company’s fault, but there’s nothing I can do about it. I’m pretty sure this insurance is mandatory in California if you have employees other than yourself and your spouse, but I’m not sure about that.
Commercial Auto Insurance
Does your business involve driving? I’m not talking about your commute to and from work, but if work itself requires driving such as vehicles owned by the business or used in a regular business capacity. Jobs like construction may use specialized vehicles, or a taxi service (like driving for Uber or Lift) would use vehicles regularly. In these cases, you’re going to want to look at commercial auto insurance. This is very similar to personal auto insurance, but it’s specific to your business and the type of driving that your business does.
Directors and Officers Liability Insurance
As a small company you probably don’t need to think about directors and officers liability insurance, but it’s good to know that it exists. This type of insurance protects your executive staff from legal expenses and financial damages resulting from claims of mismanagement errors, negligence or any other suit that may be brought against them while they were operating in the capacity of an officer of your company. Hopefully you never need to use it.
Cyber Liability Insurance
Cyber liability insurance provides coverage for data breaches, cyber-attacks, and other cyber-related incidents that can result in financial losses or even damage to your business reputation. If hackers break into your network and steal your customer data and you’re sued over it, cyber liability insurance would kick in. If customers cancel their service with you over a data breach and you experience real financial losses related to it then this insurance would be what you’d need.
Cyber liability insurance is fairly new on the scene, but with data breaches in the news it’s fairly easy to see how it would be needed for any ecommerce where you store customer data – especially sensitive data like payment methods.
Wrap Up
Business insurance is an important aspect of protecting your business from potential risks and liabilities. It provides financial security, peace of mind, and in many cases compliance with legal obligations if your jurisdiction or industry requires it. While the discussion over coverage limits and deductibles and so forth is a bit outside the scope of this article it’s important to know that there is a wide range of prices and services out there and you should shop around when it comes time to consider one of these policies. Also remember to keep adjusting those amounts every year or so as the economic climate changes.
If you’re looking for a company recommendation, I’ve been happy with Hiscox, with whom I have no financial interest and is not an affiliate link. There are plenty of other companies out there as well if you search for “small business insurance”.
Here’s to hoping you never need it, but it’s worth getting in the event that you do!