Insurance and Your Small Business

By Paul G. Gagne

Small business owners – we know that insurance can be confusing and costly, but it is essential.   Here are ten important things to consider about your small business insurance:

  1. Make sure you have the coverage you need. Insurance policies are not one-size-fits-all. Your insurance coverage should be tailored to your business. For example, if your business is professional in nature, you will likely need Errors and Omissions insurance policies that should be customized to fit the work you do. If you manufacture, sell or distribute products, make sure that you are covered for products liability claims.
  2. Know your risks. While some risks, such as damage to property, personal injury on your premises or professional negligence, are easy to spot, you may have liability risks you aren’t expecting. These include employee theft and misconduct, intellectual property disputes, pollution or nuisance if your business is industrial, health and safety and employee benefits issues, and product liability and warranty expense. All of these can be covered by an appropriate policy.
  3. Your insurer may pay for your lawyer. If you are sued or threatened with suit, many insurance policies provide you with a defense by lawyers paid by the insurer. This means that, in the event of a lawsuit, you won’t have to spend time finding a lawyer who’s familiar with defending small businesses in your field, or asking your real estate lawyer if he can defend you in a contract dispute. Making sure that your policy provides access to a lawyer can save a lot of time and frustration.
  4. You need insurance when you enter contracts. Many business contracts will require you to purchase General Liability and/or Errors and Omissions policies and to provide your client/customer your Certificates of Liability Insurance, which prove you’re covered and supply a summary of the key details of your coverage. Often your client/customer will have a right to use your insurance coverage directly if you cause them to suffer a loss.
  5. Professional Liability Insurance covers frivolous lawsuits. When a client sues you without cause, your Errors & Omissions or General Liability policy should cover the cost of your legal defense. While it’s never pleasant to face a baseless suit, many businesses find it reassuring to know that, if such a suit arises, their insurance has them covered regardless of the suit’s merit.
  6. Customer data breaches are covered by Errors & Omissions Insurance. If a customer’s network is hacked or customer data in your possession is compromised, you may be liable for some of the damages. Fortunately, Errors & Omissions Insurance covers your third-party data risks.
  7. Wrongful acts or crimes can be covered. Standard insurance policies such as General Liability Insurance or Errors & Omissions coverage do not cover wrongful acts and crimes (or other cases where loss or damage is caused when you or an employee acts intentionally but mistakenly). However, you can purchase coverage for these liabilities through Fidelity Bond Coverage. If you work with banks, financial professionals, or other industries concerned with theft, you may even be required to have this coverage.
  8. Small businesses can bundle insurance policies to save money. A Business Owner’s Policy (BOP) combines different types of coverage, such as General Liability Insurance and Property Insurance, into one policy. These policies are only available to small businesses and generally cost less than purchasing both policies separately. Errors & Omissions coverage is usually not included in a BOP, however.
  9. Personal insurance usually doesn’t cover your business liabilities or property. The personal insurance policies you have for your home and car likely do not cover liabilities related to your business. If you drive for your business or operate out of your home, you might need small business insurance policies to cover those liabilities. If a client visits your home office and gets injured, for example, most homeowner’s policies won’t cover the lawsuit. General Liability Insurance, however, will.
  10. Reevaluate your coverage annually. As your business grows, your risks and potential liabilities may expand as well. Your broker can help make sure that you are not underinsured for the risks you face. If your business owns property, make sure that it is periodically re-appraised, so that you have adequate coverage.