As with many questions we have addressed in our previous blogposts, this too does not have a one-size-fits-all answer. But before we delve into the question of what insurance to get for a new business, we first want to answer another primary question we often get from new business owners— “Should I get insurance for my new business?” The answer is an unequivocal “yes”! Getting insured against risks likely to affect your business is a must for every new business to protect against financial liability and loss.
Regarding insurance coverages a new business should obtain, it depends on the business being conducted, whether it will have a physical location, whether it will have employees, and so forth. Our disclaimer: We are not insurance experts, but in this blogpost, we discuss a few common types of insurance (the list below being not exhaustive) a new business owner may consider getting after assessing what risks may affect his or her business.
- General Liability Insurance: General Liability Insurance protects a business against claims for third party property damage and personal injury arising from a business’s operations, property, and services provided by its employees or service providers. Even when a claim is meritless, the business still must defend against it and the legal costs can be huge— general liability insurance typically also covers legal costs if a claim is covered by the policy. This can be significant for a new business which will otherwise have to cover costs out of pocket.
- Commercial Property Insurance: Commercial Property Insurance protects against losses caused to a business’s property, including its tools and equipment, by theft, fire, vandalism, and storms. Typically, this insurance does not cover losses from earthquakes and floods, but supplemental coverage may be available at additional costs. Even if you run your business from home, consider obtaining this insurance, as a standard home insurance policy may not cover business related property damage or injury to customers/clients who may visit your home office. Sidebar: For a small business, a Business Owners Policy (also known as “BOP”) may make most sense. It is an insurance that provides coverage for both property damage and general liability in one package and is typically more affordable than obtaining these coverages separately. Businesses can customize a BOP to meet their needs.
- Professional Liability Insurance: Also sometimes referred as “Malpractice Insurance” or “Errors and Omissions insurance”, this insurance is for professionals (like lawyers, doctors, consultants, etc.) and protects against claims made for negligence or other errors or omissions made by them in providing services. Like General Liability Insurance, a typical Professional Liability Insurance covers damages up to policy limits and also covers legal costs of defending against malpractice claims.
- Cyber Liability Insurance: Many businesses, including small businesses, store sensitive information of customers or employees on their computer systems and network, which if breached can expose a business to numerous liability claims. A Cyber Liability Insurance typically provides coverage for data breach including costs of remedying the situation, notifying data subjects of the breach, regulatory fines stemming from the breach, legal expenses, damages, and investigation costs. Cyber Liability Insurance may also be obtained for media liability claims, including claims stemming from IP infringement and defacement of website, and for business interruption and loss of revenue caused by cybercrimes.
- Workers Compensation Insurance: In all states except Texas this insurance is mandatory if a business has a more than a couple of employees (check the requirements in your jurisdiction to determine the minimum number of employees you may have without carrying this insurance). This insurance covers a portion of missed wages for employees who are injured or ill because of work-related conditions or environment, medical expenses for employees needing treatment from work-related injury or illness, and certain death benefits.
- D & O Insurance: Typically, a Directors and Officers Liability Insurance (also known as “D & O Insurance”) is an insurance payable to directors and officers of a business to protect against personal losses and costs if they are sued for alleged wrongful acts or omissions while serving as officers and directors of the business. This insurance does not cover for intentional wrongdoings.
- Others: Businesses that use motor vehicles for performing services may also consider getting a Commercial Automobile Liability Insurance, covering liability arising out of any auto (owned, hired and non-owned). Businesses may also be able to obtain what is known as a “Commercial Umbrella Liability Insurance”. This type of insurance usually helps business owners fulfill a contract that requests higher coverage limits than that offered by its general liability insurance policy.
A new business owner should take the time to determine what insurance policies may be necessary to ensure the business is financially protected. As discussed, there are many types of insurance coverages to protect against liability exposure and risks associated with doing business. We recommend keeping insurance in mind as you do your startup planning, and budgeting for costs of obtaining insurance policies that may make most sense for your business.