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Running a successful business involves more than just offering great products or services. It also requires careful consideration of potential risks and taking measures to protect your business—and yourself.
Business insurance plays a crucial role in financially safeguarding your business against unforeseen circumstances. However, with the multitude of options available, selecting the right insurance coverage can seem overwhelming. The key step is figuring out what insurance needs you have for your particular business. From there, you can eliminate ones that simply don’t apply and then carefully compare the remaining options.
So, let’s take a look at some of the most common types of insurance for businesses to help you make an informed decision.
Chances are, if there’s a risk there’s an insurance policy you can purchase to cover it. However, not every business needs every type of insurance. The following are some of the most common—and in some cases, most essential—types of insurance for businesses.
General liability insurance is fundamental for businesses of all sizes and in all industries. It protects your business against claims related to property damage, bodily injury, or personal injury caused by your products, services, or business operations. This type of insurance can also cover legal fees and medical expenses associated with the claims.
Required by law for most businesses, workers' compensation insurance covers the medical expenses and lost wages of employees who are injured on the job or become ill because of the job. This insurance provides financial protection for both employees and employers in the event of work-related accidents or illnesses, helping to ensure a safe work environment.
Your key people are your greatest assets. So, what would happen to your business if one of your key people (such as a business partner or manager) suddenly passed away? Key person insurance for your small business can reimburse the company for loss of services. If you don’t have key person coverage on your most valuable people (and that includes you), you ought to at least explore its advantages. If you already have this valuable insurance, it may be time to review it.
Questions to ask:
If you, a partner, or a key employee become disabled, the loss to the company could be just as great as if one of you passed away. In fact, it could be even more costly, because the disabled person would still require an income. How much disability insurance you need depends on your business interests, as it can also be used as an employee benefit to help you attract and retain new talent.
If your business has a brick-and-mortar location or if you own or lease physical assets, such as buildings, equipment, and inventory, then you need property insurance. It offers protection against damage or loss caused by fire, theft, vandalism, or natural disasters. However, depending on where you’re located, certain disasters may be excluded or available separately (for example, flood insurance). Property insurance can be tailored to cover the specific needs of your business, ensuring that your valuable assets are adequately protected.
Business interruption insurance, or business income insurance, can help replace income your business loses if you are temporarily closed after a covered loss, like property damage during a natural disaster. This type of insurance is typically used in combination with property insurance to help cover additional expenses like rent or lease payments, relocation costs, wages, taxes, and loan payments.
If your business involves professional services or advice, professional liability insurance is crucial. It offers protection against claims that negligence, errors, or omissions have resulted in financial losses for your clients. Professional liability insurance is particularly relevant for legal, accounting, consulting, and healthcare businesses. Typically, this insurance is purchased along with general liability insurance to cover events not covered under that policy.
If you manufacture, distribute, or sell physical products in your business, product liability insurance is vital. It protects against claims arising from product malfunction or defects that result in injury or property damage to consumers. Product liability insurance helps cover legal expenses, settlements, and judgments, providing a safety net for businesses involved in the supply chain.
In an increasingly digital world, cyber liability insurance is quickly becoming a necessity, especially if you handle any of your business online. It covers the financial losses and legal expenses associated with data breaches, cyberattacks, or other cybersecurity incidents. This insurance can help your business recover from reputational damage, address legal liabilities, and protect sensitive customer information.
Many insurance companies offer packaged solutions, such as a business owner's policy, which typically includes general liability, property, and business interruption insurance. These packages will usually cost less than purchasing each type of coverage separately.
To select the most suitable insurance coverage for your business, consider the following steps:
1. Assess your risks: Identify potential risks that are specific to your industry, location, and business operations.
2. Evaluate legal requirements: Research mandatory insurance requirements for your business at the local, state, and federal levels, and ensure that you are adequately covered.
3. Seek professional guidance: Consult with an insurance professional who specializes in business insurance. They can guide you through the selection process and offer tailored recommendations based on your business's unique needs.
4. Compare policies and providers: Obtain multiple insurance quotes from different providers. Compare coverage limits, exclusions, deductibles, and premiums to ensure that you're getting the best value.
5. Review policy details: Make sure you understand the terms and conditions of the policies you are considering. Pay attention to coverage limitations, exclusions, and any additional riders available.
6. Consider your business growth: Anticipate your business's future needs and growth trajectory when selecting insurance coverage. Ensure that the policy you choose can adapt to your evolving requirements.
When choosing which insurance policies you need, it’s important to consider all of the risks that pertain to your business. Another important consideration is the deductibles. You may save money on a policy with lower premiums and a higher deductible, but if the risk is high, it could end up being more expensive in the long run.
With so many things to consider, it can be tricky to know which choices you should make. A financial professional who specializes in life insurance options for business can help determine what your needs are, where your main risks lie, what secondary risks you should consider, and how much coverage you should have to ensure that you, your employees, and your business remain financially secure.
While there are many types of specialized insurance plans available for specific business needs, typically all businesses require some form of:
Just as you need auto insurance or life insurance, you need to protect yourself and your business against any number of unforeseen events like natural disasters, accidents, injuries, lawsuits, etc. Such events can not only financially ruin your business, but as the business owner, you could be personally on the hook for any lawsuits your business faces if you aren’t properly insured.
In order to know how much coverage you need, you should first calculate your business income:
Once you have your net income from the past year, you can estimate your future income going forward, including any changes you may expect (for example, a 10% increase in sales). This projection can then be used to determine how much coverage you would need if an event should occur. This, of course, is just an estimate, so you will probably want to round up the number to protect against any worst-case scenarios.
Business insurance can help cover the costs of property damage, lawsuits, lost income, and other losses. While a business owner’s policy can provide combined coverage for property, liability, and income in one convenient policy, you can find more industry-specific coverage for your needs as well.
A New York Life financial professional can help determine what’s right for you.
This material references certain insurance products that are not offered by New York Life for your informational purposes only. Neither New York Life nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
