Just getting started with your small business or making your plans to get a new one off the ground? No matter your industry, you’re going to be looking at business insurance policies at some point.
There are several types of policies available to entrepreneurs, but some are way more common than others. These other types may only be necessary for certain fields. Read on to learn more about three of the more popular small business insurance plans.
General Liability Small Business Insurance Policies
Also known as commercial general liability insurance, this policy covers bodily injury, property damage, personal injury, and advertising injury. It can also help protect a business against claims like libel or slander.
This is one of the most common types of small business insurance policies and, generally, protects your business from third-party claims. Without this type of insurance, you would have to pay for things like medical bills and property damage claims out of pocket.
Examples of what a general liability small business insurance policy would cover:
- A wet floor sign is not put out after mopping and a customer slips, falls, and sues for medical expenses
- You run an advertisement that a competitor claims damages their reputation
- Your firm wrongfully evicts a tenant
- A fire damages property that you were renting and the rental must be replaced or repaired
This type of policy doesn’t cover things like workers getting hurt on the job. That’s something that would be covered under your worker’s compensation policy. Worker’s compensation is something required at the state level.
General liability business insurance policies also do not include damage to your commercial property. For help with that, you’d need to look to your commercial property insurance policy.
How likely is it that you need this sort of small business insurance? According to the Hartford, 4 out of 10 small business owners are likely to face a property or general liability claim over the next 10 years.
Most states don’t require it as rule of law, but not having it could cause your business to go bankrupt if the wrong situation arose. Also, many clients may want you to have it before they will do business with you and most landlords will want to see proof of policy before renting to you.
Commercial Property Small Business Insurance
Commercial property business insurance policies cover physical property damage to a business’s buildings, equipment, inventory, and furniture. In the event of a covered loss, like a fire or theft, this policy can help replace what was lost.
Other names for this sort of policy include commercial building insurance, personal business property insurance, commercial real estate insurance, and non-residential building insurance.
Situations in which this type of policy helps:
- A fire burns down your office space with all of your computers and equipment in it
- Lightning causes a power surge that wipes out all of your hard drives
- A thief enters your property after hours and walks off with half your inventory
- Property damage prevents you from opening for business and you are losing operational income
You may have noticed in that last point that this type of small business insurance policy will cover income lost resulting from a covered vent. Usually it will cover whatever losses you incur during the time it takes to repair or replace whatever it is that’s keeping you from generating income. Business income insurance can often by purchased separately.
According to Insureon, the median cost of this type of policy is around $800 annually for a policy with a coverage ceiling of $60,000 and a $1,000 deductible. If you’re looking to get that deductible down a bit, you can opt to pay a higher yearly rate. Due to inflation, insurance policy costs have risen 15% in the first quarter of 2021.
Data Breach Insurance
These types of business insurance policies are referred to as cyber insurance and they are becoming increasingly more applicable in today’s work from home environment. Cyber insurance is a type of insurance that protects businesses from cyber attacks and data breaches.
It covers the costs associated with these types of incidents, including the costs of repairing any damage, notifying customers, and defending against lawsuits. It can also help cover the cost of public relations campaigns.
There are also fines often levied from companies you are likely to do business with. Here is a list of some more of the costs associated with data breaches:
- PCI noncompliance fees: $5,000 – $50,000
- Card replacement fees: $3 – $10 per card
- Forensic systems review (level four merchant): $10,000 – $30,000
- Credit monitoring: $10 – $30 per individual
- Card brand noncompliance fees: $5,000 and up
Including all size firms, the average cost of a data breach increased from $3.45 million to $8.19 million over the span of 2006 to 2019, though healthcare organizations are cited as the biggest contributor to this number.
Smaller merchants, like a level four merchant with less than a million VISA and MasterCard transactions annually, incur data breach costs that average around $50,000 per incident.
Cyber insurance rates depend vastly on the amount of coverage required, number of customers served, sensitivity of data, and strength of security measures. Starter plans with $50,000 of coverage can start as low as $6.50/month, while a 2019 AdvisorSmith study showed that the average cost of a $1,000,000 policy was roughly $1,500 annually.
We have covered three of the most common types of business insurance policies business owners should consider depending on their individual situation. It is worth noting that many small business owners can often get away with nothing but a Business Owners Policy, which includes coverage for customer injury, property damage, advertising injury, product claims, business personal property, and lost income.
Think of a BOP policy as sort of a combination of the first two types of coverage mentioned above, but more targeted to smaller firms. Like all business insurance policies, there are exclusions that may necessitate additional policies.