How Can Business Insurance Help Your Small Business?

When you’re starting a small business—or running a growing one—there are so many expenses competing for your limited dollars that it’s easy to ignore business insurance. Spending money to protect against possible risks in the far-off future seems like a waste of your precious capital.

But not having insurance is how many small business owners get into financial trouble—or even go bankrupt.

are you coveredA recent survey by Manta and Insureon reveals just how many entrepreneurs are putting themselves at risk. Fewer than three in 10 small business owners in the survey have a business owner’s policy, the basic business insurance that covers general liability insurance and commercial property insurance to protect you from loss. Even fewer (21 percent) have Errors & Omissions (E&O) or professional liability insurance, 17 percent have workers compensation insurance, 6 percent have business interruption insurance, and only 2 percent have cyberinsurance.

Playing fast and loose with business insurance is a big mistake for many reasons. The increasing frequency of extreme weather events such as floods and wildfires creates additional risk of damage to your business’s property or equipment. Could you afford to replace all your business’s computers if a thief broke in and took them? What would happen if a lawsuit hit your business?

To make sure you’re playing it safe, here’s a quick rundown of the business insurance basics every entrepreneur should know.

Business owner’s policy (BOP)

The basic type of business insurance, this generally covers two of the biggest risks for small businesses: general liability and commercial property. General liability insurance can protect you against lawsuits if you damage a client’s property or a customer slips and falls in your store, for example. Commercial property insurance covers loss or damage to your business’s property from burglary, fire or other similar events.

Business interruption insurance

Suppose you’re a Southern California entrepreneur whose location was damaged by the recent wildfires. Not only have you lost property, you can’t run your business until the repairs are made—so you’re not making any money. In this type of situation, business interruption insurance can be a lifesaver. Business interruption insurance can help replace lost income if an incident covered by your BOP keeps you from operating as usual.

Errors & Omissions/Professional liability insurance

Most commonly used by professional service businesses, this insurance helps protect your business in case you make a mistake or neglect to do something for a client and they sue you. Say you’re an accountant and you make a math error on one of your client’s tax returns. Because of the error, they massively underpay taxes and owe a huge penalty to the IRS, so they sue you. E&O insurance will help cover your court costs, attorney costs and other costs of defending yourself in a lawsuit. You may even find some clients insist you to have E&O insurance before they’ll sign a contract with you.

Cyberinsurance

One look at the headlines will tell you that the risk of a cyberattack on your small business is real, and rising. Small businesses are much more vulnerable than large ones; without a big IT team and massive cybersecurity budget, you have fewer defenses. The average cost of a small business cyberbreach is over $86,000, reports a study by Kaspersky. Cyberinsurance can protect your business in the event of a data breach, a cyberattack, or a lawsuit stemming from the attack (such as a customer suing you over breached financial data).

These aren’t the only types of business insurance available. Key man insurance, commercial vehicle insurance and workers compensation insurance can all be equally important, depending on your business. To find out what you need, talk to an insurance agent.

An independent insurance agent who represents many different insurance companies can give you the widest range of options. Your SCORE mentor can help you find a qualified agent in your area.


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