Insurance, though complicated and costly, is essential to operating a secure and law-abiding business. Just as individuals need several forms of insurance (health, life, home, auto, dental, vision, etc.), companies need numerous forms of insurance to thrive.
Insurance laws are not determined at the federal level, meaning each state has different rules and regulations. However, many states have similar policies. For example, most states require businesses to have workers’ compensation insurance, unemployment insurance, and disability insurance.
Most business owners decide to purchase insurance policies for more than what’s required by law. Factors that influence these decisions include the size of the business, location, associated risks, financial structure, and more.
If you’re planning on starting a business or are new to business operations and management, you should take the time to understand the most common forms of insurance that your business may benefit from.
Business and Financial
Business and financial insurance plans cover you and your business from any losses incurred through typical operations. Such insurance policies include:
- Business Income Insurance– Covers income loss faced by the halt of operations due to property damage.
- Business Liability Insurance- This insurance covers any liability claims that arise due to property damage or bodily injuries. Liability insurance may apply if the company is sued by customers, suppliers, or other individuals who interact with the company.
- Directors and Officers Insurance– Insures personal losses if someone sues the company’s officers or directors for wrongful acts within their scope of responsibilities.
Property and Products
Businesses typically invest in insurance policies that protect companies from damages to their own property or losses caused by their employees or products.
- General Liability Insurance- This insurance type covers claims made when your products or employees have caused property or bodily damage to third parties.
- Commercial Property Insurance- Covers any damage done to your property through fire, theft, or natural disasters.
- Auto Insurance for Company Vehicles- Coverage for any external damage or third-person liabilities against your business vehicle, including bodily injuries and property damage.
- Product Liability Insurance– This form of insurance covers the expenses of any legal action taken by third parties due to injury or damage to property caused by a product sold by your business.
Employees and Others
Other forms of insurance focus on protecting members of the workforce rather than businesses:
- Unemployment Insurance– All businesses are required, by law, to have unemployment insurance. Unemployment is a joint state and federal program that, through company taxes, provides payments to eligible unemployed individuals.
- Workers’ Compensation- Workers’ comp insurance is mandatory in almost every state in the U.S. It covers medical bills and provides partial compensation of wages to an employee who gets injured while on the job. Workman’s comp laws are a bit complicated, and they vary by state, so be sure to research what’s required and what policy options you have based on your business’ location.
- Disability Insurance– When an employee is injured or ill due to factors or incidents outside of the workplace, disability insurance lets businesses pay out a portion of the employee’s lost wages.
External Crime and Internal Wrongdoings
What happens when illegal actions or wrongdoings, either externally or internally, cost your company? The following forms of insurance protect businesses from such instances:
- Crime Insurance– It provides coverage of financial loss against theft, and fraud, including cybercrimes.
- Cyber Insurance– Purchasing a cyber insurance plan covers financial losses if cyberattacks compromise your data or interrupt operations.
- Terrorism Insurance– If terrorist activities occur, this insurance plan covers property damage, bodily injury, and financial losses.
- Employment Practices Liability- This optional form of insurance financially protects companies against claims made regarding wrongful acts such as sexual harassment and discrimination within the workplace.
Additional Industries-Specific Policies
Many businesses choose insurance plans according to the risks associated with their industry. Here are a few additional insurance policies you can purchase if needed:
- Pollution Liability and Environmental– Covers claims of third-party bodily injuries or property damage caused by dangerous waste materials.
- Transportation of Hazardous Materials Liability Insurance (HAZMAT)-This insurance policy protects those individuals who engage in transporting hazardous materials for your company and compensates for any accidents or mishaps.
- Liquor Liability Insurance- Any business that sells or distributes alcohol should consider this form of insurance. If an intoxicated person causes property damage or bodily injury, the policy will cover the costs.
Consider Policy Bundles
Since businesses require a variety of insurance policies, it can sometimes save money to purchase bundled insurance policies. Insurance companies provide lower rates for companies that buy bundled insurance rather than turning to multiple providers for different insurance forms.
For example, business owner’s policies (BOP) bundles may include business income insurance, property insurance, vehicle coverage, liability insurance, and crime insurance.
Choose Plans Based on Your Business’ Needs
When it comes to ensuring your company, you need a strategic plan. First and foremost, you have to ensure that you follow all state and local insurance laws. When it comes to optional forms of insurance, you don’t want to risk paying too much for unnecessary policies. On the other hand, you don’t want to risk not purchasing a form of insurance and having to pay out of pocket when the unexpected occurs.
Remember, every business is different, and insurance policies should reflect that. If you’re questioning which forms of insurance you should purchase on behalf of your company, consider talking to a lawyer or consultant about your responsibilities and options.