Securing insurance for small businesses is no simple feat. Small business owners already wear several hats just to manage basic day-to-day operations; adding an “insurance and liability expert” hat to the rack is a lot to ask. It is, then, perfectly understandable that the world of small business insurance is fraught with myths and shortcuts shared, overheard, and mutually understood among business owners. Myths unchecked, however, often hurt more than they can possibly help — and small business owners with insufficient or improper insurance may find serious financial and legal ramifications in their future. It pays to be in the know about small business insurance and a quick way to set your business on the right track (or to reassure yourself on your existing plans) is to break those long-held myths that most often lead business owners astray.
Myth: If Your Business is Based Out of Your Home, Homeowners Insurance is sufficient
While homeowners insurance may protect some assets of your business if you work from home, most of the business property that could be in that home office are likely not covered by homeowners insurance. Homeowners insurance very often includes personal property coverage which regularly will not apply to business items like standing inventory or business computers when seeking a claim.
Businesses owners based out of their homes may want to consider seeking out additional insurance to cover their business articles in their home if such elements don’t already exist in their insurance plan. Several of the largest insurance providers offer additional coverage for business materials in the case of home offices or if a home is used to temporarily store inventory.
Myth: General Liability Insurance Adequately Insulates a Business from On-Premises Injury or Damage Culpability
While general liability insurance is a great multi-use tool for small business owners, this type of insurance generally is not sufficiently able to insulate your business in all cases where you may want coverage. The most common general liability insurance packages often cover medical expenses for those injured at your business, property damage claims, as well as the court costs stemming from those claims. This type of insurance, however, generally does not cover these common incidents:
Auto accidents in a work vehicle: This often requires commercial auto insurance.
Employee injuries and illness stemming from the workplace: Employee injury or illness at the workplace is almost always covered by workers compensation insurance. While some states require workers compensation insurance (New York, Nevada and Utah), small businesses that don’t have a sufficient policy may find it difficult to use their general liability policy
Damage to your own business: While general liability insurance will usually cover property damage claims against your business, they often don’t cover property damage of your business. Business owners traditionally need commercial property insurance to sufficiently cover property damages at a place of business.
General liability insurance can protect business owners in most cases of business-liable accidents, but it is an untrue myth that it insulates businesses from all liability coverage.
Myth: If a Business Owner’s Vehicle is Used for Their Business, Personal Vehicle Insurance is Sufficient
This myth is false. It is true that personal auto insurance will usually cover commuting to-and-from work as well as outings during the workday but there are some instances where a personal auto insurance policy may not fully cover a business owner. For example: if you are transporting a prototype from your business and it is damaged during an auto accident in your personal vehicle, it is likely you would have needed commercial auto insurance to be properly covered.
Several of the largest insurance providers have plans and packages that give additional coverage for personal vehicles that are also used for a business purpose. Check with your insurance provider to see the extent of your specific plan.
Myth: Working with an Insurance Broker Isn’t Worth the Cost
This rumor will likely cost you money rather than save it. It’s natural to assume that any kind of broker or agent will cost more than if you did the service yourself, but insurance brokers are a rare exception. Insurance brokers don’t cost the business owner a dime: they are paid by insurance providers. Insurance brokers make their money by matching businesses with fitting plans and the expertise of a good broker will almost always lead a business to a better-informed and reasonably priced insurance package.
Brokers can also be valuable consultants when determining what insurance your business may need. It’s also quite common for brokers to have access to rates and plans that are unavailable to non-brokers. Strategically using a good broker’s counsel is also a great way to better understand your own insurance needs.
Myth: Malpractice & Errors and Omissions Insurance are only for the Medical Field
This one is a split bill: While yes, malpractice insurance is often specifically applicable to patient/customer injuries because of incorrect practice, errors and omissions insurance may be helpful to have for many other small businesses.
Errors and omissions insurance is generally structured to help businesses who are targets of allegations of any kind of professional negligence or results not matching a prearranged agreement. An example of when a business may benefit from errors and omissions insurance is in the case of a client claiming a product does not serve its advertised purpose. Errors and omissions insurance would then likely kick in for the business and help cover legal fees or potentially a portion of any kind of settlement.
Myth: Cyber Risk Insurance Doesn’t Apply to Small Businesses
It is a dangerous myth that small businesses are too small to be the target of cyber-attacks. On the contrary, because of their small size, cybercriminals consider small businesses an especially juicy quarry. Cyber liability insurance does not only apply to corporations with billion-dollar trade secrets. In the event of a ransomware attack or any cyberattack that harms your business, cyber liability insurance is likely to cover financial or maybe even hardware losses after a cyber-attack. A U.S. Securities and Exchange Commission study found that 60% of businesses who suffer a cybersecurity breach close within six months. Cyber liability insurance may be effective for recovery from a cyber-attack, but it is equally essential that small businesses take up modern best practices to avoid cyber-attacks before they are a target.
Myth: Workers’ Compensation Insurance is Strictly for Companies with Warehouse Workers
This is another dangerous myth that can lead to big trouble if not handled properly. Workers’ compensation insurance is just that: insurance that protects workers’ ability to be compensated. Being that some of the flashiest cases of workers’ compensation claims come from warehouse accidents, it’s understandable that some people may misinterpret this type of insurance’s purpose. Workers’ compensation insurance can be a major lifeline for employees injured at work who either cannot work due to their injury or incur medical bills due to that injury.
Workers’ compensation insurance is a supremely helpful lifeline for small business owners as well. On top of having injured or sick employees’ wages paid, most workers’ compensation insurance packages require that employees agree not to carry out legal action against their place of employment. Nobody wants or expects injuries to happen at their workplace but having safeguards like workers’ compensation insurance is just as helpful for warehouses as it is for bookstores.
Better Safe than Sorry
Everyone has heard some version of the phrase “insurance isn’t useful until it is.” While choosing scanter plans and less policies is certain to save you money month-to-month, the moment something goes wrong (and as small business owners know well, they often do) those savings and then some won’t last long. The United State’s uniquely robust insurance marketplace gives small business owners more options than any rational person could sort through in a lifetime; but with a thoughtful perspective, and possibly some help from an insurance professional, small business owners can become the experts of their own insurance needs.