Whether you are still in the process of planning out your small business or you have been in operation for several years, small business insurance should always be on your mind. Protecting your small business from risk is a full-time job in and of itself; and picking the right policies to insulate your business can seem just as taxing. When choosing what insurance policies your business needs, or more generally ought to have, there is a lot to consider. Let us, then, look over the bare minimum, the baseline of small business risk protection that all small businesses may (depending on your state) require before even opening their doors or hiring their first employee.
While unemployment insurance isn’t a policy meant to protect employers, it is still a type of insurance that every small business with employees must pay into. Employees who are laid off or let go for circumstances beyond their control can apply for unemployment benefits which are funded — in large part — by business pay-in. Pay-in percentages will vary by state but every American small business with employees must pay into unemployment insurance.
The Federal Unemployment Tax Act (FUTA) requires that employers pay 6% of the first $7,000 in employee wages per employee per calendar year into unemployment insurance. Depending on your state requirements, you will likely have to pay another percentage rate on top of the federal rate. This additional amount can range widely by state, so be sure to investigate your state rate as well as federal when determining employee wages.
Long-Term Disability Insurance
This is another policy built to protect your employees that employers in some states are required to have. Disability insurance functions similarly to unemployment insurance in that it covers instances that occurred outside the employee’s control; but in this case, the employee is rendered incapable of working due to an event at the workplace. The states and territories which require long-term disability insurance are California, New York, New Jersey, Hawaii, Rhode Island, as well as Puerto Rico. Businesses in these states and territories can find sufficient packages often through existing state programs or other private insurance companies. In California, for example, employers can pay into the existing California State Disability Insurance (SDI) program or they can apply for a separate, usually private, voluntary plan in the place of direct state coverage.
Workers’ Compensation Insurance
Workers’ compensation insurance is required in some capacity in every state but Texas and South Dakota. Among those states who require workers’ compensation, pay-in amounts and policy guidelines can vary wildly, as the program is run at the state level. Workers’ compensation insurance covers employees who suffer injury or lasting disease at the workplace but not to the extent where they would apply for long-term disability benefits. Workers’ compensation insurance can also — in some capacity — insulate employers as, in most states, employees collecting workers’ compensation cannot sue you for the injury for which they are already collecting workers’ compensation.
Professional Liability Insurance
Professional liability insurance, otherwise known as errors and omissions insurance, is built to protect your business in cases of negligence or when a client believes you have made a mistake and they are due recompense. Currently, professional liability insurance requirements vary by state — with some having no requirements and others requiring very large packages. Additionally, there can be requirements based on industry that can supersede or add onto state requirements. For example, law firms and private medical practices most often require some amount of insurance regardless of whether or not your state requires it. There can also be state-by-state nuances regarding professional liability insurance. For example, South Dakota, while not requiring this insurance, does require that uninsured medical practices disclose on document letterheads if they have no malpractice insurance.
Even if your state does not require it, professional liability insurance is something you should at least consider as it can be supremely helpful for more than just doctors and lawyers. In most cases where a company is sued because of a process central to the business, professional liability insurance can help cover legal costs stemming from the claim.
Commercial Auto Insurance
If your business owns any vehicles, there is a good chance you will need commercial auto insurance. Every state but New Hampshire and Virginia require businesses to carry commercial auto insurance policies for vehicles owned by the business. Commercial auto insurance will often help cover legal costs, medical bills, property damage and sometimes vandalism associated with your business vehicle.
Depending on if you use a personal vehicle at your place of business, you may also want to look into covering your personal vehicle under your commercial plan. Commercial auto insurance will only cover vehicles which are owned by your business directly unless you choose a more lenient policy. For example, if you are transporting inventory in a vehicle only under your personal auto insurance policy, that inventory may not be protected under your consumer policy. Small business owners should speak to a trusted insurance company or broker to see what policy best suits their needs.
Business hazard insurance can help cover the costs of replacing or repairing property, materials, or equipment damaged in natural disasters, fires, thefts, or some other uncontrolled circumstances. While nearly all states don’t require hazard insurance, it is usually a necessity for a different reason: a loan guaranteed by the SBA does require that your business have a hazard insurance policy. Many lenders offering loans not secured by the SBA also look highly on small businesses with hazard insurance.
If your business is run at a home and already covered by homeowner or consumer hazard insurance, be sure to check with your insurance provider to see if you have further coverage options and to confirm if business assets in the home are covered by existing personal policies.
Helpful, but not Required, Business Insurance
General Liability Insurance
While small businesses technically aren’t required to have general liability insurance, this type of policy will likely come in handy. Unlike professional liability insurance which covers occupational errors and omissions, general liability insurance often covers customer injury or property damage which occurs at your business. If a client or customer attempts to sue you for injury faced at your place of business, general liability insurance may also help cover legal costs.
Commercial Property Insurance
Like hazard insurance, commercial property insurance covers all physical assets and buildings related to your business that are on the covered commercial property. Most commercial property insurance policies cover businesses in the event of damage from natural disasters, fires, or theft. There are also some policies that can protect projected business income if your business cannot operate normally after suffering from a covered disaster. Small business owners should discuss with a trusted insurance company or broker to see if they could benefit from holding a commercial property insurance policy in addition to hazard insurance.
Employment Practices and Liability Insurance
Employment Practices Liability Insurance or EPLI is meant to protect employers in cases where employees believe their legal rights as a worker were violated at your business. This type of insurance can help pay legal costs if your company is sued for wrongful termination, breach of contract, harassment, discrimination, and several other possible employee lawsuits. While not legally required, EPLI can be a means of survival for businesses who are found negligent or guilty in lawsuits against them.
The Minimum Protects You the Least
“What insurance policies do I need?” is a question with about as many answers as there are small businesses. Depending on your state, industry, and number of employees your requirements could be as many as all the policies listed here or as little as none. It is then essential that small businesses investigate not only the policies they need to protect them in court but also the policies they need to stay above water following unforeseen circumstances.