Starting a new business is exciting. You have the opportunity to pursue your passion and make money at the same time, but it’s not always easy. Not only do you have to make a business plan, you also have to obtain the right permits and licenses, hire employees, lease an office, and get insurance.
If you want your business to succeed in the long run it’s important that you protect your business assets as soon as possible. One of the best ways to do this is by having a commercial insurance portfolio that covers the unique needs of your business and industry. So when shopping for insurance make sure you do your research.
Insurance requirements when starting a new business can vary depending on your operations and the state in which you do business. Before launching a small business, you must check with the state to see what their laws are when it comes to business insurance. Certainly, the laws will apply to your business based on a set of circumstances. For example, some states will require that a business owner purchase Workers Compensation the moment they hire just one employee, while others may require it only after you have 4 employees.
At the very least, you should have General Liability insurance before you start your new business. This is a very basic insurance policy that all businesses should have to provide coverage for third party bodily injury and property damage. The claims examples will depend on your operations, but if a customer is on your premises and is injured you could be sued, or if you or your employees damage someone else’s property during your business you will be on the hook for the damages.
When it comes to operating a business, you want to make sure that you can be successful. Having the peace of mind knowing that if something unforeseen does happen is a great reason to have your insurance policies squared away before you officially launch. Some other reasons include:
Injuries – There are times where customers may be injured, employees may be injured, or even the postal delivery person can be injured. All of these scenarios can result in a lawsuit against your business. Be prepared by having the insurance in place so you can continue to focus on what you do best, running your new business. Also, if your business involves any kind of delivery or driving from job site to job site you will need auto insurance.
Defense Costs – With lawsuits also comes some major bills. After all, you will need a lawyer to defend yourself even if you did nothing wrong and are found liable. Additionally, there are court costs and other fees that can add up quickly. Defense costs can be covered under several different policies depending on the type of business you are operating and your unique situation.
Fire – Another reason to have insurance before you launch your new business venture is events that you cannot always prevent like fire, lightning, burst pipes, and other related events. If you own any kind of property, which you likely do even if it is simply business personal property, you will want coverage for these perils. You don’t want to be in a situation where you have to reach into the businesses profits to replace a building or the items in it or even simply fix a roof from wind damage.
Knowing what is enough insurance before launching your new business is like having a crystal ball. It is impossible to know whether or not just General Liability will be enough. A small business like a website developer that is working from home might be able to get away with just General Liability unless of course, he codes something wrong in which case he would need Professional Liability. The smallest act can cause a huge exposure to liability depending on your operations. Likely, General Liability insurance is not going to be enough insurance coverage for any kind of business before launch, but it is definitely a good starting point when putting together your insurance portfolio.
The best types of insurance policies for your business are going to depend on your operations. For example, someone in the foodservice industry is going to want to invest in Food Contamination coverage while a retail store will not. There are some standard insurance policies that every business should consider.
Commercial Property – In the case of fire, wind, theft, vandalism, lightning, etc. you are going to want to make sure you have Commercial Property insurance coverage. Commercial Property insurance will pay to repair or replace your owned property, such as a building or business personal property (chairs, desks, retail inventory, etc.).
BOP – If your new business is a small business like a retail store or barbershop you can purchase a BOP, or Business owner’s policy, that will bundle together General Liability and Property coverage. This usually saves the business money by combining the two coverages into a package and has a lot of built-in coverages that can come in handy. One of those great extra coverages is Business Income or Business Interruption. Let’s say your building is damaged by fire just enough to where you have to close for some time. You will still have to pay your vendors, mortgage company, landlord, and employees. Business Income coverage will pay for your lost income during the time it takes to get your business back up and running so that you can continue to run your business and bring in that much-needed money.
Cyber Liability – Oh, the lovely world of technology. You probably use a computer in the course of your business and most likely store customer information on it. You most likely even take some sort of online payments, whether on the computer, website, or phone. You also probably have a website or even a mobile app. All of these things are a risk when it comes to hackers and viruses. Data breaches happen more often than we like to think about, so having Cyber Liability insurance is a must in today’s business environment. You will have coverage for lost data, customer notification, damage to your hardware or software, and public relations expenses. Keep in mind that these policies do vary from insurance company to insurance company so make sure you read your policy thoroughly.
Commercial Auto – Your business may own autos, use autos for the business, or have employees use their own autos during work hours. If any of these scenarios apply to you, then you will need Commercial Auto insurance. The moment an auto is used for business purposes, it is excluded from a Personal Auto insurance policy. Make sure your auto liability as a business is protected.
And if you have employees:
Workers Compensation – A must-have when you start hiring employees is Workers Compensation. Not only will your state most likely require it, as a responsible business owner you should have it anyway. Employees will want to have the peace of mind knowing that if they become sick or injured due to a work-related event, they will have coverage for both their medical bills and lost wages. After all, like you, they need to pay their bills. Plus, if you have Workers Compensation coverage it will reduce the likelihood that an employee will sue you for negligence. If they do, you will have Employers’ Liability coverage available but being able to help the employee with their lost wages and medical expenses immediately usually deter them from doing so, as they usually want to get back to work as quickly as possible.
Employment Practices Liability – Did you know that even if you operate a business in an at-will state there are still times when an employee can sue you for wrongful termination? If there is any kind of discrimination, sexual harassment, wage and hour disputes, or any other situation where the employee feels they were wronged they can bring a lawsuit against you. It can be something like not having proper ADA compliant entrances for employees who may be disabled, or not hiring someone because they are pregnant.
As your business grows, your insurance needs will also. You may hire more employees, open a second location, build on to the existing location, purchase more vehicles, or even change your operations. All of these things are amazing as an entrepreneur, but be aware that it also increases your liability and risk for a claim. You should always review your insurance policies as your business grows and changes to make sure you continue to be adequately covered. Making a profit is great as long as an untoward incident doesn’t occur and you find out you don’t have the proper insurance protection.
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