When you’re starting your new small business, you need to set up protections for yourself and your stakeholders. You don’t want to leave yourself vulnerable to losing everything in the event you get sued, hacked or threatened.
That’s why every small business and startup owner should always take out a diverse range of business liability insurance policies. With the right policies, you’ll be protected if an accident or a crime occurs on company property.
Curious to know which policies of liability insurance for small businesses provide the most protection? Here are the top six.
1. General liability insurance
General liability insurance is an important type of coverage that every business or startup should get. It protects you in the event that your business causes bodily injury or property damages to another person.
For example, if you own a store and a customer comes in, trips on something and gets hurt, general liability will protect you from being sued as well as help you cover the injured person’s medical bills.
2. Errors and omissions insurance (E&O)
Errors and omissions insurance (E&O) is often called professional liability insurance, but they are one and the same.
It protects you in case your company makes a mistake while providing professional services, and by doing so, causes harm to someone else. If that person sues your company, E&O will help cover court costs and settlements.
To help you see how invaluable E&O coverage is, imagine that you own a small business that provides software tech support for another company. During a support session, one of your team members inadvertently lets a virus enter the other company’s network.
The virus causes their system to go down and compromises their customers’ personal data, resulting in them losing thousands of dollars. When the dust clears, they decide to sue your business.
E&O insurance will cover most if not all your legal expenses, thus ensuring you don’t go under for this error.
3. Directors and officers insurance (D&O)
Another type of coverage that is in the same vein as E&O is directors and officers (D&O) insurance. This policy will protect the personal assets of the corporate directors and officers in your company — as well their spouses — in case they are sued by someone for (allegedly) committing wrongful acts.
If your business has a corporate board or a committee of advisors, you’ll want this coverage. It will cover them as well as your company in case any of them are ever accused of wrongdoing such as fraud, misuse of company funds, or failure to comply with the laws that govern and protect the workplace.
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4. Workers’ compensation insurance
Workers’ compensation is a critical form of business liability insurance to obtain if you have employees, which most businesses do. If any of your employees get injured or sick while working on the job, you’ll be responsible for covering their medical expenses.
Workers’ compensation will help you cover those costs. In most states, workers’ compensation insurance is required based on your number of W-2 employees, and that number of employees can be as few as one, such as in California.
5. Employment practices liability insurance (EPLI)
Employment practices liability insurance (EPLI) is extremely important if you have a staff of employees working for you. For example, if any of your employees ever claims that they have suffered discrimination, sexual harassment or wrongful termination while working at your company, EPLI will cover your legal expenses when they sue you.
6. Cyber liability insurance
Cyber liability insurance is essential for businesses and startups in the 21st century. In this digital age, every business is connected to the internet, which makes them vulnerable to cyberattacks such as data breaches, impersonation, system security failure and forgery.
These attacks, which are often carried out by a hacker in a different state or even a different country, are usually designed to give the hacker access to sensitive data, like names, addresses and bank account numbers.
If this or any other important information is compromised, your business could lose hundreds of thousands, if not millions of dollars. You may think that it would be wiser to invest all your budget into a stronger cyber security system rather than allocate a portion of it to an insurance policy.
The problem with this line of logic is that even the most robust security systems can be hacked. When and if they are, your cyber liability policy will help cover your losses and help you keep your business afloat.
Am I legally required to get liability insurance for a small business?
Most states in the U.S. require small businesses to obtain at least some type of general liability insurance. The federal government, meanwhile, has mandated that all businesses with employees in the U.S. must have workers’ compensation, along with unemployment and disability insurance policies.
If you’re unsure, it’s always best to look up the law for insurance in your state. But even if you aren’t required to take out all the top six business liability insurance policies on our list, we recommend you look into them for your own safety and security.
Conclusion
Convinced you need to further investigate insurance coverage for your business? To simplify the process, consider talking to an experienced professional who can gauge your risk and recommend the best coverage.
Want more? In addition to business insurance expertise, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting and payroll) and FinOps (accounting, bookkeeping and CFO services). Talk to an expert today.
