Starting and operating your own business is exciting, but it also carries certain risks. When things are running smoothly, that’s great, but what happens when things go awry? Do you have a plan in place to protect your business and yourself?

Types of Insurance

Understanding business insurance coverages is vital to protecting your business from unexpected financial losses. Partnering with a knowledgeable financial advisor can provide invaluable guidance, helping you choose suitable insurance options. Plus, an advisor can help align your coverage with your business goals and financial strategies, ensuring you’re well-protected. 

Ready to better guard your business against setbacks, lawsuits, and natural disasters? This guide spotlights various business insurance coverages every entrepreneur should consider and why they are important.

General Liability Insurance

Sometimes called commercial liability insurance or business liability insurance, general liability insurance protects you against third-party claims for bodily injury, property damage, or personal injury. For example, if a customer slips and falls on your premises, general liability insurance can cover their medical expenses and your legal fees if they sue.

A single slip and fall incident can easily set you back $50,000, and with increasing costs of litigation, possibly a lot more. Considering this type of insurance usually runs less than $100/month, it can more than pay for itself with one claim.

Commercial Property Insurance

Commercial property insurance protects your business property, including buildings, equipment, and inventory, from risks such as fire, theft, and natural disasters. Depending on the level of coverage you choose, you can also get paid out for other scenarios like damage from leaky appliances, flood damage, employee theft, damage to property in transit, and more. 

In 2023, insured losses for natural disasters worldwide hit $118 billion. Add in the increasing cost of replacement materials, and having a commercial property insurance policy in place is essential for safeguarding your business assets.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions insurance, is vital for businesses that offer professional services. This insurance policy provides protection against claims of negligence, mistakes, or inadequate work. For example, an HR consultant could be sued for recommending a poorly performing employee, an accountant could be sued for missing an important deadline, or a marketing firm could be sued for services that didn’t meet the client's expectations. 

Even if you are not found liable for a claim issued against you, attorney fees and court-related costs can be significant. For instance, in the top five industries for lawyers, the average hourly fee ranges from $134.48 to $151.44. With many court cases stretching out for months or years, the role of professional liability insurance is crucial in safeguarding your business.

Business Interruption Insurance

Business interruption insurance covers lost income and operating expenses when your business is temporarily unable to operate due to a covered event, such as a natural disaster or fire. For example, if a tree fell on your building, business interruption insurance would help you cover payroll, lease payments, and missed revenue. This type of insurance is essential for maintaining financial stability during unexpected disruptions. 

Despite being the biggest risk facing companies for three consecutive years, only 40% of small enterprises have taken out business interruption coverage. Given the significant impact of supply chain disruptions, having business interruption insurance can be a lifeline for keeping your business afloat during challenging times.

Commercial Auto Insurance

Similar to personal auto insurance, commercial auto insurance helps protect your business against accidents and liabilities on the road. This insurance covers property damage, bodily injury from vehicle accidents, and damage to your business vehicles. You can also get optional coverages for roadside assistance, towing, damage of equipment during transport, and more. 

With more than 6 million vehicle accidents every year and 72% of them resulting in property damage, the odds of one of your commercial vehicles being involved in a costly crash are high. Having adequate commercial auto insurance can protect your business from the financial consequences of auto accidents.

Workers’ Compensation Insurance

Workers’ compensation insurance is mandatory in 49 out of 50 states and covers medical expenses and lost wages for employees who suffer work-related injuries or illnesses. This insurance is vital for protecting your business from costly claims and ensuring the well-being of your employees. 

According to NCCI data, motor-vehicle crashes resulted in the most costly workers’ compensation claims, averaging over $89,000 per claim. With workers' compensation insurance, you can protect your business from the high costs associated with workplace injuries and provide necessary support to your employees. Make sure to check your state laws to see if you need to provide insurance through a state fund or choose your own insurance company.

Cyber Insurance

With the increasing frequency of data breaches and cyber-attacks, cyber insurance has become essential for businesses of all sizes. This insurance covers the costs associated with data breaches, including notification expenses, legal fees, and loss of income. IBM’s Annual Data Breach Report shows that in 2023, the average data breach cost climbed to $4.45 million, emphasizing the critical need for cyber insurance. By investing in this coverage, you can protect your business from the severe financial impact of cyber incidents.

Product Liability Insurance

Product liability insurance is crucial for businesses that manufacture, distribute, or sell products. This coverage protects against claims of injury or damage caused by defective products. For instance, if your company sells dog food that ends up causing several pets to get ill, product liability insurance would pay for legal fees and settlements. You may also want to consider separate product recall insurance, which covers the costs of recalling defective products from the market.

Even though data suggests that defendants win the majority of product liability cases, the litigation involved can be costly, and the claim can negatively impact trust in your business. 

Ensuring that your business has product liability insurance can safeguard against significant financial losses and maintain your reputation in the market.

Finding the Right Fit

While we’ve already covered the most common types of insurance policies businesses find beneficial, this is not a comprehensive list. Depending on the size of your business, your industry, and your needs, there may be other types of insurance that can be a good fit, including

• Home-based business insurance

• Business owner’s policy

• Umbrella insurance

• Business life insurance

• Kidnap and ransom coverage

• Inland marine coverage 

• Builder’s risk insurance

• And more

There are hundreds of insurance types, policies, and endorsements. Consider working with a financial advisor who can help you select the right policies and the right coverage amounts to ensure your business is well-protected.

Why You Need a Financial Advisor for Business Insurance

Not having the correct insurance can expose your business to costly litigation and other financial setbacks. Certain types of insurance may even be required by your state for licensure, by your landlord for leasing, or by your vendors for maintaining a business relationship. Whether you have a small business or a large business, obtaining insurance is crucial, but what type of insurance do you need?

Finding the right business insurance can feel overwhelming, and you’re not alone. According to a survey by NEXT Insurance, 90% of small business owners aren’t fully confident they have enough coverage, and 53% say their biggest hurdle is simply figuring out what kind of insurance they need.

This is where a financial advisor comes in. Like your insurance GPS, an advisor can help you understand exactly what coverage your business needs. They’ll align your insurance with your business goals and financial plans, ensuring you’re not over- or under-insured. With their help, you can feel more at ease knowing your business is protected against the unexpected and set up for long-term success. So, consider teaming up with one—they’re not just for big corporations but also a valuable ally for small businesses.

The Aligned Perspective: Understanding Business Insurance

Investing in the right insurance policies is key to protecting your business from the risks and financial setbacks of being uninsured. Understanding the different policies can help you make better-informed decisions to protect your business. Don’t forget that a financial advisor can offer valuable insights and guidance, making it easier to cut through the complexities of choosing the right insurance policy. Insurance isn’t one size fits all; you need a personalized strategy to properly safeguard your business and your future.