business insurance

By Rieva Lesonsky

Do you have insurance for your small business? If not, you’re not alone. Fewer than three in 10 small business owners in a recent survey by Manta and Insureon have a business owner’s policy, the basic business insurance that covers general liability insurance and commercial property insurance to protect you from loss. Even fewer (21%) have Errors & Omissions (E&O) or professional liability insurance, 17% have workers compensation insurance, 6% have business interruption insurance, and only 2% have cyber insurance.

Of course, when you’re starting a small business — and even as your business grows — there are plenty of other urgent needs competing for your dollars besides business insurance. For many small business owners, purchasing insurance can seem like an unnecessary luxury. They’d rather roll the dice and hope nothing bad ever happens to their business than commit to monthly or annual premiums.

There are lots of reasons why taking a chance with business insurance is a big mistake. The increasing frequency of severe weather events like floods and wildfires is putting more businesses at risk of damage to their property or equipment. No matter where you’re located, the risk of a burglary or break-in is real. Can you afford to pay for replacing stolen computers or expensive equipment in case of theft? What would happen if a lawsuit hit your business?

To make sure you aren’t taking foolish chances with insurance, here’s a quick rundown of the business insurance basics you should know.

Business owner’s policy (BOP)

The starting point for business insurance, this typically covers two of the biggest risks for entrepreneurs: general liability and commercial property. General liability insurance can protect you from lawsuits if a customer slips and falls in your store or if you cause damage to a customers’ property, among other things. Commercial property insurance generally covers loss or damage to your business’s property as a result of things like a fire that burns down your building or a burglary that picks your office clean.

Business interruption insurance

If property damage that’s covered by your BOP keeps you from operating your business, you’ve not only lost your property, but you’re also losing income. That’s when business interruption insurance can be a lifesaver. Business interruption insurance can help replace lost income during the time you can’t run your business as usual. For example, if a business in Southern California was damaged by the recent wildfires, business interruption insurance could help the company stay on its feet during the rebuilding process.

Errors & Omissions

Also called professional liability insurance, this type of insurance is most often used by professional service businesses. It helps protect against lawsuits caused by errors or negligence on the part of your company. For example, suppose you’re an accountant and you make a math error on one of your client’s tax returns that causes them to underpay taxes and a huge fine to the IRS. E&O insurance will help cover your costs if that client sues you for the error. Even if you haven’t made a mistake, when you’re hit by a lawsuit you’ll have to defend yourself, which means attorney and court costs, at minimum. In addition, some clients will actually require you to have this type of insurance before they’ll sign a contract with you.

Cyber insurance

You don’t need me to tell you that the risk of a cyber attack on your small business is real, and rising. Even big companies fall prey to cybercrime, and small businesses are much more vulnerable because they don’t have huge IT teams and massive budgets to protect them. But you could face a massive loss: The average cost of a small business cyber breach is more than $86,000, according to a study by Kaspersky. Cyber insurance can protect your business if you suffer a cyber attack or data breach. It can also protect you against lawsuits by customers, vendors or others as a result of the attack — for example, if your e-commerce customers’ credit card data is stolen and one of them sues you.

These aren’t the only types of business insurance available. Key man insurance, commercial vehicle insurance and workers compensation insurance can all be equally important, depending on your business. The only way to know is to talk to an insurance agent.

To get the widest array of options, talk to an independent insurance agent who represents many different insurance companies. They can compare policies, coverage and costs across different providers to give you the best value for your business. Ask professionals such as your banker, accountant or other business owners in your area for recommendations to a good insurance agent.

Being a small business owner is risky enough. Don’t make it riskier than it has to be by foregoing business insurance.