Small businesses are required to carry certain types of insurance policies, but the details depend on the industry and the size of the business.
The cost of each insurance policy will vary. You’ll get a general idea of what you’ll pay for each type of policy by researching online, but it’s best to get business insurance quotes directly.
Generally speaking, most small businesses carry the following 6 policies:
1. Workers’ compensation insurance – required for most businesses
Workers’ compensation insurance will pay injured workers regardless of who is at fault for their injury. This particular type of insurance was created to reduce the number of lawsuits filed by injured employees. The result is generally the same – the injured employee is awarded financial compensation to cover medical bills and a portion of lost wages.
2. Unemployment insurance – required with limited exceptions for non-profits
Unemployment insurance is paid directly to the federal and state governments and allows your employees to receive unemployment benefits if they meet certain requirements. Non-profits are usually exempt.
3. Disability insurance – required only in some states
Offering disability insurance to employees makes it possible for them to recover between 60-80% of their wages if they become too disabled or ill to work. Disability insurance is important because it covers disabilities that aren’t work-related.
As of February 2021, only five states require businesses to provide short-term disability insurance (STDI) to their employees (New York, California, Hawaii, New Jersey, and Rhode Island).
However, many businesses offer STDI and even offer long-term disability insurance (LTDI) to stay competitive.
4. General liability insurance
General liability insurance isn’t required, but it’s one of the most important policies you’ll ever have. This insurance covers:
- Injuries sustained by customers on the property
- Property damage (including damage to other people or businesses caused by your employees while working)
- Advertising injuries like misappropriation, slander, and libel
The cost of general liability insurance varies per industry. You can expect to pay more if you’re in a dangerous industry like construction.
5. Commercial property insurance
Remote companies won’t need this type of insurance. However, if you have an office, a warehouse, or storage space, it’s a good idea to have commercial property insurance.
This insurance policy protects your inventory, equipment, and machinery against damages or loss. Covered causes include theft, vandalism, fires, and select weather-related damages. As long as you’re not in a flood zone, you can get a policy that covers flood damage and other water-related damages.
Unfortunately, you probably won’t find a policy that covers earthquake and hurricane damage.
6. Professional liability insurance
Professional liability insurance is also known as malpractice insurance. However, it’s not just for doctors and lawyers. This insurance policy covers errors and omissions, which can be a real problem in almost any industry.
For example, if you’re running a web development business and your developer fails to complete a JavaScript module on time for the official launch, the client might lose tens of thousands of dollars.
If you promised them a completed website by that launch date, they can sue you for damages equal to their lost sales. That’s exactly what happened to Accenture when the company was sued by Hertz for failing to deliver a functioning website on time.
If you have professional liability insurance, your policy will cover this type of situation.
Other types of insurance to consider
- Healthcare. The mandate for health insurance could resurface under a Biden administration, so you may want to consider offering health insurance to stay competitive.
- Flood insurance. If your area is prone to hurricanes, you should consider getting flood insurance. Just be prepared to pay a high premium.
What you need and what’s required can be two different things
Based on state and local laws, there will always be insurance policies you aren’t required to carry, but that doesn’t mean you don’t need them. What you need and what the law requires can be two very different things.
For example, if you want to avoid getting sued by an injured employee, you need workers’ compensation insurance.
Don’t base your decision to avoid purchasing a policy on the law. Laws are often contradictory. For instance, in Alabama, businesses are not required to carry workers’ compensation insurance coverage for farm laborers. However, in Arkansas, businesses are required to carry coverage for agricultural farm laborers. The risk of injury to farm laborers is the same in both states.
Always get the policies you need
Although it’s best to consult a professional before buying any policy, there’s a simple approach you can take. First, meet your legal obligations. Then, fill in the gaps with the policies you need to be competitive in your industry.
The goal of the CompleteMarkets editor is to bring valuable content to the CompleteMarkets members. Providing content to insurance professionals to enhance their sales process, increase revenue streams, understand their clients and provide value to their agency.