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Small business insurance is a must for every business owner to protect himself and his business from bankruptcy. Here, we’ll be discussing all the insurance types your business might need, so you can find the best one.
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What is a small business and how to insure it?

A small business is legally defined in the US as a privately owned corporation, partnership or sole proprietorship that has less than a specified number of employees and annual revenue. These limits are set by the U.S. Small Business Administration (SBA).

Depending on the industry, there are different definitions of a small business. In some cases, the size will depend on the number of employees, while in other cases, it will depend on the revenue.

For example, in the manufacturing and mining industry, you currently need to have fewer than 500 employees to qualify as a small business. If you are involved in general and heavy construction, your revenue cannot exceed $28.5 million.

In general terms according to SBA, a small business is any erterprise that does not exceed $7.5 million in annual revenue or has less than 500 employees.

Small business insurance in the USA is any insurance that covers your business for monetary losses that result from your conduct of business.

Regardless of your industry, there are risks involved in running a business. Risks of accidents resulting in bodily injury, property damage, negligence, errors, omissions, and more. Based on the type and size of business you are running, you should choose suitable and adequate cover.

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Examples of small businesses

In the USA there are around 30 million registered small businesses.

Some of the most popular small businesses at the moment are Technical Services; Construction; Real Estate, Rental and Leasing; Retail Trade; Health Care and Social Assistance; Waste Management; Transportation and Warehousing; Arts, Entertainment and Recreation; Accommodation and Food Services; Educational Services; Personal and Sports Training, Web Design; Auto Repairs; Pet Sitters and Handlers; and Photographers.

 

Whatever kind of business you are running, you need to consider some type of insurance.

Types of Small Business Insurance

Let’s explain what types of small business insurance exist in the USA and what they are covering, so you can find which suits your business the most.

General Liability Insurance for Small Businesses

General liability insurance helps protect you and your business from claims in case there’s some accidental bodily injury or property damage to someone or to some thing, and you are sued for compensation.

This insurance may also go under different titles, such as commercial liability insurance or business liability insurance.

It covers you in case a court decides you were in some way responsible for injury or damage and awards the other party compensatory or punitive damages. It also covers you for legal costs associated with the case.

If your business deals with the general public, you need to protect yourself from claims that might arise out of your work. People are growing increasingly litigious, which means they don’t hesitate to file a claim if there’s the least chance that they may win, and there are plenty of lawyers willing to take on such cases in the hope that a judge will award damages against you. Having insurance means that you are protected, whichever way the case goes.

General liability insurance may not be legally required, but in certain industries, like construction and health care it may be a state requirement. In some cases, it may be demanded by your landlord or clients. That is why it’s always better to have it.

Professional liability insurance for small business

Professional liability insurance covers your business from monetary claims that result from negligence, errors, and omissions in your conduct of business.

In some industries or states, this is known as Errors & Omissions insurance or Malpractice insurance. This type of insurance is suitable for any business that is providing professional and skilled services to clients.

Professional liability insurance protects your small business from being sued for financial damage that you may have caused to clients in the normal conduct of your business, not from accidents, for which you need general liability insurance. Typically, professional liability insurance policies for small businesses in the USA include cover for:

 

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Work mistakes and oversights

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Undelivered services

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Missed deadlines

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Claims of negligence

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Breach of contract.

Depending on the profession, some states might require you to have this type of insurance. If you are a health worker, the law requires this insurance in 29 states. In others, it is strongly recommended to have it.

When you are applying for a license to conduct some types of business, the state government can require this kind of insurance. Also, your clients can ask you to have an insurance certificate. In any case, required or not, it is good to have this type of insurance and protect your small business at all times.

Employment Practices Liability Insurance for small business

Any business that has employees is at risk of being sued by them and should take out Employment Practices Liability Insurance (EPLI). There are many reasons for the lawsuit – claims of wrongful termination, discrimination, sexual harassment, or some other violation of employees’ rights.

 

For business owners to protect themselves from expensive claims and to cover the costs of court cases, they should have EPLI insurance. In some states, small businesses have had to pay as much as $160,000 for lawsuits brought by employees.

 

EPLI insurance usually gives the business a claims-made policy. This means in practice that insurance will only cover the costs of claims made while the policy is active.

If a claim was made before or after the policy is canceled or expired, the insurance company will decline the claim.

 

Usually, EPLI insurance coverage includes:

Privacy invasion
Breach of a contract
Discrimination
Sexual harassment
Wrongful discipline
Wrongful termination
Mismanagement
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Sometimes, small businesses can choose to bundle two types of insurances into one and get a larger coverage for a lower cost. In this case, a small business could combine the EPLI insurance with the Directors & Officers (D&O) insurance.

D&O insurance protects all the decision-makers in the company. In practice, this is usually related to hiring and firing employees, and money management. If these decisions lead to financial loss, the decisions makers will be covered.

Therefore, small business owners should consider combining these two insurances into one and getting a policy that covers more situations.

Workers’ Compensation Insurance for Small business

Workers’ compensation insurance covers employees in case of work-related injury or illness. The costs of workers’ medical expenses are covered, as well as most of their salary.

To be eligible to receive funds from workers’ comp insurance, the injury must be directly related to work.

The law regarding workers’ compensation insurance varies from state to state.

Texas is the only state where this type of insurance is optional. In all the other states it is mandatory, but the conditions vary when it comes to the number of employees, etc.

In many states, the penalties for not having this insurance for your small business are very high, and in some states, it is even considered a felony.

This type of insurance has two parts: employers’ liability and statutory workers’ compensation coverage. However, in some states, such as North Dakota, Ohio, and Washington, workers’ comp insurance does not include protection for business owners.

This type of insurance is usually purchased as a separate policy.

As mentioned, this insurance is mostly required by the state’s law, so you just need to find the best offer for your business.

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Commercial Auto Insurance

This type of insurance covers medical expenses, property damage costs, and legal defense if a vehicle owned by your company is involved in an accident. Depending on the type of your small business, you might have to have this type of insurance.

If, for example, you are a real estate worker, you need to visit many locations to show your clients’ real estate. And you will most likely have a company car. This type of insurance covers you in case you are involved in an accident.

In most states, the law requires this type of insurance. Virginia and New Hampshire are the only states where this insurance is not mandatory.

Depending on the insurance company, the policy might also include coverage for theft, vandalism, and other kinds of losses.

The important thing to know is that the insurance is related to the car itself, and the car has to be registered under the company name.

If the employee is driving a private car even for business purposes, this insurance does not cover any accidents.

 

You can add coverage for uninsured or underinsured motorists, which covers damage that another driver, who is not properly insured, caused to you. This will protect you in case you cannot get compensation from the other driver.

Health insurance for small business

If your business has at least 2 employees, including the owner, you qualify for small business health insurance.

To improve the job satisfaction and productivity of your employees, you should think about a group health insurance plan.

Small employers with up to 50 employees qualify for SHOP, Small Business Health Options Program. The company can enroll in a SHOP insurance plan through an insurance company or a registered SHOP agent or broker.

In the SHOP plan, you can include medical coverage, dental coverage, or both. You also can choose the most affordable plan for you.

You can decide how much of the employees’ coverage you want to cover yourself and whether to also insure part-time employees.

There are 4 plans that you can choose from

Bronze, Silver, Gold, and Platinum. The difference in these plans is not the quality of the service, but the price you are going to cover out of the total premium.

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BRONZE PLAN

In the Bronze plan, the employer is covering 60%, while the employee has to cover 40% of the policy cost

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SILVER PLAN

 Regarding the Silver plan, the costs are split 70% from the employer and 30% from the employee.

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GOLD PLAN

In the Gold plan, the scale is 80-20%.

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PLATINUM PLAN
In the Platinum plan, the employer is covering 90% of the policy cost, while the employee has to cover only 10%.

As well, you can choose only dental coverage from your SHOP insurance, or add it to your medical coverage. In any case, you will pay the percentage set for the plan.

If you have more than 50 employees, you qualify for large group coverage. Usually, the cost of the policy per person is lower when you are in this insurance category. As a user of a large group program, you also have access to a digital health program.

How much does small business insurance cost?

In the USA, the costs of small business insurance vary according to the different insurance types. Also, it depends on the industry, size of the business, the coverage you opt for, and the insurance company that you choose, along with the state where your business is registered.

The average price for general liability insurance for small businesses is around $45 per month or $520 per year.

For professional liability insurance, the average price for small businesses is about $40 per month or $450 per year.

EPLI insurance policy can cost between $750 to $3000 per year, depending on the number of employees and the industry type.

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Workers’ compensation insurance cost is based on a rate per $100 in payroll. For example, a rate of $1.25 means that a business with $100,000 in payroll would pay $1,250 annually in work comp premiums. A rate of $0.35 means that a business with the same payroll would pay $350 annually. It depends mostly on the number of employees and the rate charged by the insurance company involved.

Commercial auto insurance will cost on average $145 per month for $1 million of coverage. The cost can depend, besides the factors that were stated above, on the driving record of the driver, and the car type.

The health insurance plan, as already explained, depends on how much of the premium you want to cover yourself, and how much you want your employees to pay.

When choosing an insurance plan for your company, compare all the offers and choose the best coverage for the lowest cost.

How do you purchase an insurance policy for your small business?

The insurance policy can be purchased in several ways, depending on the type of insurance.

For standard policies such as general liability and professional liability, you can either go to the branch of an insurance company or broker, or make the purchase online.

If you decide to visit the branch, you might get a bit more information, but you will waste a lot of your time because you need to visit several branches until you find the best offer.

If you decide to make a purchase online, it will save you time, and probably money. Insurance companies usually offer benefits when you are signing a policy online.

On the other hand, health insurance, as a specific type, can be purchased either in the insurance company or through a SHOP broker or the agent.

As well, if you are a member of any organization related to your business, there is a possibility that you will be able to get a policy through the organization.

After you purchase the policy, you will get a certificate that proves that you have the specified insurance.

Conclusion about small business insurance

Whether you’re a new entrepreneur or you’ve been in the business for a long time, you need insurance. As you read through this article, you will have seen that many accidents and mistakes can occur while conducting a business.

For you not to have to pay a fortune and risk bankruptcy, you need to think ahead of time. Based on the business you are running, and the size of your company, you should choose the appropriate insurance types and levels.

Make sure that whatever you choose, you are fully protected. Always choose the plan with the highest level of coverage and the lowest costs.

 

To end, here is an article that can guide you through starting or improving your small business. 

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