Retail Store Insurance – cost and types of policies
Full retail store insurance is one of the most important and first steps that a proper management will take, even before opening its doors to business.
A retail store carries many special risks that expose the owners of the store to multiple losses that only insurance can cover.
In this post, we will outline what most of the important risks are, and how to ensure that you have the correct, and adequate, insurance so that you personally are not exposed.
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A short primer on retail
In the most general sense, retail activity involves selling goods to customers through direct contact inside a physical store.
It is possibly the oldest occupation in the world, given the evidence of markets stretching all the way back to biblical times.
Everything from global retailing giants down to small local corner stores all play their role as retailers.
They may take different forms, like shopfronts on the street through to massive stores in large, high-traffic malls.
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The essential feature of retailing, that now distinguishes it from all other vending businesses like internet marketing, is the ‘customer-facing’ facet of the business, but behind-the-counter there are also essential operations that need to perform important marketing and administrative duties.
Although individual retail stores may have particular characteristics, it’s possible to break the whole retail sector down into five specific areas, in which the different stores are competing.
- Food and beverages – supermarkets, liquor stores, fruit & vegetable grocers and specialty food stores
- Specialty retailing that concentrates on narrow sectors, like florists, jewellers
- Apparel stores, usually targeting specific sectors like babywear, kids, women’s and men’s clothing
- Newsagents and bookstores
- Work, home, and lifestyle stores selling entertainment, communication, and technology goods
- Sport, recreation, and leisure stores
- Home living and homeware, trade, and gardening stores.
- General retail, including department stores and clothing retailers
Retail store insurance requirements
No matter what kind of trade a retail store does, whether it’s jewelry or clothing for women, toys for kids, men’s apparel, furniture or any other, all retailers share certain common characteristics that dictate the kinds of insurance that they need.
These characteristics are:
- Public access to the shop premises
- Responsibility for services provided
- Investment in premises
- Investment in inventory
- Dependence on trade continuity
- Movement of goods
- Data security
We will outline below what specific risks there are that relate to each one of these aspects, and also what we recommend is the proper way to protect yourself against the possible outcomes.
The moment a customer steps into your store, you are responsible for their safety.
There is a significant risk of liability in any business activity in case of injury or damage to third parties like the customer standing across from you at the counter, or browsing through your racks.
Therefore businesses of all sizes need some form of general liability insurance.
General liability insurance is the most fundamental and necessary type of cover for any business that deals in any way with the public.
It safeguards your business should you find yourself faced with a claim from a person that something happened to them in your store and they suffered some kind of injury or loss.
Claims like this can arise from an accident, like the customer tripping over a box accidentally left in an aisle, or one of your employees up on a ladder to reach a high shelf drops a heavy item onto a customer passing underneath.
Public liability insurance covers you for a wide range of possible damages or injuries caused to third parties stemming from your business activities.
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It’s important to understand that there’s no limit for the amount you can be sued for.
In California, the state doesn’t cap liability – whatever the court decides is your responsibility.
So you need to protect your business and yourself from potentially unlimited liability claims.
Responsibility for goods and services
Whatever goods you sell, or advice you give about the goods, you are running a risk that customers may claim that the goods did not meet your description of function, or that your advice was basically incorrect.
In the first case, if the goods did not work as you described, and if they do not have their own disclaimer of liability, then you may be held responsible for any loss sustained.
To cover yourself, you need Product Liability insurance.
In the second case, if the customer consulted with you before making a choice, and the advice you gave was incorrect, then to cover yourself against any possible lawsuit, you need Professional Liability insurance.
Liability Insurance doesn’t only cover you if you lose!
Coming to court to defend yourself in a liability case is not just a matter of winning.
In the run-up to the case, you will need to undertake substantial outlays for legal representation, may be for investigators to uncover all of the facts behind the claim, and much more.
Even if you win the case, you could find yourself left with a substantial bill for all of these activities.
Proper liability insurance will cover most if not all costs relating to any claim, regardless of the outcome.
By definition, a retail store requires some premises with public access, which means you either have to own, or to rent, some physical space.
In this, you may have a substantial capital investment if you own the premises, or have a big liability if there’s a mortgage.
If the premises are rented, then it will probably be a clause in the rental agreement that you are responsible for the premises and must carry insurance against damages from any source.
All physical locations should carry insurance cover for the value of the premises and contents against natural occurrences like fire and storms, and against man-made damages like theft and vandalism.
Typically, this would have to cover an unforeseen hazard, like a fire, water damage from floods or storms, roof damage from wind, lightning or hail storms, and all such natural occurrences.
As well, acts like vandalism that damage the store or break glass may need to be added as special clauses.
In areas of high risk, additional coverage may need to be taken for earthquakes and hurricanes or tornadoes.
Included in most commercial insurance policies is cover for the content of the premises, like computers, furniture and equipment, but it’s important to remember that for a retail store, this does not cover inventory, for which specific cover is necessary.
Stock and inventory is one of the most essential parts of retail business, and may be the single most important financial aspect of the business.
Many of the risks that are insured against for the premises also apply to inventory, like fire, water damage, storm damage, roof damage etc. Some other particular risks are theft, spoilage (especially in food and flower stores that are dependent on climate control).
A special type of cover takes the form of business crime insurance, to protect you in the event that the store is robbed.
As well as inventory taken, it will cover computers and equipment, to pay for replacements.
Business interruption insurance is usually a part of property insurance, but in the event of a fire or storm causing a total shut-down temporarily until all the repair to damage is complete, you need to replace the lost income so that you can meet ongoing expenses.
You are still responsible for your mortgage or rental payment, for the payroll and for all the other “fixed” expenses, and in the meantime, there’s no sales.
Business income coverage provides for events beyond your control such as fire, wind, hail, vandalism that cause direct physical loss or damage to your premises, inventory, or equipment.
Consequences of ‘catastrophes’ such as floods or earthquakes are not covered in a typical business interruption policy.
The following are typically covered under a business interruption insurance policy:
- Profits that would have been earned, based on recent history
- Operating expenses and other costs are still being incurred by the business
- Extra expenses for moving to and operating from a temporary location
- Expenses needed to continue operation while the property is being repaired.
Business income insurance covers your actual loss of business income from a forced suspension of your operations due to damage from a covered cause.
Some policies also offer cover for what are called “ancillary losses”, such as when your suppliers are unable to deliver materials or services to you because of a storm, or your customers are unable to accept delivery of your products or services.
Cyber and data security
If your business has joined the modern world, where digital information is the key to success, then you must fully protect all of the information regarding your transactions, as well as your customer records, your banking transactions, and anything else that could become a target for cyber theft.
Cyber insurance covers all the data stored throughout your store, as well as off-site such as backups in the bank vault, or on your work-related phone and home computer.
Commercial auto insurance
If part of your business is delivering goods bought by customers from your retail premises, like for example if you are a florist and are delivering bouquets of flowers to a wedding as presents on behalf of the customer, then you should make sure that you have proper insurance.
Commercial vehicle insurance is not the same as private auto insurance.
If you have been using your own auto for deliveries on behalf of the business then in all probability, you have been breaching the terms of your private auto insurance policy, which almost always excludes commercial activity.
If you are making use of third-party movers, like furniture removalists or couriers, then you should make sure that they have their own insurance that covers your risks, since the moment goods move out of your premises, your own business insurance cover ceases to protect you in case of fire, theft, loss and all the other dangers.
Workers Compensation Insurance
In most states, it is mandatory to have worker’s compensation insurance if a business has one or more employees.
Worker’s compensation insurance covers the business against any costs that arise if an employee experiences an injury or becomes sick as a result of work.
It’s essential to note that as far as requiring workers compensation insurance, in legal terms you may have workers for which you are liable, even if you don’t regard them as employees.
This is because most states treat an uninsured contractor or subcontractor, or a temporary staff member, exactly as an employee if they are injured while working for your company.
Currently, workers’ compensation legislation provides for specific benefits to any workers who suffer work-related illness or injury.
Even if your home state does not mandate it, you must consider worker’s compensation insurance, as it will protect you and your employees and lead to a healthy work environment.
Practically every business operating in the United States with employees must handle the potential problems of workers’ compensation.
What is the average retail store insurance cost?
While it’s not possible to give a specific retail store insurance price, since it depends very much on the type of business, there are some general guidelines.
Keep in mind that some kinds of businesses carry special levels of risk, and you should take extra care when negotiating your insurance policies to see that your particular kind of business is covered, and that the levels of cover are adequate.
Which stores need special cover?
Insurance companies will take care to cover only the risks that they can expect.
Some businesses have higher levels of risk, and the cover will either be more expensive, or may be totally excluded from standard cover.
Your type of business has a major impact on premiums.
High-risk industries pay higher premiums, while low-risk industries enjoy lower rates.
For example, a liquor store on the main street is exposed to more risk of customer injury, theft, and storm damage than a babywear shop in a major mall.
Gun shops and liquor stores also have high coverage costs because they usually have valuable inventory, as well as higher third-party liability.
What type of insurance covers inventory?
For most stores, inventory cover comes as a part of the property insurance policy.
It’s essential though to see that the level of cover matches your total investment in inventory.
It’s always a good idea to talk to a qualified broker, consultant or discuss it with your insurance company’s representative.
What does a commercial property insurance policy cover?
Commercial insurance covering real estate is a major, and perhaps even the most important, aspect of commercial property insurance.
Basically, it pays for losses and damages incurred to business property, whether leased or owned.
All the equipment in your office, such as computers, copiers, fax machines, air conditioners, and basic furniture like chairs, tables, reception couches, and so on, need to be covered against fire, storm damage, theft and vandalism.
When is a “shop” not a retail store?
Many businesses include the word “shop” in their description, but they don’t actually operate as retail shops.
Some typical examples of these are:
- mechanic shop
- tattoo shop
- coffee shop
- bike shop
- machine shop
- auto repair shop
- auto body shop
- body shop
- dram shop
- coffee shop
- repair shop
- motorcycle repair shop
- repair shop
- tire shop
These places of business mostly provide services to their customers, and will require different forms of insurance cover.
How do you determine the level of coverage you need?
Before signing for the policy, you have to decide the coverage limit you need.
Two factors that will determine the cost of commercial insurance are single occurrence limit and policy aggregate limit.
The single occurrence limit is the amount of money your insurance company will pay out per individual claim.
On the other hand, the aggregate limit is the maximum amount your insurance company will pay out for the entire insured period.
A typical example is for public liability insurance, where most small retail businesses take out $1 million single occurrence cover, with an annual aggregate of $2 million.
If more cover is required, these limits can be raised, and the premium is adjusted accordingly.
Your coverage needs will not be the same as other businesses, which is why it is best to speak to your insurance agent, broker or search on the internet for the best advice.
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