Starting a new business is a time of excitement and discovery. You’ll be learning new things every day, meeting new people, and tackling projects you’ve never attempted before. The last thing you need is another source of stress.
Thankfully, there are insurance options out there that can help reduce some of the risks associated with starting your own business. However, with so many choices on the market, picking the right business insurance policy for your specific needs can be tricky. Every business has specific needs and will require insurance over multiple aspects of its operations.
Whether you need basic property insurance or are looking for the best cyber insurance companies, let’s look at a brief overview of what business insurance is and which types are best for small businesses just starting out.
How Does Business Insurance Work?
Business insurance has many similarities with other kinds of insurance. The main idea is that insurers collect small amounts of money, called a “premium,” from a huge number of customers monthly. This money is pooled together. If one of the customers files an insurance claim, the insurance covers the costs incurred.
So let’s use car insurance as an example. If you get into an accident and total your car, your insurance will cover the damages and costs to the extent that your policy allows. The insurer draws from that huge pool of money to pay for it, counting on the law of large numbers. It’s not likely that every customer is going to total their car on the same day, so there’s always enough in the pool to cover everyone.
How much each person pays per month is based on the individual’s risk factors and the type of insurance they need. For example, if you have a history of speeding tickets and collisions, you’re considered a higher risk, and you can expect to pay a higher premium for your insurance.
If you’re running a business involving many private customer data, you’ll want to look for cyber insurance companies. In the event of a data breach or hack, your cyber insurance will cover your liability for vulnerable customer data, disruptions, and loss of business. Academic institutions, health care, and public sectors carry the highest risk of losses and therefore pay higher premiums on cyber insurance.
What Is Business Insurance?
Business Insurance is a risk management tool used to protect your business from certain types of loss. For example, it can cover damage to property, legal claims, or losses related to lost revenue. Business insurance policies are meant to be customized to your company’s specific needs and risk factors.
There are two main types of business insurance policies that other types of coverage fall under:
- Property/Liability Insurance
Property/Liability Insurance policies are designed to protect your company’s assets in the event of a covered loss such as vandalism, theft, or fire.
- Professional Liability Insurance
Professional Liability Insurance (also known as Errors & Omissions Insurance) policies protect your business if you’re sued for malpractice or negligence.
Types of Business Insurance
Umbrella and Excess Liability Insurance
This type of coverage kicks in once your standard liability coverage is maxed out. If a lawsuit is filed against you and you win, your liability insurance will pay for your legal defense. It can also cover the settlements or judgments awarded to the other party if you lose. This policy is especially helpful for businesses with high commercial liability limits.
Commercial Liability Insurance
This type of policy covers any legal claims related to bodily injury or property damage caused by your products or services. It also covers your business from claims related to false advertising, copyright infringement, or product defects. This policy is useful for businesses that provide auto repair, home repair, or construction services.
Employment Practices Liability Insurance
This policy is designed to protect your business against legal claims related to employment practices, such as discrimination or wrongful termination.
Cyber insurance helps protect your business against legal claims related to data loss, data breaches, or cyber-attacks. If your business offers information services or stores large amounts of private customer data, you need this type of policy.
Commercial Auto Insurance
If your company relies on vehicles to transport materials or people, you’ll need commercial auto insurance. It can also be helpful for companies that transport large amounts of inventory or have high-value assets that need extra protection.
Insuring Your Bottom line
Business insurance can help protect your company against a wide range of potential losses, from natural disasters to false advertising claims. It’s important to choose the right types of coverage for your individual needs, as well as determine the appropriate amount of coverage. With the right business insurance policies in place, you can focus on growing your business without having to worry about whether you’re adequately protected.
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