Business insurance protects you from the unexpected costs of running a business. Accidents, natural disasters, and lawsuits could put you out of business if you are not protected with the right insurance.
The protections you get from choosing a business structure like a limited liability company (LLC) or a corporation typically only protect your personal property from lawsuits (even that protection is limited) and your personal assets from being seized to satisfy business debts or obligations.
A business with a website may also gain significant protection from hiring a lawyer who is experienced in writing terms and conditions and privacy policies for websites—and structuring them on the site to maximize their enforceability. But an online business owner will still want to consider buying insurance to protect against consumer lawsuits filed in any state in which the business has customers—including claims related to data breaches; the collection and use of consumer personal information; e-mail and telephone marketing practices; website accessibility for handicapped persons; and ransomware, phishing, and other fraudulent schemes.
Laws vary from state to state but some states may require businesses with employees to have workers’ compensation, unemployment, and disability insurance. After you purchase insurance that is required by law, you can find insurance to cover any other business risk. As a general rule you should insure against potential losses that would threaten the survival of your business, or where it makes sense to offload the cost of the risk of a loss in exchange for the cost of the insurance premium.
Common Types of Business Insurance
Insurance policies vary in their coverage of losses but some common types of business insurance include:
• Commercial General Liability (CGL) Insurance—This coverage—protects against financial loss as the result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.
• Product Liability Insurance—For businesses that manufacture, wholesale, distribute, and retail products, this coverage protects against financial losses resulting from a defective product that causes personal injury or property damage.
• Professional Liability Insurance—For businesses that provide professional services—including accountants, attorneys, physicians, and wealth management and investment advisors—this coverage protects against financial loss due to malpractice, errors, and negligence.
• Commercial Property Insurance—For businesses with a significant amount of property and physical assets, this coverage protects the business against loss and damage to company property due to a wide variety of events such as fire, smoke, windstorms, hailstorms, civil disobedience, and vandalism.
• Home-Based Business Insurance—For businesses that are run out of the owner’s personal home, this coverage may be added to the homeowner’s insurance as a rider and can offer protection for a small amount of business equipment and liability coverage for persons who do not live in the home.
• Business Owner’s Insurance—A business owner’s insurance policy is a package that combines all of the typical insurance coverage options into one bundle. This is designed to simplify the insurance buying process and can save a small business owner money.
• Cyber Liability Insurance—Cyber liability insurance is designed to protect against losses related to a variety of events that may take place or originate in cyberspace (the internet and computer networks) such as data breaches, ransomware, phishing, and other fraudulent attacks on a business and its systems.
Four Steps for Buying Business Insurance
• Assess your risks. Think about what kind of accidents, natural disasters, or lawsuits could damage your business.
• Find a reputable insurance broker. An insurance broker can help you find insurance policies that match your business needs. And an insurance broker (as opposed to an insurance agent) is not limited to offering insurance policies (products) from one or a few insurance companies.
• Shop around. Coverage and pricing for similarly-named insurance policies can vary significantly. You should work with your insurance broker to compare coverages and rates.
• Reassess every year. Generally speaking, as your business grows and changes, so do the risks you want to protect against. For example, if your business acquires significant additional equipment, property, or technology systems (telephones, computers, etc.) you may want to consult with your insurance broker to ensure your business has adequate coverage.
In Texas, business insurance is crucial for protecting against unforeseen costs such as accidents, natural disasters, and lawsuits. While forming an LLC or corporation can shield personal assets from certain business liabilities, this protection is limited. Texas law mandates that businesses with employees carry workers’ compensation, unemployment, and disability insurance. Additional insurance types, while not legally required, are advisable to safeguard against risks that could threaten a business's survival. Common insurance types include Commercial General Liability (CGL), Product Liability, Professional Liability, Commercial Property, Home-Based Business, Business Owner’s, and Cyber Liability Insurance. Business owners should assess risks, consult with a reputable insurance broker, compare coverage and rates, and reassess insurance needs annually to ensure adequate protection as the business evolves. Online businesses should also consider legal guidance for website terms and conditions, privacy policies, and to mitigate risks associated with online consumer interactions.
