When considering insurance for your business, you must use the correct types of insurance protection coverage for your kind of business. There are many types of businesses, and there are many types of insurance.
Think about the type of work you do and the nature of risks your company faces most of the time. Could your business run into compensation rights from a dissatisfied client because they feel you have been careless or negligent? Is there the slightest chance that a person or staff could get injured and want compensation? Do you own buildings, equipment, or stocks? To decide what type of insurance packages fit your business, these are just some of the questions you’ll need to answer.
After answering these questions, your next task is to know what type of insurance provides the best coverage. This is where many business owners falter. But, not to worry. This article provides the things you need to know for you to identify the type of insurance for your business.
Three Main Types of Businesses.
First, it’s essential to bear in mind the type of business you run. This is because different business types will have different insurance requirements. Some would need insurance that protects their legal interests while others would need insurance that protects their rights to services or intellectual property. So, before you insure your business, you should know the type of insurance that is most suitable for your business. First, there are three major types of businesses:
Service Business: A service business is a type of business that doesn’t provide a tangible product (products that cannot be touched or not physical). This type of corporation offers skills, time, expertise, advice, and other similar products. Examples of service businesses are schools, auditing and accounting firms, banks and guidance and counseling firms.
Merchandising Business: A merchandising business is a type of business that buys a product (physical or tangible) at a bulk price and sells that same product at retail price. They’re also known as buy-and-sell businesses. This type of business sells a product without changing the brand or form of the product. Examples are stores, shopping malls, distributors, convenience stores, etc.
Manufacturing Business: A manufacturing business buys products in the form of raw materials to put them together to form new products. Hence, there’s a reproduction process of the purchased products. In this type of business, the combination of raw materials, labor, and overhead cost in its production process before the outcome products are then sold to wholesalers, retailers, and consumers. Examples are beverage factories and their likes.
Five Forms of Business Organization.
Just as business types, it is also crucial to know the form of business organization you’re running or are a part of. This way, you can protect your business and your shareholders legally under any difficult circumstances.
Sole Proprietorship: A sole proprietorship is a business owned by only an individual. It’s easy to establish and less costly to all other forms of ownership. The owner of the company encounters unlimited liabilities. This implies that the creditors of the business may seek after the personal assets of the owner. Small business entities mostly adopt this form of marketing.
Partnership: A partnership is a business owned by two or more persons who fund resources into the business entity. The partners share the profits of the company amongst themselves based on their agreements. There’s a general partnership where all partners have unlimited liabilities. On the other hand, there is also a limited partnership where creditors cannot seek after the personal assets of the limited partners.
Corporation: A corporation is a business structure that has a separate legal personality from its owners. Shares of stock represent ownership in a corporation. The owners, called stockholders, enjoy limited liability but, at the same time, have limited involvement in the company’s activities. Board of directors, an elected group from the stockholder, controls the actions of the corporation.
Limited liability company: Limited liability companies (LLCs) in the USA are combined forms of business that have features of both a partnership and a corporation. An LLC is not incorporated. Thus, it’s not a corporation, but owners have limited liability as in a corporation. An LLC may choose to be taxed as any of the above-stated forms of organization.
Cooperative: A cooperative is a business organization owned by a group of individuals and is operated for mutual benefit. These owners are called members. Unions may be incorporated or unincorporated.
18 Types of Business Insurance.
Now that the types of business and forms of organization are discussed, here are the common types of business insurance and why business owners may need them:
Public Liability Insurance: If your business is in constant contact with members of the public, whether it’s at your premises or somewhere else, public liability insurance is critical. It can protect you against compensation rights for injury or damage made by clients, consumers, suppliers, or other third parties. Most restaurants, shops, and builders use this type of insurance.
Professional Indemnity Insurance: When your business is a service business that gives advice or offers a professional service, or if you deal with client data or intellectual property, professional indemnity insurance is essential. If unfortunately, there’s a mistake in your work and it causes your client to lose money, which therefore results in the client’s decision to sue you, your professional indemnity insurance can cover the compensation claims and legal costs. The majority of the regulatory bodies have set this type of insurance as a requirement for their members.
Employers’ Liability Insurance: When your business employs staff, you’re legally required to have an employers’ liability insurance policy. This covers compensation claims made by any employee who suffered an injury, illness, or damage as a result of carrying out the job specification. There are several individual companies that are exempt from the legislation. That includes some businesses that have close family members as employees. If you want to check whether your business is exempt or not, you can do it through the Health and Safety Executive (HSE) guidelines.
Key Person Insurance: Key Person Insurance is a form of life insurance policy purchased for vital members of a business. Here’s how it works. Say you have an executive or individual employee whose death could cause severe damage to the business. A key-person insurance policy ensures that the company is compensated should those key persons die. Usually, it’s the company that pays for the insurance and the premiums. This type of insurance mostly suits businesses whose smooth running is dependent on specific people – people you could consider to be irreplaceable given little or no notice. For small companies, the insured is usually the owner or founder of the business. For sole proprietorships, where there are just the owner and no employees, the critical person insurance is not necessary.
Business Buildings Insurance: Either you work from home or have a different business space, such as a shop, office, business building, insurance should be noted as necessary. If you rent the area, make sure to do findings with your landlord to see what’s already covered.
Business Contents Insurance: You can also protect the contents of your business space, your business equipment, and tools. If these are damaged, destroyed, lost, or stolen, this insurance will pay the cost of replacements or repairs.
Stock Insurance: Businesses that hold stock, either on their premises or in a warehouse, usually obtain stock insurance to protect their merchandise. It guarantees that in the event of any theft, damage, or loss, the business owners wouldn’t have to bear the cost of replacing such stock.
Product Liability Insurance: Businesses are sued for several weird reasons nowadays and are losing money fast, so you can’t be too careful. One of the ways you can demonstrate your care and attention to detail is by getting product liability insurance if your business deals with products. If you unknowingly sell a faulty product to a customer who then suffers damage due to this product, product liability insurance covers you. Take note that you aren’t out of the woods even if you sell products you don’t manufacture because you can still be held liable for damages caused by such products.
Business Owner’s Policy (BOP): A business owner policy bundles all necessary coverage that a business owner would need. Many times, BOP’s include business interruption insurance, vehicle and property insurance, liability insurance, and crime insurance. Depending on your company’s specific needs, you can change what’s included in a BOP. Usually, a business owner will reduce cost by choosing a BOP because the bundle of services often costs less than having individual coverage schemes.
Commercial Auto Insurance: Commercial auto insurance protects a company’s fleet of vehicles. You can safeguard cars that transport employees, products, or equipment. With commercial auto insurance, you can protect your official vehicles, SUVs, vans, and trucks from damage and collisions. If the company or business doesn’t own vehicles, but the employee or staff use personal vehicles on company duties, you should have non-owned auto liability to protect the company in case the employee doesn’t have insurance. Typically, the non-owned can be included in the BOP policy.
Data Breach: If a business keeps essential or private information about employees or clients on their systems, servers, or paper, they’re responsible for protecting that information. If a breach occurs, either digitally or from a paper file, a data breach policy will cover for the loss.
Employment Practices Liability: When any of your employees file a claim against you for misconduct, including discrimination of age, race, disability, sexual discrimination, informal termination, or some other type, this coverage protects the business from these types of employee-related claims.
Directors and Officers Insurance: This insurance type protects the top officers and decision-makers of a company against their actions that influence the profitability or operation of the company. If a director or officer of your company, as a result of their efforts on the job, lands in a legal situation, this type of insurance can cover for the costs or damages incurred as a result of a lawsuit.
Home-based Businesses: Many professionals start their businesses in their own homes. Unfortunately, homeowner’s policies don’t protect home-based businesses in a way commercial property insurance does. If you’re operating your business out of your home, ask your insurer for additional coverage to cover your equipment and inventory in the event of a problem.
Personal Umbrella Insurance: Even after other insurance mentioned, you might want extra coverage. This is where personal umbrella insurance comes into play. This type of insurance is an addition to already existing insurance policies and protects more than the conventional system. This insurance can cover distinctive kinds of claims, ranging from homeowners to auto insurance.
Business Interruption Insurance: If your business is influenced by material damage caused by unnatural events, such as a flood or fire, business interruption insurance gives you the financial cover you need to find your feet back in operation. For example, if flood destroyed the contents of your business space, business interruption insurance would cover your substantial loss of resources, as long as your materials are also insured.
Business legal protection insurance: This type of insurance is also more commonly referred to as business legal expenses insurance. It covers all commercial legal expenses. Moreover, business legal protection insurance also protects your business against the possible costs of any legal action that your business may encounter.
Excess Casualty: An Excess Casualty policy, or excess liability policy, provides additional protection from a disastrous event, such as damage caused to your business by an earthquake. If the wind blew in your roof and customers were harmed, if the costs are beyond the limits of your policy, here, your excess casualty policy will cover the extra costs.
What Type of Insurance Do I Need To Start A Business Entity?
When picking a business insurance scheme, you should think about what you need to be covered short term, as well as what you might need extended time.
If you don’t have any employees yet, then you won’t need to worry about employers’ liability insurance short term. Still, if you know you’ll be hiring some very shortly, then you might want to consider adding it to your policy now.
If you’re not sure about how your business might evolve, you can always add more cover at a later date. But, it’s advisable that short term and long term goals and visions of your business are set before the go.
Small businesses can require many of the same types of insurance as more substantial businesses, but it all counts on the setup and the long term plans of your business.
For example, if you’re a sole proprietor, then you won’t need employer’s liability insurance, but you may still want every other aspect of the business to be covered.
Once you’ve thought about what you need your insurance to do for you, then you can choose from the types above and many others to create a policy that suits your course.
Insurance appears to be one of the last things business owners consider while drawing up a blueprint for their ventures, but it clearly should be top-of-mind. The reason is that you’re already taking massive amounts of risks by choosing to start a business, and you would be increasing those risks by failing to insure your dealings properly.
You have put too much into your business to have some unfortunate incident blow up all or most of what you have worked for. Luckily, you can prevent this from happening since you now have details to make an informed decision on the type of insurance your business needs.