10 step complete guide for starting a consulting business from scratch.
Purchase Business Insurance
You’d be surprised how many new business owners forget to protect themselves and their business by purchasing insurance before they start their business. It doesn’t help you to buy insurance after you started your business and incurred claims against you or your business.
Here’s what you need to know about insurance for your new business.
Types of business insurance
Insurance can cover property damage, theft, intellectual property lawsuits, and other incidents. Those can be very costly to small businesses and you need to properly protect yourself and your new business.
And if you will employ people, you’ll need to have workers’ compensation and unemployment insurance. Coverage varies by location, and most general liability (GL) policies will cover at least workers’ compensation.
If you provide services, you’ll want to have professional liability insurance so that you’re protected against possible claims. Read below for descriptions of various types of business insurance and when you might need coverage.
Professional liability insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects a business against claims that result from mistakes or failure by the business to do something. Each policy is customized for the business and the services it offers. There is no one-size-fits-all policy for professional liability insurance. And, importantly, each industry has specific issues that will be addressed in a custom policy written for a service business that buys professional liability insurance.
If you plan to own or lease physical space, you need property insurance. Property insurance covers equipment, signage, inventory and furniture in the event of a fire, storm or theft. But, not everything is covered by property insurance. Nearly all property policies exclude things like floods and earthquakes. If your area is prone to these issues, ask your insurance company to issue a separate policy with specific coverages for the things normally excluded by a general property policy.
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Workers’ compensation insurance
You need workers’ compensation insurance when you hire your first employee. Workers compensation insurance will cover medical treatment, disability and death benefits in the event an employee is injured or dies as a result of their work for your business. Most states require workers compensation insurance for all industries. This is true even if employees are performing low-risk work. Even in those situations, slip-and-fall injuries or medical conditions such as carpal tunnel syndrome could result in expensive claims.
Many businesses are started at home. But, homeowner’s policies don’t cover home-based businesses and even if they do, they don’t have the breadth of commercial property insurance. If you’re operating your business out of your home, ask your insurance company for additional insurance to cover equipment and inventory.
Product liability insurance
If you manufacture products and sell them to consumers or businesses, product liability insurance is critical. Product liability insurance typically has coverage tailored to a specific type of product.
If you will use vehicles for business, those vehicles should be fully insured to protect your business against liability if an accident occurs. At a minimum, insure against third-party injury. Comprehensive insurance will cover your business vehicle in an accident, as well. Normally, if employees use their own cars for business, their personal insurance will cover them if there’s an accident. But, if they are delivering goods or services for a fee, their personal auto insurance policies will not provide coverage and you’ll need to provide vehicle insurance for them.
Business interruption insurance
If a disaster or catastrophic event occurs, your business’s operations may be interrupted. If this happens, you will suffer from lost income due to your team’s inability to work in the office, manufacture products or make service calls. This type of insurance is especially relevant to businesses with a physical location, such as retail stores. Business interruption insurance compensates a business for its lost income during such events. But read the policy carefully because there are many exceptions and exclusions even in business interruption insurance.
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