Let's Talk Insurance

by Joshua Botello

Insurance. One of the dullest topics to ever talk about with anyone, other than an insurance broker. This means that we should have this important conversation as soon as possible until it is too late and you are up to your waist in legal issues that could tank your business in one fell swoop and is essential for small businesses to operate. Let’s take a look at 6 of the most common types of insurance policies that any business may need. 

Disclaimer: The information in this article, while authoritative, should not be considered legal advice. Consult your licensed financial advisor, legal counsel, and/or regulatory body to determine the best policies for your business. 

COMMERCIAL LIABILITY

First on our list is commercial liability insurance, otherwise known as general liability. It's one of the most common types of business insurance.

Basically, this kind of insurance protects your business against bodily injury and property damage. It is generally necessary for anyone looking to operate a business even if you're setting up a separate legal entity like an LLC or corporation because you want to protect your investment.

Typically this insurance is needed to pay off any judgments from litigation due to a loss, damage, or injury to a customer or a third party who decides to sue your company.

ERRORS & OMISSIONS INSURANCE

The next “liability” insurance on our list is professional liability insurance, affectionately known as Errors & Omissions insurance. Basically, this insurance primarily covers professionals from claims of inadequate work products and is meant for advice-giving or services professionals such as doctors, lawyers, financial advisors, consultants, etc.

Any professional may be required by their respective regulatory bodies like the Financial Industry Regulatory Authority (FINRA), for example, who require E/O insurance to operate or be liable for millions of dollars in damages if a lawsuit arises. E/O insurance generally protects the assets of a company due to damages from a lawsuit or even cover the legal fees related to an arbitration case between parties. You should check with your regulatory body if there is a required insurance policy to operate before you begin to offer services.

PRODUCT LIABILITY 

The final “liability” insurance is product liability. This unique insurance is specifically for product manufacturers /distributors. Basically, this insurance is needed whenever a company makes, sells, labels, or alters a product in any way. No matter where your company falls in the product distribution chain, it is possible for a liability claim to be filed against you. 

Specifically, product liability insurance covers manufacturing defects, design defects, or marketing defects. This includes something as simple as a product that has inadequate label warning and results in an injury. What product liability may not cover, are the losses due to a recall or losses from product defects. 

COMMERCIAL AUTO 

If you have auto insurance then the idea of commercial auto insurance is fairly straightforward. Commercial auto insurance is basically the same as consumer auto insurance, except the values in coverage are bigger. A lot bigger. It is necessary for anyone who is using their vehicle primarily for business to get commercial auto insurance because their personal plan will not cover business-related risks. 

Because of the higher coverage limits for commercial plans, it is essential for a business that operates a vehicle, truck, or trailer to have coverage or the business could go bankrupt because of a single collision.

WORKER COMPENSATION

If you have ever had a job, especially working here in California, then you should be well aware of workers' compensation insurance. This is insurance required by virtually all states to businesses that have employees. Some common exemptions may exist from mandated insurance are for agricultural employees, corporations, or exempted members of limited liability companies or LLCs.

This insurance basically protects workers by paying medical expenses and lost wages due to injuries while on the job. You can minimize your cost by bundling liability and workers' compensation while operating your business, but you will need to contact your broker to explore your options.

BONDS

Bonds are special products similar to insurance but work in very different ways and conditions to typical insurance policies. A bond is basically a contract between you (the business), the guarantor (issuer of the bond), and the customer. The bond ensures the company meets certain contractual obligations. If a company breaks those obligations, such as not completing a project, then a fee is paid from the guarantor to the customer. There are bonds for all matters of issues, from licenses to bonds that exist to protect businesses from their employees' fraudulent acts called a Fidelity Bond. For a more in-depth look at bonds check out that post here.

While insurance is not the most exciting subject in the world to discuss, it is always important to protect your business and investment from any potential loss and risk. It is recommended to discuss any policies with your licensed financial advisor and insurance broker to determine which policy is most prudent for you to minimize costs and sufficiently protect your business.

Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.