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Does Your Small Business Need Multiple Insurance Policies?

We hear it all the time…“what is the policy to cover my business?” That isn’t always an easy question to answer. All businesses are unique—from their location and owners, to their offerings and clientele. Your needs may also change over time depending on the risks you face. At the end of the day, you need to make sure your insurance policies cover those risks. In many cases, a single policy may not be adequate. To make sure you are actually covered, you need to understand the risks you face and your policy options.

Why Small Businesses Need Multiple Insurance Policies

Small businesses are subject to a variety of risks, including theft, damaged property or inventory, and even illness. One single policy simply does not account for every scenario. Consider the following when deciding if your small business has coverage gaps.

  • Legal requirements: Depending on the nature of your business and its location, there may be legal requirements mandating certain types of insurance coverage. For example, auto insurance is required if you use vehicles for business purposes.
  • Industry-specific risks: Certain industries have unique risks that require specialized insurance coverage. For example, a construction company may need general liability insurance to cover accidents on job sites, as well as contractor’s equipment insurance to protect against damage or theft of tools and machinery. Similarly, liquor stores may be required to hold liquor liability insurance as an additional policy.
  • Client requirements: Some clients or contract terms may require businesses to carry specific types of insurance coverage as a condition of doing business. In certain cases, a client may require a service provider to have professional liability insurance before signing a contract.
  • Risk management strategy: For small businesses with higher risk potential or under unique circumstances, additional coverage may be needed to mitigate potential losses.
  • Coverage gaps: Even if a single insurance policy provides comprehensive coverage for certain risks, there may still be gaps in coverage that need to be addressed with additional policies. For example, a general liability policy may not cover certain types of professional errors or cyber liabilities.
  • Financial protection: Having multiple insurance policies can provide additional layers of financial protection for a business. Single policies often have financial limitations and multiple policies can help ensure that the business has sufficient coverage limits to fully compensate for losses.

Types of Insurance Policies

Once you understand your potential risks, you need to make the call on what policies are needed. These are the most common types of policies small businesses may need.

  • General liability coverage: Most small businesses require general liability insurance to protect against lawsuits stemming from bodily injury, property damage, and other lawsuits that may occur as a result of business activities. However, some businesses may need additional liability coverage tailored to their specific risks.
  • Property insurance: Property insurance typically covers physical assets such as buildings, equipment, and inventory in the event of fire, theft, or vandalism.
  • Workers’ compensation: Businesses with employees are usually required by law to carry workers’ compensation insurance to provide benefits for employees who are injured or become ill while on the job. This coverage helps pay for medical expenses and lost wages.
  • Cyber insurance: More and more, small businesses are at risk of data breaches, hacking, and other cybercrimes. Cyber insurance can help cover expenses related to data breaches, such as legal fees, customer notification costs, and credit monitoring services. It may also provide coverage for lost income due to a cyber incident and expenses associated with restoring systems and data.
  • Business interruption insurance: This type of insurance helps businesses recover lost income and cover ongoing expenses in the event of a disruption to operations caused by unexpected incidents such as fire, natural disasters, or equipment failure.
  • Commercial auto insurance: If vehicles are used for business purposes, a small business typically needs commercial auto insurance to cover liability and property damage in case of accidents.
  • Health insurance: Providing health insurance benefits to employees can be essential for attracting and retaining talent. While not strictly a business insurance policy, offering health insurance coverage may be necessary for compliance with regulations such as the Affordable Care Act (ACA) and may also help protect the business by promoting employee well-being and reducing absenteeism.

Overall, the decision to purchase multiple insurance policies depends on the specific risks faced by a small business. Owners can benefit tremendously from working with an agent or broker, who can help assess insurance needs, tailor coverage to specific requirements, and translate legalese.