Small Business Insurance: Protect Your Business with the Proper Coverage

By Jamie D

For almost every risk your business faces, there is an insurance policy that will cover it.  But what's required and what isn't?  When it comes to business insurance, it's important to cover all you bases.  Your business must comply with all employer insurance requirements but that doesn't mean policies that aren't required are any less important.  Check out this quick guide for a better understanding of business insurance requirements.


What's Required?

Workers' Compensation Insurance covers the medical costs, rehabilitation costs, and lost wages of any employee injured on the job.  Workers' compensation insurance also covers employer liability in case of a lawsuit.  In the event that an employee or an employee's family sues your business as a result of an injury, this type of insurance will cover your liability. 

Workers Compensation Insurance is required by law in all 50 states, U.S. territories, and the District of Columbia. State laws set the minimum amount of coverage required for each type of business and generally set these insurance rates.  For specific requirements, visit your State Workers' Compensation Office.

As an additional option to your workers' compensation, you may choose to purchase Employment Practices Liability.  This will expand your coverage to insure against lawsuits brought for claims of sexual harassment or discrimination.

Tip: Maintaining a good safety record is the best way to minimize insurance costs.  Be sure to following OSHA guidelines related to your industry, providing proper safety training for employees, and creating employee handbooks on workplace safety are all beneficial in establishing a safe and healthy work environment.

Unemployment Insurance Tax is required by law for most businesses with employees.  This tax enables employers to pay unemployment benefits for employees that lose their job.  Businesses required to pay these taxes must register with their state's workforce agency.  For more information on the unemployment insurance tax requirements for your business, visit your state's unemployment insurance tax division.

Disability Insurance covers a portion of an employer's or employee's income while they are unable to work due to a non-work related sickness or injury.  This insurance guarantees the injured or sick worker is paid a fixed amount of income for this time - generally around 60% of their average income. 

Some states require employers to purchase disability insurance.  If your business currently operates in California, Hawaii, New Jersey, New York, Puerto Rico, or Rhode Island, you are required to abide by their state laws and purchase disability insurance.

Disability insurance come in two types, long and short term.  Short term disability covers anywhere from 12 weeks up to one year.  Long term disability covers sickness or injury lasting for more than one year.  These benefits require a wait period before they are paid out to the benefiting party.  Wait periods can last anywhere from 7 to 14 days for short term disability and 30 days to one year for long term disability.  

Tip: The waiting period that occurs before disability benefits are paid can affect the rates your business pays.  Shorter waiting periods require higher rates while longer waiting periods are less costly.  If your business needs to reduce their rates, it's reasonable to adjust your policy's wait period.

Professional Liability Insurance protects a business against malpractice, errors, and negligence in provision of services to a customer.  Small businesses that provide a service to their customers should consider professional liability insurance. Depending on your business type, you may be required by your state government to carry such a policy. For example, physicians are required to purchase malpractice insurance as condition of practicing in certain states.

Automobile Insurance covers automobile incidents that occur with business related vehicles.  If your business uses any vehicles in their operations, you will need to purchase commercial auto insurance.  Many states set a minimum liability coverage that these businesses are required to purchase. Regardless of any state set minimum coverage requirements, your business may require a higher coverage amount.  Consult your insurance agent or broker to determine the amount of liability coverage that is appropriate for your business.


Extra Coverage

Once your business has complied with the insurance requirements in your state, you may opt for additional coverage that protects your business in other ways.  For a summary of the kinds of business insurance policies to consider for your small business, see this article:  What Type of Insurance Do I Need?


Protect Your Business!

Now that you have a basic understanding of the many different business insurance policies, it's important to make sure you are holding the best policy protection policy for your business.  Ready.gov has prepared a guide to help business owners review their insurance coverage to avoid any inadequacies that could prove detrimental to your businesses success in the event of an accident or unplanned event.