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What Are the Most Important Types of Insurance for a Business?

by | May 24, 2022 | Firm News

What are the most important types of insurance for a business? That’s a question I get asked by clients all the time. Protection is the name of the game when it comes to business. One of the main reasons to form a legal business entity is to protect your personal assets, but procuring the proper insurance for your company is also a very important piece of the puzzle.

I’m Neil Fridman with the Fridman Law Firm PLLC. Today, I want to cover the most common and important types of business insurance you should have to protect your company.

Liability insurance

Let’s start with liability insurance. The three most common types of liability insurance are general, professional, and product liability insurance.

General liability insurance

General liability insurance, as the name implies, provides basic coverage for businesses. This is where most companies start when it comes to protecting their company and it covers things like common accidents, customer injury and damages to property.

Professional liability insurance

Professional liability insurance is typically used for service-oriented businesses, and protects you in case of negligence when a service is performed for customers and clients.

Product liability insurance

Product liability insurance protects your company against financial loss due to injury or damage resulting from a product you made or sold. This type of insurance is vital for any product-based businesses, as your company can be found liable for any damages, even if the product is used incorrectly.

It is generally recommended that you have general liability insurance for your business, but depending on what type of business you operate, you may also want to consider professional or product liability insurance.

Workers’ compensation insurance

Workers’ compensation insurance covers employees who may get hurt or sick on the job. This type of insurance covers employee hospital and medical bills, as well as financial compensation when an employee is unable to work. State law often requires it.

Workers’ compensation insurance may not be required or necessary if you only have a few employees, but it’s still worth considering, as it often protects your business from lawsuits filed by your employees. So I would highly recommend it.

Commercial property insurance

Commercial property insurance guards your business against damages that can disrupt the operations of your business. This includes things like fires and natural disasters. And the purpose of commercial property insurance is to help restore your company to its normal business operations.

The primary thing to consider when looking at commercial property insurance is the number of assets your business owns. If it would require a large sum of money to replace or repair your company’s assets in case of a disaster, purchasing a commercial property policy is strongly advised.

Commercial vehicle coverage

If you use vehicles, whether for personal or commercial use as part of your business operations, you will want to consider commercial vehicle coverage. A key aspect of commercial vehicle coverage is the replacement policy for damaged vehicles.

The majority of these policies only cover the current market value of the damaged vehicles, so this is something you’ll want to consider and discuss with your insurance agent. Ultimately, protecting your company’s investment in its vehicles is important to the long-term success of the business.

Directors and officers liability insurance

If your business, whether for profit or not-for-profit, has leaders in C-suite positions or maintains a board, purchasing a directors and officers liability insurance policy is also strongly recommended. Individuals with the titles of CEO, CFO, COO, and so on, have a higher level of responsibility than your average employees, and the purpose of this policy is to provide them with an extra layer of protection.

While board members do not take on the day-to-day management of the operations of your company, they do take on legal responsibilities as fiduciaries and individuals who provide oversight. This means that individual board members of your company can be sued, and an adequate directors and officers insurance policy can help cover expenses associated with legal claims.

The potential list of claimants against a board or officers in your company can include shareholders, donors to a non-profit, and government officials alleging violations of law, just to name a few.

Cyber risk insurance

Cyber risk insurance is another type of insurance that has never been more important. Regardless of what type of business you own, if any technology is used, you face a cyber risk. Your company’s technology systems hold key information, such as customer personal data and payment information, and a breach of these systems can be financially crippling to a business if it is not protected.

A cyber risk policy provides coverage options that help protect your business against data breaches and other cyber security issues and covers things like litigation and crisis management expenses, business interruption, and cyber extortion.

How to decide on the kind of insurance your company needs

The importance of proper insurance coverage for your business cannot be overstated. The primary factor that will determine what kind of insurance your business will need is the type of business you own and its size.