On average, about 29% of U.S. startups fail because they ran out of cash, as reported by Statista. While this may be a result of issues such as lack of demand for products, lawsuits, and disasters, high expenses can also affect the cash flow of a business. For instance, per the Federal Emergency Management Agency (FEMA), about 25% of businesses collapse permanently after a disaster. Since most of these causes eventually affect business finances, you need to find effective ways to guard them. One of the ways to achieve this is by purchasing the right business insurance coverage. Here is a look at the 3 most important insurance policies for a business owner.
Public Liability Insurance
This type of insurance covers the cost resulting from bodily injuries and property damage on third parties such as clients, pedestrians, and visitors. For instance, if a loose object from the ceiling falls on a visitor, causing a back injury, the public liability insurance will pay for the medical costs, legal fees in case of a lawsuit, and any claims. While this policy covers third-party claims, the injuries or property damage must occur on your business premises or involve your business property directly. This means that it may not cover an injury that happens when you visit your clients in their homes. Like other liability insurance policies, public liability insurance does not cover damage on your business property as well as injuries on your employees, as reported by the Insurance Information Institute (III).
Generally, businesses in industries such as construction and transport face higher liability cases due to the risky nature of operations involved. For instance, every year, at least 150,000 injuries happen at construction sites, some of which are fatal, as reported by the U.S. Bureau for Labor Statistics (BLS). This shows just how dangerous the workplace can be for employees, visitors, and the general public, and why you should buy the right liability insurance for your business. While businesses such as consultancy are somewhat safer from physical injuries and property damage, it does not mean an accident cannot occur. A simple slip on a wet floor can cause an injury to your visitor, attracting a lawsuit that will jeopardize your business finances.
Professional Indemnity Insurance
Referred to as errors and omissions (E&O) in the U.S., professional indemnity insurance is a policy that shields professional service firms such as pharmaceutical companies from claims of negligence, inaccurate advice, errors. For instance, if a patient claims that he/she experienced a severe allergic reaction to a drug recommended by a certain doctor, then professional indemnity insurance will cover the legal costs and claims involved in case of a lawsuit. That said, ensure you purchase the right professional liability insurance if:
- You run a professional service business such as a law firm
- You advise clients on professional matters from time to time
- Your clients require you to have this policy before doing business with you
While you may be an experienced professional with a positive reputation in the industry, you may still face litigation cases from clients. In other words, you don’t have to actually commit a crime or give wrong advice to face a lawsuit. This means that even if you have a clean record, you should purchase professional indemnity insurance coverage to shield your business from future uncertainties. Take note that this policy does not cover criminal prosecution expenses as well as other liabilities that are not included in it.
Commercial Vehicle Insurance
Every year, at least 6 million car crashes happen in the U.S., involving both business and personal vehicles, as reported by the National Highway Traffic Safety Administration (NHTSA. Despite the efforts of the federal government to improve road safety, expert projections indicate that the continuous rise in population and the increase in the number of road users could result in more accidents in the future. If your business vehicle hits a pedestrian or crashes into someone’s house, you could face a lawsuit, a large claim, or even serve a jail term. Additionally, you may need to pay a lump sum of money for repairs to get your fleet back up and running. In other words, auto accidents are a great enemy to your business finances. Thankfully, commercial vehicle insurance protects your business from such misfortunes. More specifically, it covers the damage on your business vehicles as well as part of the liability costs that result from motor vehicle accidents. Depending on the type of auto insurance policy you purchase, it can also cover named perils such as theft, vandalism, and fire damage of your fleet. In general, comprehensive commercial vehicle insurance provides coverage for:
- Liability resulting from fleet accidents
- Medical payments for injured occupants
- Repairs on the vehicles
- Accidents involving uninsured motorists
Take note that this policy does not cover personal vehicles.
These are some of the useful insurance policies that you should purchase for your business. Bear in mind that the amount and type of business insurance you purchase should depend on the type of business you own. This is because different businesses may face different types of risks in variable measures.
Mark Vanzo is an insurance broker who has been working in the industry for over 10 years. Mark operates Smart Business Insurance and likes to write for trusted insurance magazines in his spare time. Mark is especially knowledgeable in all areas of business insurance.