A Simple Guide to Small Business Insurance

A Simple Guide to Small Business InsuranceIs your small business insured? Are you carrying the right kind of insurance to protect you, your company, your employees and your customers? These are the questions we faced as we were working to launch our company, OfficeDrop. We found that government-mandated insurance such as workers’ compensation go only so far in providing adequate protection. To ensure that all the sweat and money that went into building our business is adequately protected, we needed to carry other forms of insurance. After spending many days talking to various insurance advisors, we narrowed down the insurances to a handful. I hope the following guide demystifies the insurance landscape.

Legally Mandatory

Workers’ Compensation Insurance

Also known as employer’s liability insurance, this insurance is mandatory in every state. By providing workers’ compensation insurance, your company can award employees monetary sums in the event that an employee is injured or disabled while on the job. Since coverage is provided in exchange for the employee’s right to take legal action against the company, you will be protected from lawsuits in the case of employee injury or death.

Business Auto Insurance

If your company owns vehicles, then all 50 states require you to carry business auto insurance. The extent of coverage will depend on who drives the vehicles and what your state requires.

Disability Insurance

If your business operates in the states of California, Hawaii, New Jersey, New York or Rhode Island, you are required to carry disability insurance. Disability insurance replaces a percentage of income for employees or business owners should they be injured and unable to earn a living themselves.

Not Legally Mandatory, But Must-Haves Nonetheless:

Property and Liability Insurance

Property and liability insurance protects your business’ assets from disasters such as fire and theft. Though you are not required to have it by law, you may own valuable assets such as furniture and expensive equipment that you cannot afford to lose. When purchasing this insurance, ensure that you are covered for the “replacement value” of these assets.

Errors and Omissions Insurance

We’re all human, and we all make mistakes. E&O insurance covers you when a client holds your company responsible for mistakes or errors made by your firm that were damaging to the client. Since OfficeDrop handles valuable customer documents, we decided to carry this insurance in case customer documents are accidentally lost or damaged. Every one of our customers is protected up to $1 million if they are adversely affected by an error.  Consulting and other professional service firms are also good candidates for this insurance.

Criminal Liability

While E&O insurance protects against unintentional errors and damage, criminal liability insurance covers damages intentionally done by employees. Even with extensive background checks of each of our employees, criminal acts are sometimes completely unpredictable, so we chose to carry criminal liability.

Business Owner’s Insurance

Recommended for any business owner, business owner’s insurance protects you from personal liability in the case of litigation against your business.

Other Options

Besides the above mentioned, there are many other insurance options that may greatly reduce risk in your business. Other policies include:

  • Business Continuation Insurance
  • Product Liability Insurance
  • Key Executive Insurance

Though not all companies carry these insurance policies, they are still worth considering.

Still not sure as to what insurances to get for your business? While you may not need all of the insurance policies not mandated by law, we highly recommended that you review your business with an insurance advisor to discuss which insurance options are best for you.


Prasad Thammineni Prasad Thammineni is the Chief Product Officer at Choose Energy, an electricity, natural gas and solar marketplace for residential, SMB and commercial customers. He founded consumer and B2B startups namely OffceDrop, jPeople, WeBelong, Indolis and LaunchPad. He has an MBA from Wharton and Computer Science and Math degrees from BITS, Pilani, India.

10 Reactions
  1. Nice overview.

    I would like to point out an additional way to access the health tax credit: combining a limited medical benefits program with a high deductible HMO.

    I go through the example here: http://www.franchise-info.ca/supply_chain/2010/07/Small-business-tax-credits.html

  2. I love simple. Insurance in any form is too complex. Thanks for this article to make the way I like it- SIMPLE!

  3. Isn’t insurance wonderful. I have dealt with commercial clients throughout central Florida and have come to the same conclusion. You are never protected from everything. You can kill your income by insurance premiums, or not have enough capitol to pay for a claim because you didn’t have enough insurance.

    I believe it all starts with the way your business is set up from the get-go to protect your personal assets in case your company gets nailed by a sue happy schmuck.

  4. Nice summary of insurance, however please note that under a Business Owners Policy (BOP), the buyer will have both property and liability coverage. It is highly recommended that business owners consider the BOP for a complete, easy to understand program that is intended for many risks and businesses.
    Thanks for the great content!

  5. Brian, could you expand upon your point?

  6. Sure. Business owners policies (BOP’s) are intended to cover liability and property under one policy. The author indicated in the blog that property and liability coverage can be separate programs and later indicates the BOP. For a small company, a BOP is usually a great way to cover the business from liability issues.

  7. Why pay more? Anyone who is looking for E&O Insurance should visit http://www.EOforLESS.com before renewing at higher rates.

  8. I didn’t realize that it is required to carry business auto insurance if a company owns a vehicle. My dad just got a truck for his growing t-shirt selling business. I’ll mention to him that he should look into getting insurance to cover the vehicle right away because I don’t think he knows about this policy.

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    Guide To Small Business Insurance Coverage

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