By Allison Hess
If you have a side hustle, you’re likely a passionate, committed, dedicated individual. Maybe you want to build an empire from the ground up; maybe you want to do some good in the world, or maybe you just want to make some extra money on the side. Whatever your reasoning, you’re taking extra steps to get it done in order to reach some sort of goal or aspiration.
But while you’re grinding to reach that goal, you could forget to protect your ideas. If you don’t have the proper insurance to shield your small business or side gig, you could suddenly find yourself in a hefty lawsuit that kills your business, your dreams, and even your personal assets.
Don’t let that scare you. And don’t let it deter you from following your dreams and your side hustle.
Instead, let it inspire you to take the necessary steps to protect yourself from the hefty risk that comes with owning a small business and working for yourself.
WHAT KIND OF INSURANCE DO YOU NEED?
Your side hustle could include anything from babysitting to blogging or running a food delivery service to freelance graphic designing. Anything you do on the side should be considered a “small business” and needs insurance. But each type of small business is different, so protection needs are also different.
Below you’ll find the different types of professional insurance your small business might need.
Business Owner’s Policy (BOP)
For: Anyone and everyone
A BOP is not a form of coverage itself but a packaged policy of all the coverages a business owner might need. It generally includes liability, property, vehicle, interruption, and crime insurance. You can usually customize a BOP based on your specific business’s needs and requirements. Think of it as a small business bundle. You should always get a quote for a BOP, so you can see the cost savings versus purchasing professional insurance separately.
Professional Liability Insurance
Every small business needs professional liability insurance, sometimes called errors and omissions insurance (E&O). This covers any claims and lawsuits against your business due to negligence, failure to perform, or mistakes. If your business causes any sort of bodily injury or property damage to a customer, partner, or third-party, the business could be sued at a hefty expense. Professional liability insurance protects your business and personal assets in the case of a lawsuit.
You need to protect your business’ assets from unexpected fire, storm, theft, natural disasters, and more. If you own or lease a space or you hold equipment, inventory, and furniture, property insurance will cover unexpected damages.
Even if you work from home, you may need to get additional professional property insurance. Many homeowners’ policies will not cover business-owned assets and equipment. In addition, if you claim a portion of your home as tax-deductible on your business expenses (such as a home office or dedicated room), that area may also not be covered under your home insurance policy; even if your entire house is damaged, your homeowners’ property policy may only cover the part in which you live, while the professional property would cover the part in which you work.
Be aware of what your property insurance does and doesn’t cover, as many professional property policies won’t cover flood or other incidents. Talk to an insurance agent about your business’ location, situation, and industry to ensure you get the right amount of coverage.
Crime insurance is typically covered under a BOP bundle. It will help protect your property from fraud, theft, and forgery. Crime can be related to both property insurance (#3) and cyber liability insurance (#8), so talk to an agent to make sure you’re fully protected from all attackers out there. Think of crime insurance as your very own Batman fighting against the Jokers that want to bring down your Gotham business!
For: Businesses with at least one employee (not the owner)
If you employ at least one individual, you need workers’ comp. This insurance protects your company from any legal issues if your employees are injured on the job. This includes all types of medical injury; even carpal tunnel from blogging all day or scoliosis from bending over can result in hefty lawsuits against your business.
If you hold workers’ compensation insurance, your employees waive their rights to sue in the case of an accident. Instead, workers’ comp provides the employee wage replacement and medical benefits while they are out of work due to the injury. It may sometimes also cover disability or death benefits. Most states require workers’ compensation for W2 employees.
Product Liability Insurance
For: Businesses that develop or manufacture a product
If you make or sell a product on the market, a consumer could sue you if the product causes harm or damage. Product liability covers any costs associated with lawsuits or settlements related to a defect in your product. It may also cover costs related to product recalls or discontinued products.
These policies can even be tailored to your industry or product. Insuring a food product, which could have serious health risks, is different than insuring a couch, which would have potential physical damage concerns.
For: Any company with vehicles
Vehicle or commercial auto insurance protects any business-owned vehicles or vehicles used for business purposes. This also applies to employees who drive your business car or use their own car for delivering goods or services for a fee (like a food delivery service).
Usually, if an employee uses their own car for business purposes that aren’t delivery, any accidents would be covered under their own personal insurance. Be sure to discuss this with your employees at the time of hiring to ensure they have auto insurance and are comfortable with this risk. If they don’t have the right insurance, you can also consider adding non-owned auto liability to your BOP policy.
General vehicle insurance usually only covers liability, which is when another person sues you for damages. To cover property damage to your own vehicle, you may need comprehensive commercial auto insurance.
For: All businesses who store personal client info
Cyber liability insurance protects your computer systems and software from cyber damage. Hackers can break into your system and steal customer’s personal info, like Social Security, credit card numbers, and addresses. If you’re attacked in a way that compromises your clients, your consumers could sue you for a breach of privacy. Cyber liability insurance can help cover the costs of lawsuits or settlements. It can also cover notification costs, credit monitoring, data retrieving, fines and penalties, legal defense, and personal and client loss from identity theft.
Data breach insurance is similar, but it covers both cyber and paper breaches. If you are primarily a cloud-based company, cyber liability may provide more cyber protection. If you are more paper-based or a blend of both, data breach insurance may be the right choice for your business.
For: Invoice-based companies
If you provide a service or sell products in large volumes, you likely use invoicing to get paid. If a company or individual doesn’t pay you, you could have a significant loss and negative cash flow. Accounts receivable insurance will help repay your business the revenue loss if you can’t collect from a client for whatever reason.
Business Interruption Insurance
For: Businesses with a physical location
Business interruption or business income insurance covers a potential loss of income if your company has to shut down for whatever reason. For example, a storm hits and your pet store is flooded. You have to shut down and rebuild your business facility. Unless you wash the pets in your own sink, you can’t do business, and you’ll lose income in that time that your business is out of commission.
This generally only applies to those businesses with a physical location, who would have to shut down all operations in the case of a disaster. If you have an online side hustle, you likely won’t need business interruption insurance. If a disaster hits your computer or equipment, you likely will only have a day or two of lost income until you can get that equipment fixed. (Plus, you can always work in the library!) In this case, you’d instead need property insurance to cover the actual repairs of your computer.
Personal and Advertising Injury
Personal and advertising injury will cover costs associated with libel, slander, privacy invasion, or infringement on a patent, copyright, or intellectual property. This is in the case that you are sued for those offenses. For example, if your business accidentally infringes on a photographer’s copyright, that photographer could sue you. This will not cover if another company infringes or slanders against your company.
Employment Practices Liability
For: Businesses with at least one employee
Employment practices liability protects your company in the case of a claim of discrimination, wrongful termination, harassment, and other human resources concerns. These sorts of lawsuits could devastate your small business, especially if you do not have the appropriate legal policies and procedures in place.
THE BOTTOM LINE
You’re probably thinking, “That’s a lot of insurance for a side hustle.” And you’re not wrong. A lot can happen when you own and run your own business. There’s a lot of risks. Nevertheless, you have to risk it to take the biscuit… but don’t forget to protect your biscuit! Insure against lawsuits and damage to prevent your professional and personal assets from taking a hit.
Plus, don’t forget personal insurance. If you’re looking to make your side hustle your main gig, you’ll also need to purchase separate life insurance, health insurance, disability, and more to fully protect you and your family.
But don’t get overwhelmed. Talk to an insurance agent to find the best-bundled policy that will work for your business based on industry, size, location, annual revenue, and years in business.
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