States require most employers to carry workers compensation insurance in case employees are hurt on the job. This is definitely a requirement that you don’t want to take lightly. Failure to purchase the required amount of coverage can result in fines and, rarely, even in criminal penalties.
If an employee experiences a work-related injury, workers comp will cover their medical expenses and pay them with a portion of their wages while they recover. For example, workers comp would cover an employee’s back pain that stems from poor ergonomic desk setup. If an employee sues your company for work-related injuries, workers compensation insurance usually covers the cost of defending the lawsuit.
You can purchase workers compensation insurance through a broker or private carrier. The cost typically runs $0.75 to $3 per month per $100 in employee wages. Many states, such as New York, offer a state-run insurance fund that sells workers comp insurance at regulated rates. Larger businesses might even have the option to self-insure. You can learn more information by contacting your state’s insurance department or workers compensation board.
2. Unemployment Insurance
Unemployment insurance is another government-required type of insurance coverage. This insurance covers your employees in case of a job loss or termination. Unlike workers comp or general property insurance, unemployment insurance is not something that you purchase from an insurance carrier.
Instead, along with other payroll taxes, employers pay federal unemployment taxes (FUTA) and state unemployment taxes (SUTA). The state administers the program for employers and employees. Your tax burden depends on the number of employees you have, your employee turnover, and whether you’re a new or established business. While an individual is out of work, they can apply to receive unemployment benefits.
Employers can calculate and make FUTA and SUTA payments on their own, but it’s often easier to let your HR software or payroll service take care of the calculations for you. Just don’t forget to contact your state’s unemployment agency and sign up for an employer account when you hire your first employee.
3. Disability Insurance
Disability insurance provides guaranteed payments to employees at a percentage of their income if they’re unable to work due to an illness or injury. Unlike with workers compensation, the illness or injury does not have to be work-related. For instance, a pregnant employee can receive disability benefits after giving birth.
Currently, five states—New York, California, Hawaii, New Jersey, and Rhode Island—require employers to provide some level of short-term disability insurance (SDI). SDI covers employees for three to six months after they’ve been injured or fallen ill.
Even if you’re not in one of those five states, short-disability coverage can provide peace of mind to your employees and make you a more competitive employer. Long-term disability coverage, which is more rarely provided, lasts until the expiration date stated in the policy or until the employee is able to return to work. The typical cost of disability insurance is 0.25% to 0.50% of your payroll.
4. General Liability Insurance
Businesses are not legally required to purchase general liability insurance, but there’s very good reason to. General liability insurance protects your business if a third party—such as a client, vendor, or customers—get injured from your business’s property, products, or services.
The following specific types of losses are covered:
Physical injuries on business property
Property damage to another individual or business while carrying out your work
Advertising injuries (libel, slander, misappropriation, etc.)
This is a must-have type of coverage, particularly if you’re in an industry where accidents are more likely to occur. Examples include landscaping businesses, manufacturing companies, and construction companies. The cost of a general liability policy typically ranges between $400 to $600 per year, though that could vary significantly based on the level of risk in your industry.
5. Commercial Property Insurance
Commercial property coverage insures your business’s inventory, equipment, office space, and other property against loss or damage. Commercial property insurance is a must-have for many types of businesses, especially those with a brick and mortar location.
This includes incidents of small business theft, fires, vandalism, and some weather-related damage. Most commercial property policies will cover flooding damage and damage from accidents, like a burst pipe. However, not all will cover natural disasters like earthquakes or tornadoes. Depending on where your business is located and the specific likelihood of different types of disasters there, you might have to add on specific coverage for these at an additional cost.
Look for business interruption insurance as a rider or add-on to your commercial property policy. This insures against lost income when you experience property damage or an accident. For instance, if your shop burns down from a fire, you’ll lose a lot of income while rebuilding it. Business interruption insurance will cover that loss of income. Cyber insurance coverage is also an important add-on to any online business that handles customer data.
6. Professional Liability Insurance
Professional liability insurance, also known as errors and omissions insurance or malpractice insurance, is something that people normally associate with doctors, lawyers, and other professional service providers. For example, if a doctor makes a mistake during surgery, their malpractice insurance will cover the costs associated with an ensuing lawsuit.
But doctors and lawyers aren’t the only ones who should have errors and omissions coverage. It’s possible for many types of business owners to commit professional negligence. For instance, a designer could fail to have a website ready to go for a client’s launch date. As a result, they lose thousands of dollars in sales and sue for the damages. The designer will be protected if they had purchased professional liability coverage.
If you offer professional services of any kind, you should plan on purchasing professional liability insurance. Don’t get rid of your general liability policy though—these cover two different things. The general liability policy covers physical injury, property damage, and advertising injury. The professional policy covers a client or other third party’s financial losses. Professional liability cover tends to cost around $900 to $1,800 per year.
7. Product Liability Insurance
Any small business owner who sells a tangible product should consider purchasing product liability insurance. You can purchase product liability insurance as a stand-alone policy or as an add-on to your general liability policy.
One of the best reasons to purchase product liability insurance is that it covers the full product lifecycle. For instance, if your manufacturer defectively makes the product, or your packager defectively packages the product, a customer could still sue you since you since it’s your brand on the label. You’ll be protected if you have product liability insurance.
In the grand scheme, product liability insurance is quite affordable, costing 25 cents for every $100 of retai