Owning your own business is empowering and challenging. Being a business owner involves quite a bit of risk. It’s important to limit some of that risk by purchasing the right insurance for small businesses. A single lawsuit or catastrophic event has the potential to wipe out a business before it has even started.
As a business owner, you have access to numerous types of insurance that can help protect against common dangers. Each business is different. In addition, each business requires different types of insurance to protect against each set of unique industry-specific exposures.
Someone who’s in the business of shipping their products may need different insurance coverage than someone who’s in the business of online personal training.
Every business owner should consider the following four major types of insurance for small businesses in Texas.
General Liability Insurance
Commercial General Liability (CGL) insurance protects business owners against claims of liability for: bodily injury (BI), property damage (PD), and personal and advertising injury (slander and false advertising). All coverage is subject to the terms, conditions, and limits of the policy.
CGL has products and completed operations coverage. Products and completed ops helps pay for BI and PD that occurs away from your business premises. Additionally, CGL claims involve your products or completed work causing the BI and PD.
CGL also has premises/operations coverage. Having this coverage, your policy may help pay for BI and PD that occurs on your premises as a result of your business operations.
General Liability has exclusions just like any other insurance policy. Here, you will not find coverage for damage to your own products. If you want to learn more about other policy exclusions, terms, and conditions, give our agency a call.
Commercial Property Insurance
Commercial Property insurance helps pay to repair or replace your building and business property damaged in the event of a fire, storm, or other occurrence covered by the policy. You normally have several different coverage options to choose from.
- Basic Form policies provide the least amount of coverage. They cover damage caused by fire, windstorm, hail, lightning, smoke, explosion, and vandalism. Also, aircraft and vehicle collisions, riots and civil commotion, sinkholes, and volcanoes.
- Broad Form policies provide coverage for causes of loss included in the basic form, plus damage from leaking appliances. Also, structural collapses, falling objects, and weight of ice/snow/sleet.
- Special Form policies provide the most coverage. These types of policies provide coverage for all causes of loss, except those specifically excluded in the policy. Most policies exclude coverage for damages resulting from floods, insects/vermin, wear and tear, earth movement, war, and nuclear disaster. However, these are not the only exclusions, just some examples.
In the event that you purchase any insurance policy, the full policy will be given to you. The policy will include everything from your declarations page to the terms, conditions, and exclusions of the policy. Always read your declarations page and policy, ask your agent questions, and store your policy in a safe place.
Replacement Cost vs Actual Cash Value
Along with the basic, broad, and special policy forms, you will need to decide between Replacement Cost or Actual Cash Value. You can also opt for a combination of both. Replacement Cost offers the best protection. Both Replacement Cost and Actual Cash Value policies are subject to coinsurance requirements, policy deductibles, terms, and conditions.
Replacement Cost coverage pays to repair or replace your property at current costs. A replacement cost policy will pay enough to rebuild your building and replace your property with new items.
Actual Cash Value coverage pays replacement cost less depreciation. Depreciation is the reduction in the value of an asset with the passage of time, particularly from wear and tear.
If you’re looking for minimal coverage, a basic form actual cash value policy should do the trick. If you want the most coverage you can possibly get, a special form replacement cost policy is what you need. Not all properties qualify for replacement cost coverage. This to say, be sure to talk with your agent about the options available to you. Express what you want out of your policy so they can tailor coverage to what you need.
Business Auto Insurance for Small Businesses
In Texas, it’s a law that any vehicle must be covered by liability insurance regardless if the vehicle is used personally or commercially. We can’t stress enough how important it is to make sure you insure your personal and commercial vehicles on the appropriate policies with the appropriate usage listed. Otherwise, you can put both the vehicle owner and business at risk.
(Important tip: Don’t mix your titles! Don’t insure a vehicle titled to your business on a personal insurance policy. Likewise, don’t insure a vehicle titled to you personally on a business auto insurance policy. There are exceptions for leased vehicles with the lease in writing and for at least six months.)
Businesses that have vehicles driven by employees usually need commercial auto insurance. Employee use of a vehicle for business activities such as visiting clients, making deliveries, and transporting goods show a need for business auto.
The cost of your business auto insurance relies on a lot of different factors. Profession, type of vehicle, driving history, location, travel radius, and coverage needs are just a few that directly impact your rate.
Common professions that usually need business auto insurance are contractors, pizza delivery drivers and businesses, consultants, cleaning services, electricians, bakeries, food trucks, landscapers, and more.
Workers Compensation Insurance
Workers Compensation (WC) insurance gives employees benefits if they get a work-related illness or injury. Also known as workman’s comp, the policy benefits may include coverage for the injured employee’s medical care. Also, replacement of most of their lost wages if they take time to recover, disability benefits, and paying for their funeral if they lose their life.
Workers comp can also help cover legal costs for the business owner if an injured employee or their family sues the business.
Texas state law does not require employers to carry Workers Compensation insurance. However, when an employer opts out of WC coverage, they leave themselves open to personal injury lawsuits from employees who are injured on the job.
Also, it’s extremely important to understand that if a business owner chooses to go “bare,” without this valuable coverage, their rights to common law defenses are automatically waived in the event of a lawsuit.
Workers Compensation should be considered by every Texas employer with employees, as it is very important insurance for small businesses.
We covered four major types of insurance for small businesses, but there are several other types of insurance to consider, as well.
Professional Liability Insurance/Errors & Omissions Insurance
Professional Liability insurance, sometimes known as Errors & Omissions insurance, is a form of liability insurance for small businesses. It helps protect professional advice given by professionals. Accountants, doctors, lawyers, real estate agents, inspectors, financial advisors, therapists, personal trainers, and other professionals can benefit from this coverage.
People will make mistakes. Accidents can, and likely will, happen at some point in a professional’s career. This type of insurance helps protect the professional and their company in the event a client files a lawsuit based on the professional making an error, omission, or other mistakes in the service they provided that ended with a bad result.
Commercial General Liability policies do not include Professional Liability. Furthermore, it is an affordable and valuable addition to your commercial policies.
Excess Liability Insurance
Excess Liability insurance pays for covered losses that exceed your Commercial General Liability policy’s limit. Also known as Umbrella Excess, this type of insurance for small businesses offers additional protection for catastrophes, unusual exposures, and additional liability beyond underlying coverages. Coverage is subject to the terms, conditions, and limits of the policy.
For example, let’s say a business owner was found legally liable for a customer’s injury on their business premises. If the damages/BI exhaust the business’s CGL limits, then their Excess Liability may kick in if the loss is covered, to help pay for the remainder.
Excess Liability premiums are relatively low as a result of rare usage. The required underlying coverage is used far more often than Excess. You can purchase anywhere from 1 million to a 10 million Excess limit. However, the higher the limit you request, the more digging the insurance company will do to find out why you want a high limit.
Another thing to note is that your underlying insurance policies will have to meet certain criteria in order to be eligible for an Excess Liability policy.
Employment Practices Liability Insurance
Employment Practices Liability Insurance (EPLI) offers protection against claims and lawsuits that are brought against a business, its officers and directors, or its employees and managers.
EPLI claims include gender, age, other types of discrimination, sexual harassment, wrongful termination and/or discipline. In addition, EPLI claims include negligent compensation, promotion, or hiring decisions, breach of contract for employment, invasion of privacy, libel or slander, and employee benefits management.
Every business with employees should consider the purchase of an EPLI policy to help defend against employment-related claims.
More Info on Insurance for Small Businesses
Always evaluate insurance for small businesses on a case by case basis. Finding a good agent to help walk you through what is necessary is invaluable!
We offer quality insurance products for Texas and New Mexico business owners. Our independent insurance agency is dedicated to helping you find the most affordable insurance solutions.