Commercial Insurance Basics for the New Small Business

Starting a new business can be an exciting, yet stressful time.  The demands and requirements can be overwhelming; however, with the proper team in your corner, including an attorney, accountant and insurance agent, you can focus on what you need to do - grow your business.

Whether you're starting a consulting business, retail shop, dog walking service, or anything in between there are insurance issues that all small business owners should know in regards to their coverage.  In the course of speaking with clients over the years here are a few common questions we have received from start-up business owners:

1. Why do I need insurance if I have an LLC? Isn't that enough protection?

The protection afforded by an LLC or any other business structure is information that can be obtained from an attorney; however, without insurance, your business will have a hard time complying with the requirements outlined in any contract. 

• A landlord will need to ensure that you have a premises liability policy in place to rent space for your business.  This would protect against injury or damage due to the ownership, occupancy or use of the premises. 

• A client may require that you provide proof of Commercial General Liability insurance (CGL) or professional liability insurance.  The reasons for this could be to ensure they have an avenue of recovery should your business cause them harm, or may be because they want to use this as evidence you are an independent contractor and not an employee.  A CGL policy covers many of the common liability loss exposures faced by an organization, while a professional liability policy covers a business engaged in various occupations against liability resulting from their rendering or failing to render professional services.  Professional liability insurance is also known as malpractice or errors and omissions (E&O).  Please be aware that most CGL policies do NOT include coverage for professional liability insurance so this must be purchased separately.

Even if you do not enter into any contracts, you will want to consider the practical and ethical reasons for obtaining insurance.  You are working very hard to establish your business.  Would you really want to dissolve it to avoid paying a claim?  After all, we are all human and people make mistakes.  How would you feel if a company you did business with wronged you but simply walked away from the responsibility?  Even if you did reestablish under a different name, could your business recover from the negative public relations?

2. I work out of my home.  Doesn't my homeowners insurance cover my business?

In short - no!  Most homeowner policies state that the liability or property damage arising from the business pursuits of an insured is excluded.  Now there are some companies that can add coverage for a small  or incidental business onto the homeowners policy; however, this must be reviewed and approved by the company on a case-by-case basis. 

There is also very limited coverage for any business property in or out of the home.  The basic policy typically provides up to $2500 while at your home and $250 while away from your home.  If you have any inventory or computer equipment stored in your home or car, it would be subject to this limit, so there is not a lot of coverage.

3.  I don't need worker's compensation insurance.  I only have someone help out part-time.

Workers compensation laws apply throughout the US, and obligate employers to pay specified medical, disability (lost wages), rehabilitation and death benefits for an employee's job-related injuries or disease.  This obligation exists regardless of whether the employer or employee was at fault. 

If you have a college student stuff envelopes during the summer, and say they trip while entering the building because their shoes weren't tied, you could not only be responsible for their medical bill, but also be subject to a hearing and fine from the Department of Labor.  It really is a very big deal, so whether you have an employee, friend, child or spouse help out in your business contact your insurance professional to discuss.  If you would like more information about who is an employee vs. an independent contractor, visit the NH Department of Labor website.

4. Why would I need a commercial auto policy?  I don't have a truck!

This is a topic that comes up frequently at HPM Insurance as this is not necessarily on the radar of many small business owners, but how the car is used in business can severely impact your coverage.  It is important to discuss how you use your vehicle with your insurance professional.

If you are a consultant and do not have a sign on your vehicle and simply go to various client locations, you can most likely keep your personal auto policy but have business-use coverage added to it.  Business-use coverage for a personal auto policy is intended for the insured that does not typically go to one location for work, but instead may visit numerous locations during any given day.

If you have decided to customize your car with your business name and logo, or perhaps make deliveries to your clients, your coverage may be in jeopardy on a personal auto policy.  Again it is better to discuss your situation with an insurance agent before a loss happens.

For more information about personal vs. commercial car insurance, read our NH Car Insurance vs. NH Business Insurance blog.

5.  What should I do to protect my new business?

• Contact an insurance agent to discuss the specifics of your business.
• Be forthcoming with your agent about exactly what you are doing to ensure proper coverage.
• Ensure the insurance agent provides you options in the coverages offered.
• Read you policy and ask questions about issues you don't understand or coverages that may be missing.
• Review any contract prior to signing it to ensure you have the insurance in place or is available to protect you and your small business.
• Update your insurance agent if you expand out of state or out of the country, or bring on something, or someone, beyond your original business model.

Again - best of luck to you in your new venture! 

This material is for informational purposes only.  All statements herein are subject to the provision, exclusions and conditions of the applicable policy.  For an actual description of all coverages, terms and conditions, refer to the insurance policy.