Did you know that approximately 99.7% of employers are small businesses? This is the latest statistic according to the US Small Business Administration, also known as the SBA. So, if you currently run or own a small business in this country, you are in the presence of good company.
Additionally, since 1990, small businesses have created nearly 8 million new jobs in the U.S. Establishing and running a small business is certainly a challenging feat. Once you’ve put your blood, sweat, and tears into your beloved venture, it’s crucial that you also protect your investment.
In this article, we will review the main forms of small business insurance coverage that you will want to secure in order to keep your business flourishing.
Types of Small Business Insurance Coverage
Commercial Property Insurance
Commercial property insurance protects both the buildings that you own and any personal property located within those buildings. The personal property that will be covered include items such as computer systems, inventory, office furniture, and any machinery that aids in the function of your business.
This coverage protects you from incidences like vandalism, theft, fire, and damage caused by smoke. Furthermore, this policy may or may not protect you from interruptions to your business.
General Liability Insurance
If your business sells products or services, then you will need to purchase general liability insurance. This policy both safeguards and protects your business against damages if you or an employee causes or is accused of bodily injury or property damage to a third party.
Keep in mind that there are a few small businesses that are not required to carry a general liability policy, so speak with your insurance agent to see it’s something you will need to purchase.
Product Liability Insurance
If your small business sells products, you will want to purchase a product liability insurance policy. In the event that a product that you sell is found to be malfunctioning or defective, this insurance coverage will protect your business from financial loss associated with the product in question.
Errors and Omissions Insurance (Professional Liability)
If your small business provides professional services, you will want to consider professional liability insurance coverage. Those that generally secure this type of policy include real estate agents, lawyers, cosmetologists, accountants, insurance agents, and any other professional providing a service rather than a product. This policy will provide you with protection in cases where you’re accused of not providing appropriate services.
Worker’s Compensation Insurance
If your small business has employees, even just one employee, you might be required by the law in your state to carry worker’s compensation insurance. This is an extremely important policy that provides wage replacement and medical care for any employee injured while on the job.
Commercial Auto Insurance
If your small business owns vehicles used specifically for your business, you’ll want to purchase a commercial auto insurance policy. This provides coverage and protects your company’s vehicles from liability claims.
In the event that your employees utilize their own vehicles for company business, you can purchase a non-owner liability auto policy, which will also protect your business from liability claims.
Other Business Insurance Coverages
Depending on your circumstances, there are additional small business insurance policies that you may want to purchase. In order to protect your company and its administrative members from certain risks, you’ll want to consider the Directors and Officers insurance policy.
Business Owner’s Policies (BOP) provides a package of small business coverage, and environmental policies will be a must-have for small businesses within certain industries.
Finally, for breaches of sensitive information and risks associated with stored electronic data, a cyber liability policy will be your best protection.
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When you’re required to have a Surety Bond
There are four different types of contract surety bonds, which are generally used by contractors in order to reduce the risk for a real estate investor or project owner. The owner or investor acts as the obligee, while the contractor always acts as the principal. The following gives a better overview of each type of contract surety bonds:
- Bid Bond
In order to prevent a contractor from backing out from an accepted bid, a bid bond is a type of contract surety bond that guarantees the contractor will satisfy the terms outlined in a bid contract. It reassures the project owner that the winning contractor will complete the project specified in the submitted and accepted bid.
These types of bonds generally cost around $100 per bid, but the bonded amount will equal the full cost of the bid. In the event that the winning contractor backs out, the project owner has the ability to file a claim for damages for up to 100% of the agreed-upon contract.
- Performance Bond
Another surety bond that protects project owners is a performance surety bond. This bond offers protection in cases where a contractor fails to complete a project in the time agreed upon. As the name implies, performance bonds “bond” specific agreements drafted within the construction contract.
If these bonded obligations are not fulfilled, the obligee is able to claim financial damages. These bonds are usually required as part of the bid bond.
Furthermore, this surety bond guarantees 100% of the contractor’s total cost, and if the contractor falls short of meeting the bonded agreements within the project contract, the project owner has the ability to claim up to 100% in financial damages.
- Payment Bond
Rather than protecting the investor or project owner, payment bonds guarantee that the contractor will pay the necessary labor, material vendors, and subcontractors as specified in the construction contract. If the contractor does not pay labor costs once the project is completed, the obligees, or subcontractors, may file a damages claim.
Regardless of whether it’s required, payment bonds are excellent for contractors that hire outsourced labor, by reducing the risk to the subcontractor. The payment bond’s secondary benefit is it protects project owners from any potential liens or damages due to the general contractor’s refusal to pay its subcontractors.
- Maintenance Bond
In the event of financial losses due to faulty materials or deficient workmanship associated with a construction project, a maintenance bond provides protection for the project owner. Only required at the discretion of the project owner, the maintenance bond typically lasts between 12-24 months and costs between 1%-15% of the bonded amount, depending on the credit check of the one applying for it.
If problems are found by the project owner within the 12-24 month period, either a request can be made to the contractor to fix the problems or a damages claim can be filed. The maintenance bond puts the project owner’s mind at ease over the use of amateur contractors or the use of shoddy materials.
- License and Permit Bond
When someone applies for a contractor’s license or any other professional license, a license and permit bond will be required. This type of surety bond protects the public’s interest against failures to follow the regulations and codes specified for that professional license.
The most common professional occupations that require a license and permit bond include electricians, plumbers, contractors, and non-resident professionals.
It’s all about Mitigation
Owning and running any type of business opens you up to everyday risks that need to be transferred to a highly-rated insurance company. At Fairbanks Insurance Brokers, our team is well-known for designing affordable commercial insurance packages to put a hedge of financial protection around you and your business.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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