How Much Business Insurance Do I Need?

How Much Business Insurance Do I Need? If you own a small business, it is imperative that you set it up with proper insurance to protect yourself, the business, your customers, and your equipment from the unforeseen issues that can arise. While I can’t cover every single type of business insurance today, I want to cover the nine types of most commonly needed business insurance. While business insurance might seem like a luxury item or something that can be put on the back burner until you are ready, business insurance is incredibly important, not only for protecting your business.

What types of business insurance do I need?

First, find out what business insurance you need. There are two main types:

Commercial property insurance: This helps you get money back if your property is damaged, lost, or stolen.
Business liability insurance: This covers your legal expenses if someone sues your business.

Some liability insurance plans work for all businesses, while others are tailored to those with employees, commercial property, or other risks. Once you know which policies are right for your business, figure out how much coverage you require.

How much business liability insurance do I need?

If you’re buying liability insurance because a lease or contract says you have to, your landlord or client will probably tell you how much coverage you need. Liability insurance is usually needed to protect others from financial risk. It makes sure you can pay for any legal costs if someone sues your business.

For instance, when clients consider hiring your business, they might ask for proof that you have errors and omissions insurance, also known as E&O or professional liability insurance. This insurance demonstrates that your business can compensate clients for financial losses caused by professional mistakes made by your team. Typically, client contracts require a minimum coverage of $1 million.

If you lease an office, your landlord might insist that you have general liability insurance. This insurance covers legal expenses related to injuries suffered by clients or other third parties at your office, as well as damage to third-party property. Rental agreements usually mandate a minimum coverage of $1 million for each incident and a total coverage of $2 million.

What are typical liability coverage limits?

Errors and omissions insurance

also called professional liability insurance, helps with legal costs if a client sues your business for a professional mistake, like contract issues or missed deadlines. It covers things like lawyer fees, settlements, and other legal expenses.

Around two-thirds of tech businesses get E&O insurance with a limit of $1 million per incident and a total limit of $1 million.

Cyber liability insurance

Cyber liability insurance helps pay for fixing problems caused by cyberattacks and covers legal costs if there’s a lawsuit due to a data breach. Tech companies, in particular, are at risk of cyberattacks, so it’s crucial to have a high coverage limit.

Many tech companies get a cyber liability policy with a $1 million limit.

Employment practices liability insurance

Employment practices liability insurance (EPLI) helps pay for legal costs if a current or past employee takes legal action against your company for things like unfair firing, harassment, discrimination, or other violations of employee rights.

For tech businesses, a typical EPLI policy often has a maximum coverage limit of $1 million for each occurrence.

When do I need additional liability coverage?

If a project has problems, any business connected to it might be mentioned in a lawsuit. When thinking about the risks to your business, remember this “chain of liability.” For instance, an online advertising publisher faced legal trouble for unwanted texts and emails in a lawsuit, even though they didn’t send those messages.

Defending against unnecessary lawsuits can be costly. Even if someone is making weak claims against your business in a lawsuit, you’ll have to spend money to hire a lawyer for representation. Even if the person suing you eventually drops the case or the judge dismisses it, you could still end up paying thousands of dollars in legal fees.

Some businesses can have lower insurance coverage, but others might need more coverage depending on their earnings and the chances of facing a lawsuit. If you’re not sure about your business’s risks, an insurance agent can assist you in understanding and managing them.

However, the lawsuit included all the businesses related to the messages. At that time, the usual fine for advertisers messaging people without permission was around $1,000 per incident. This meant that the potential total amount owed could reach millions of dollars.