In these days of the global pandemic, many small businesses are struggling to survive. Those that are going to make it are the ones that have reduced expenses and pivoted to meet the needs of customers right now.
If you own a small business, you may be tempted to cut expenses further by letting various types of insurance not mandated by law lapse. This article explains why this is a bad idea and could potentially ruin you, and comes from the office of a prominent Philadelphia workers’ compensation lawyer.
What Workers’ Compensation Insurance Covers
Workers’ compensation insurance covers employee injuries, diseases, and conditions incurred in the course of employment. It will cover an injured employee’s medical expenses, compensate them for lost wages, and compensate them for partial or total temporary or permanent disability caused by workplace conditions or a workplace accident.
Most states require most employers to carry workers’ compensation coverage. States impose substantial financial penalties and even jail time for failing to carry workers’ compensation insurance when required.
Some states allow large multinational corporations to self-insure, in other words, to assume financial liability for workplace injuries, diseases, and conditions.
What Workers’ Compensation Insurance Does Not Cover
- Injuries to day laborers, temporary or seasonal workers, and independent contractors, unless there is some indicia that the employer has misclassified the worker and the worker is actually an “employee” for the purposes of workers’ comp;
- Injuries to third parties such as passers-by, customers, vendors, and the like, incurred at your job site, on the sidewalk outside your building, or in your office;
- Harm to customers from a defective product you made, distributed, or sold;
- Employment discrimination lawsuits;
- Lawsuits brought under the Americans with Disabilities Act (ADA);
- Injuries sustained in an accident to the company vehicle, if the people involved are not your employees or they are employees who were not authorized to use the vehicle.
If you can imagine any of the above happening at or to your small business, you need insurance coverage for that contingency. A single lawsuit has the potential to destroy a small business that is under-insured or uninsured.
Other Types of Insurance Small Businesses Should Consider
General Liability Insurance
General liability insurance protects your company against third-party claims of bodily injury, property damage, or advertising injury.
Commercial Property Insurance
Commercial property insurance covers damage to your owned or rented building and your equipment, inventory, and supplies.
Business Income Insurance
Business income insurance, also called business interruption insurance or income protection insurance, replaces income lost due to one of the covered contingencies. These contingencies may include natural disasters such as a fire or a flood, a pandemic, or a war.
General liability insurance, commercial property insurance, and business interruption insurance are often bundled together in one Business Owner’s Policy (BOP) by insurance carriers. The following types of insurance are available as add-ons:
Commercial Auto Insurance
Commercial auto insurance covers claims related to a car accident you or your employee has in the company vehicle or a personal vehicle when that vehicle is being used for business purposes.
For example, if you are driving the company car and rear-end someone, property damage and compensation to anyone injured are covered. If you are driving your personal vehicle to meet a potential vendor and get into an accident, your commercial auto insurance will help pay claims of injury and property damage.
States fall into one of two categories: at-fault and no-fault. In an at-fault state, the insurance policy of the person who is responsible for causing the accident will payout. In a no-fault state, each driver’s insurance will pay the policyholder. Be sure to purchase enough coverage to cover your risk in your state.
Professional Liability Insurance
Many professions are regulated by the state, and under state law, practitioners must carry professional liability insurance, also called malpractice insurance. These professionals include, among others:
- Funeral directors
Historically called “errors and omissions” insurance, professional liability insurance pays claims for damage caused by negligence or by failing to meet the performance standards for that profession. Professional liability insurance covers not only clients’ claims for damage due to your alleged malpractice, but your costs to defend against such claims.
Data Breach Insurance
These days any business dealing with personally identifiable customer information gathering and storage should have data breach insurance in case of loss or theft of that information. Data breach insurance is also called cyber insurance.
Data breach insurance covers not only the claims of parties whose information was lost or stolen, but your costs to notify individuals who were impacted by the breach, your costs to offer those individuals identity theft monitoring services, and your costs to create a public campaign about the breach and what you are doing about it.
Commercial Umbrella Insurance
Last, commercial umbrella insurance is available to extend the coverage limits of some of your other insurance policies. This insurance will cover the costs of a liability claim that exceed the amount of coverage you purchased.
For example, if a customer sues you having slipped and fallen on your icy sidewalk, and medical expenses alone exceed the amount of general liability coverage you purchased, umbrella coverage can pay the difference.
Not every type of business insurance available is suited to every company, nor is every type mandated by law. A construction company will necessarily have different insurance needs than a pet store or an accounting office. You should assess the risks of doing business, then protect yourself and your company against loss due to those risks by procuring and maintaining the appropriate types of business insurance coverage, in addition to workers’ compensation.
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Philadelphia workers’ compensation attorney Larry Pitt, Esq.