What Does Your Small Business Insurance Cover?

In business, it is often said that the customer is always right. That is, until he or she decides that he or she wants something else. Then you’ve lost your client forever, and you were not properly compensated for the sale. This is where small business insurance can save the day.

Small business insurance specifically covers small businesses with less than five employees. Small business is defined in the Small Business Administration as a private corporation, partnership, or LLC that has less than five employees. This means that the owner must be personally involved in the management and control of the company. The definition does not require any minimum number of employees, but some states do require at least one. If you have any employees, this coverage will also provide health care benefits.

Some of the things that are covered by small business policies are: malpractice and negligence, workers’ compensation, property damage, bodily injury, advertising and promotions, bankruptcies, and lawsuits. These are the typical conditions that are covered by most policies, and there is typically an exclusion for mismanaged businesses. Other exclusions may apply if you are self-employed or own and operate your own franchises. It’s important to check with your state’s laws for more specific details.

There are several types of small business policies available. General liability covers accidents and acts of nature that occur on your business premises. This usually includes a claim for pain and suffering but may also cover other damages such as lost earnings, for example. The coverage amount for general liability depends on the state’s average annual receipts. Employees’ compensation insurance, on the other hand, provides coverage for employees injured on the job. If your business has employees, this type of coverage could be a good choice to protect your assets.

One thing that many small businesses do not consider is what will happen to them should they be sued by a customer or other entity that feel they were wronged. Will the IRS come after you personally to recoup your losses? Will the IRS demand payment from you personally to satisfy the judgment? Depending on the state where you are located, the answer to these questions could determine whether or not you are protected by small business insurance.

State and local governments place different size standards for corporations. Some may be significantly smaller than others, especially if they are solely or primarily within one state. For instance, in California the largest companies must have at least five employees in order to be considered a “small business.” Many businesses in other states, however, may only have two employees or less.

Some of the things that you have the most control over regarding the size of your business are local and state government contracts. If you have the ability to expand your business with help from a local, state, or federal agency then you can usually use this as leverage when negotiating contracts. For instance, if the city or state requires certain environmental reviews before granting your business a contract then you might be able to get the extra time you need in order to complete the review process. The same goes for doing business on tribal lands or in areas that are historically significant. The local or state government contracts often dictate the size of business you can have out there in these designated areas.

One thing that many small business owners don’t think about is what happens to them if they are sued by a customer for something that happened within their company. Most small business insurance covers the owner or sole proprietor for injury or damage to a customer’s property. If you are sued by a customer for any kind of injury or damage then it is likely that you will also have coverage provided by your small business insurance policy. However, in many instances the insurance policy will only cover the owner or sole proprietor and not the company. This is why it is so important that you check your policy carefully before you sign up for anything because sometimes the company isn’t covered unless you specifically purchase small business insurance.

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