The current environment has caused nearly every business owner to reassess their financial risks. Many businesses did not predict, anticipate or insure against COVID-19.
Times of crisis are an occasion to revisit your small business insurance. Along with other types of insurance coverage like health insurance, life insurance and disability insurance, business insurance is a way to protect your company against the possible financial risks and liabilities of operating a business.
If you want to find out if your current business insurance covers losses from COVID-19, start by reading the fine print on your insurance policy. There will likely be a list of exclusions and exceptions to the exclusions. If a pandemic, epidemic or public health crisis is listed as an excluded event for your insurance policy, then you likely cannot get compensation for losses related to COVID-19. Without coverage, many business owners are wondering if it's too late to get business insurance during this time of crisis.
Can You Get Pandemic Insurance for Your Business?
There have been very few insurance policies available to protect against this type of risk. According to CNN, one of the few insurers to offer any pandemic insurance prior to COVID-19 was Marsh, which offered a “PathogenRX” product starting in 2018. The risks of a pandemic, unlike fires and floods, were hard for insurers to evaluate and hard to price. Many businesses did not consider buying coverage because of policies that may have seemed too expensive for an unlikely and hard-to-understand level of risk.
Unless you already had an insurance policy that specifically covered the types of financial risks that are being imposed upon businesses by COVID-19, it’s too late to get small business insurance coverage to recoup losses. The best thing to do in this situation is to consider purchasing small business insurance so that you're covered in the event of another economic slump caused by an event of this scale.
Why Get Business Insurance at all?
Business insurance can be a safety net to help protect your business from a variety of risks, such as natural disasters, lawsuits, employee injuries, property damage and an unpredictable event such as COVID-19. Small business insurance should be part of your overall financial plan, just like health insurance, paying taxes and saving for retirement. Your business insurance policy can help you save money and recover faster from the next crisis or disaster.
Even if you didn’t have any insurance to help protect you from COVID-19 (and many businesses did not), it’s never too late to invest in your business’s financial future with small business insurance.
Necessary Small Business Insurance to Consider in the Future
There are several types of small business insurance, depending on your business and whether you have employees. Mandatory types of business insurance for companies with employees typically include:
Workers’ Compensation: This insurance is mandatory for employers with full-time or part-time employees, and exact details depend on the state. The goal of this insurance is to help provide compensation for employees who get injured or become ill while on the job.
Unemployment Insurance: This coverage is paid for by employers and employees via withholding taxes from every employee paycheck. If you have to lay off workers, this insurance fund helps provide cash benefits to tide them over to find their next job.
Disability Insurance: Some states require employers to buy disability insurance to cover lost income for employees who become incapacitated by non-work-related illness or injury. Companies might also choose to provide group disability insurance as part of their employee benefits packages.
Besides these insurance types specific to protecting employees, there are several other options for business insurance coverage that any company might need, even if there aren't any employees.
Other Types of Business Insurance to Consider
Business Liability Insurance
Protection against lawsuits is a top concern for many business owners. If a customer, employee or supplier feels that your business has mistreated or harmed them, they might sue you for damages. Liability insurance can protect you.
There are a few types of business liability insurance:
General Liability insurance: This coverage can protect your business from claims related to personal injury or property damage caused by your business’s operations, premises or products.
Professional Liability Insurance: If your business provides professional services to customers, you should get this type of coverage to protect against claims or lawsuits related to professional malpractice, errors or omissions. Some states require all businesses to carry this type of coverage.
Data Breach/Cyber Liability Insurance: If your business collects sensitive or confidential customer data, such as health information or credit card numbers, this coverage can protect if your business is hacked or suffers a data breach.
Product Liability Insurance: If your business makes products, this coverage can protect you from lawsuits related to defective/faulty products that cause injury or bodily harm.
Disaster and Business Interruption Insurance
What if you want to protect your company from some of the bigger-picture disasters that might affect your business operations? Along with the typical commercial property insurance and commercial flood insurance, which most business owners hopefully already have in place, there is business interruption insurance to help replace your lost revenue in case of a disaster.
How business interruption insurance works: This type of coverage helps insure your business income. It can help your business recover from disaster faster by replacing the lost revenue that your business would have earned if the disaster had not happened. Not all disasters are automatically covered by this type of policy, so make sure to read the fine print and consider purchasing additional riders or coverages if needed.
There is currently some uncertainty about whether or not business interruption insurance policies will cover losses from COVID-19. Many business owners that already owned business interruption insurance prior to the pandemic are discovering that their insurance companies have denied their claims. This dispute is now working through the court system, with more than 100 lawsuits filed so far. No one knows yet whether the insurance companies will cover the COVID-19-related revenue losses, if the government will bail out the businesses or if all three groups will work out a solution.
If you buy business interruption insurance today, make sure to read the fine print and see what types of disasters are covered or excluded. Hopefully, as we move forward past this crisis, there will be better clarity on what these policies cover.
Business Insurance for Home-Based Businesses
Many small businesses today are home based, or the business owner spends at least part of their time conducting business operations from home. You may want to get special insurance coverage that is specific to the needs of a home-based business. According to the Insurance Information Institute, there are three main types of coverage for home-based businesses:
Endorsement to Your Homeowner's Insurance Policy: You can sometimes add an extra piece of insurance coverage ("endorsement") to your current homeowner's insurance policy that will give you additional coverage specifically for your business. This might be worth spending money on, since your homeowner's insurance may not cover certain risks or costs related to business operations.
In-Home Business Insurance Policy: This type of insurance can give you more expansive coverage for certain business costs, such as business equipment, critical documents and business property. In case your home is damaged and you have to shut down your business, this type of insurance can also give you income replacement coverage, similar to business interruption insurance.
Business Owner's Policy (BOP): This type of coverage is more comprehensive and customized. Not every home-based business needs this level of coverage, but if you have a business of a certain size, with more complex risks and potential liabilities that need to be covered, the BOP might be the right choice. Your insurance agent can help you design a complete BOP that suits your specific risks and business needs.
Even though it’s too late to buy pandemic insurance for COVID-19, your business should consider getting protection against the next crisis of this kind. Preparation now can save your business time, effort and money in the wake of a future crisis.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.