How do you plan on protecting your personal assets if one of your clients gets injured, you damage somebody’s property, or you get in a car accident while on the job? If your answer is your personal umbrella, homeowner’s, or car insurance, you may not have any protection at all. Keep reading to learn why and what you need to do.
Personal Insurance Policies Exclude Business Activities
Most people have personal liability coverage from a homeowner’s or renter’s insurance policy. You might also have an umbrella liability policy if you have a high income or high net worth. And, of course, if you have a car, you almost surely have at least the minimum car insurance coverage.
The problem is that virtually all of these policies have commercial exclusions. While you might have coverage in your day-to-day life, the coverage turns off whenever you’re engaged in business.
It’s not that insurance companies don’t want to cover your business. It’s that you need the right kind of insurance the same way your car insurance doesn’t cover your house.
Personal Liability Policies are Personal
Personal liability coverage from your homeowner’s, renter’s, or umbrella policy generally covers personal acts. These policies cover things ranging from you accidentally knocking a little old lady over to your dog biting someone to someone slipping and falling on your icy sidewalk. However, suppose something happens to a business client or while you’re doing a business activity. In that case, you generally won’t have coverage for it even if it’s a type of accident your personal insurance might normally cover.
Standard Car Insurance Doesn’t Cover Commercial Use
Personal car insurance will typically only cover personal driving. That means driving for personal errands and leisure as well as commuting. Once your car becomes the company car, you need separate commercial car insurance.
The distinction between personal commuting and commercial use is a gray area that can vary based on your policy language. If you’re generally driving to a fixed job site with occasional side trips, like an employee, it likely falls under commuting. However, if you’re transporting customers or hauling equipment between multiple job sites each day, that will likely fall under commercial use.
Personal Property Coverage is for Personal Belongings
Depending on your insurance policy, you may or may not have a small amount of business property coverage. The general idea is that insurers may cover a little business property that you happened to have with you out of convenience. They typically won’t provide full coverage for all your tools and equipment. Again, this will vary based on the specifics of your policy.
What Small Business Insurance Coverage Do You Need?
There are generally five types of business coverage that you’ll need to consider purchasing. In addition to protecting your business, these coverages can also keep you from getting sued personally if your business doesn’t have enough assets to cover the claim.
- Commercial general liability coverage: General liability insurance covers things like accidental property damage, clients slipping on your office floor, or injuries you cause to passersby while working. Even professional services providers should consider general liability insurance. It covers everyday accidents that can happen in any business location not just injuries specific to your work.
- Professional liability/malpractice/errors and omissions): Professional liability insurance covers actions directly related to your business judgment and skill. This includes things like a doctors’ mistake during surgery or a lawyer leaving something out of a contract.
- Business property coverage: Commercial property insurance protects your tools, equipment, business vehicles, and commercial buildings against theft, fires, and other damage.
- Commercial auto insurance can give you both liability and comprehensive/collision coverage if you’re involved in an accident while driving for business purposes.
- Workers’ compensation insurance: Workers’ comp covers lost wages and medical bills for workers hurt on the job. If you have employees, you’re usually required to carry this coverage by law. If you’re a business owner, it’s an optional coverage, and you need to specifically request to have owners covered under your policy.
Insurance policies vary by issuer. Some states may have laws requiring insurers to include or exclude certain things from their policies.
Talk to your insurance agent to learn more about what kinds of coverage you need, what limits you need, and whether your personal insurance provides any protection. Since business insurance options vary widely by provider, you should get a business insurance quote from multiple companies before making your decision.