Veridrive Blog

Types of Insurance Every Small Business Needs to Protect Against Major Risks

PUBLISHED: November 12, 2024

Running a small business involves a lot of moving parts—from managing operations to ensuring that every aspect of the business is protected against potential risks. While there are various types of insurance policies available, four essential coverages stand out as foundational for protecting your business. In this guide, we'll break down Commercial Auto Insurance, Business Owners Policy (BOP), Commercial Package Policy (CPP), and Workers' Compensation Insurance to help you understand why each is crucial to a solid risk management strategy.

1. Commercial Auto Insurance

If your business relies on vehicles for daily operations—whether for deliveries, transporting equipment, or providing services on the go—Commercial Auto Insurance is essential. Unlike personal auto insurance, which doesn't cover vehicles used for business purposes, Commercial Auto Insurance protects against accidents, property damage, and liability arising from the use of business vehicles.

Coverage typically includes:

Liability: Covers bodily injury and property damage your business is responsible for in an accident.
Physical Damage: Protects against damage to your business vehicle(s) due to accidents, theft, or other covered events.
Medical Payments: Covers medical expenses for injuries to the driver and passengers.
Uninsured Motorist: Provides coverage if the at-fault driver in an accident lacks adequate insurance.
Why It's Essential: If you use any vehicle for business, personal auto insurance won't cover you. Commercial Auto Insurance is critical to protect your business from costly claims and liability in case of an accident.

2. Business Owners Policy (BOP)

A Business Owners Policy (BOP) is a bundled policy designed for small to medium-sized businesses. It combines several key coverages into one package, offering convenience and cost savings. A BOP typically includes:

General Liability Insurance: Protects against claims related to bodily injury, property damage, and advertising injury.
Property Insurance: Covers physical assets like buildings, equipment, and inventory from damage caused by events like fire, theft, and certain natural disasters.
Business Interruption Insurance: Provides coverage for lost income and operating expenses if your business is forced to close temporarily due to a covered event.
Why It's Essential: A BOP provides essential coverage in a single package, which simplifies managing your insurance policies while providing a broad layer of protection. It's particularly valuable for small businesses looking to streamline costs and stay prepared for everyday risks.

3. Commercial Package Policy (CPP)

For businesses with more complex needs, a Commercial Package Policy (CPP) offers flexibility by allowing you to customize coverage based on your specific risks. A CPP is an ideal option for businesses that may require additional coverage beyond what's included in a BOP.

Common coverages within a CPP include:

Commercial Property Insurance: Protects your business's physical assets, including buildings, equipment, and inventory.
General Liability Insurance: Covers liability claims related to injuries, property damage, and other risks associated with your business operations.
Inland Marine Insurance: Protects property in transit or stored off-site, making it useful for businesses with mobile equipment or goods.

CPPs can also include specialized coverages, such as:

Cyber Liability Insurance: For data breach and cyber attack-related losses.
Employment Practices Liability Insurance (EPLI): Protects against claims of wrongful termination, harassment, and discrimination.
Why It's Essential: A CPP provides the flexibility to choose specific coverages based on your business's unique risks. It's a valuable option if you require more comprehensive protection that goes beyond a standard BOP.

4. Workers' Compensation Insurance

Workers' Compensation Insurance is required in most states if you have employees. It covers medical expenses, lost wages, and rehabilitation costs for employees who are injured or become ill due to work-related conditions. In addition, Workers' Comp often provides protection against employee lawsuits for workplace injuries.

Key benefits of Workers' Compensation Insurance:

Medical Expenses and Rehabilitation: Covers healthcare and recovery costs for work-related injuries or illnesses.
Lost Wages: Provides partial wage replacement while an employee is unable to work.
Liability Protection: Reduces the risk of lawsuits related to workplace injuries, as employees are typically covered through Workers' Comp benefits.
Why It's Essential: Protecting employees is not only the right thing to do; it's a requirement in most states. Workers' Compensation Insurance ensures that you are prepared to support your employees' recovery while protecting your business from potential lawsuits.