One of the most important items on the list of what has to be done when a small business starts up is to consider the need for business insurance. Every small business, of course, is unique and this means that its insurance needs must be individualized to meet that business’s requirements, too.
Small businesses range in size from owner operators right through to those employing dozens of employees. They might provide goods and services ranging from manufacturing to mining and marketing, education to e-commerce and entertainment, restaurants to retail, medical to media and many more categories. What they all have in common is that all small business owners must reduce the risks in running their business and that includes insurance cover. This article gives an overview of the range of insurance policies that might be needed by small businesses in Massachusetts.
Types of business insurance in Massachusetts
The most common insurance types that might be considered by small businesses in Massachusetts include the following:
- Workers’ compensation insurance;
- Commercial auto insurance;
- General liability insurance;
- Professional liability insurance/ Errors and omissions insurance;
- Commercial property insurance;
- Business owners’ insurance;
- Cyber insurance.
Insurance legally required by small businesses in Massachusetts
Only two types of insurance are compulsory in Massachusetts and even these are dependent on whether the business employs anyone and whether the business has a vehicle which is owned by the business. A great majority of small businesses would fit into these categories, so any start up small business would be wise to understand the requirements of workers’ compensation and commercial auto insurance and make sure that they are covered.
Workers’ compensation insurance is a legal requirement for any business operating in Massachusetts that employs one or more employees. The only small businesses not required to carry workers’ comp. are owner operators who do not employ anyone.
Workers’ compensation insurance is designed to provide financial compensation to workers who are injured or become ill while at work, even if this happens while working outside a workplace, e.g. delivering goods in a van or truck. It is a no-fault insurance policy, with only a few exceptions, such as the worker becoming injured while drunk or under the influence of drugs, or deliberately refused to obey safety rules. Compensation is primarily for medical treatment and lost wages because of absence from work. Workers receiving workers’ comp. normally cannot make a personal injury claim against their employer except in severe injury cases.
Commercial auto insurance is compulsory in Massachusetts if the business has one or more vehicles used by that business. This insurance is required if any of the business’s vehicles is involved in an accident and injures someone or damages their property. Insurance cover minimums are as follows:
- $8,000 personal injury protection (PIP);
- $20,000 bodily injury liability per person;
- $40,000 bodily injury liability per accident;
- $20,000 uninsured motorist coverage per person;
- $40,000 uninsured motorist coverage per accident.
- $5,000 property damage liability per accident;
Other small business insurance types
General liability insurance is often the first type of business insurance that new small business owners purchase. General liability insurance protects businesses from being sued if a customer, client or visitor is injured while on the business’s property or uses any faulty products, damage to a customer’s property occurs, or there are injuries from advertising, such as libel or copyright infringement. One of the reasons general liability insurance is sought after when a business starts upis that it is often a legal requirement for a commercial lease for the use of rented business property, or agreement for a loan or a contract.
Professional liability insurance is an important type of insurance cover for small businesses that provide professional services such as attorneys, accountants, architects and medical services. It provides cover in the event that professional errors or mistakes are made and recipients of services who have been affected seek compensation through a lawsuit.
For example, any business advice given leads to negative consequences for a client may see the client seeking compensation for the poor judgment and advice given. A project that has not met the deadlines given in the contract with a client may mean that the client decides to sue the business for breach of contract. Professional liability insurance can help to cover the legal costs of defense against lawsuits, including the cost of hiring attorneys.
A client can accuse you of a breach of contract if they feel that you or your employees did not adequately meet the conditions of an agreement, which can potentially result in a lawsuit. E&O insurance will protect you if a client sues your business for a contract breach.
Professional liability insurance is also called Errors and Omissions (E & O) insurance and is a common type of insurance cover used by small businesses specializing in professional services.
Commercial property insurance provides cover for any damage to the business’s own property, or rented property, including:
- broken windows and structural damage;
- computers and electronics;
- furniture and fixtures;
- inventory;
- lost income due to the damage affecting the operation of the business;
- tools and equipment.
An insurance certificate confirming that the business has commercial property insurance may be a requirement to show to a landlord if the business rents property.
A business owner’s policy is typically an insurance bundle that combines commercial property insurance and general liability insurance.
Cyber insurance is a recommended type of insurance policy for businesses that face a risk from cyberattacks and data breaches and who handle sensitive client information such as personal details and credit card information.
What insurance should your small business purchase?
Choosing the right type of insurance is a necessary part of any business plan before starting a new business. It is advisable to talk to a business law and litigation attorney about any specific legal requirements and the best choice of insurance policies to limit risk and the potential consequences of lawsuits if things go wrong.
For more information, visit our website or contact us for a free initial legal consultation today