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Do Online Businesses Need Insurance?

If you’ve started an online business, you probably have many questions about running your company. One of online entrepreneurs' most common quandaries is determining if they need business insurance. In a word, yes. Every business, even online ones, needs insurance. But the answer is more complex than that.

In the last decade, the business landscape has changed dramatically. Think about it—in 2012, few people owned a smartphone, and the traditional shopping mall model with department and specialty stores still dominated the retail space.

Fast forward ten years and factor in a pandemic, and little remains from the business world of 2012. Customers spend more time than ever online, and most people rely on the internet for everything from working from home to buying their pet’s food.

So it should be no surprise that online spending has increased by more than 50% between 2019 and 2021. And where are these consumers shopping, you may wonder? Online businesses!

In 2020, entrepreneurs started 4.5 million online businesses in the U.S. That’s a huge increase, considering 3.5 online companies began operating in 2019.

If you’ve started an online business, you probably have many questions about running your company. One of online entrepreneurs' most common quandaries is determining if they need business insurance.

In a word, yes. Every business, even online ones, needs insurance. But the answer is more complex than that.

What kind of insurance do online companies need?

You know you should get insurance, but what kind? There are so many options that demystifying what your business does and doesn’t need can be overwhelming. But instead of letting these decisions stress you, try thinking about insurance like any other product you need for your business.

You need vendors for internet service, office supplies, and more. Insurance is no different. And just like your other vendors, select the kinds of insurance you get based on your business needs.

General liability

General liability is one of those policies that every business must have, period. Operating without it is just asking for a career-ending accident to take your company down. And nobody wants that.

This type of insurance is a great place to start with online business insurance. These policies are general enough to cover almost any issue you encounter. Here’s how a general liability policy will protect your business:

  • Property damage: General liability will cover the damages if you damage a client’s or vendor’s property while conducting business. For example, if you own a window covering business and an installer damages a client’s wall while installing new blinds, your policy would cover the repair costs.

  • Bodily injury: You also need protection if one of your customers gets hurt. To use the window treatment example, if the installer’s ladder falls over and physically harms the client, general liability would cover their medical costs.

  • Reputational harm: Sometimes, people just don’t get along. So what happens if an employee interacts poorly with a client and uses social media to badmouth the customer to ease their frustration? Some clients would sue for reputational damage, and general liability policies cover legal costs if that happens.

  • Advertising injury: You may also encounter a situation where an entity uses your business image and other intellectual property improperly. General liability protects your business from these situations by covering the legal costs to protect your business’ image.

General liability insurance is the most crucial type of coverage any business, including an online business, can have. So it’s fortunate that general liability insurance costs are relatively low. For most companies, a $1M policy will only cost a few hundred dollars a year.

However, most online businesses shouldn’t stop at general liability. Instead, they should consider a few other policies to protect their interests fully. Read on to learn more about the other kinds of insurance online business owners need.

Product liability

There are many different online businesses, but ultimately, you can categorize every single one as a company selling products or services; most online businesses sell products.

If you’re one of them, having product liability insurance is an absolute must. This type of coverage protects you if your products are defective and don’t work as designed. So if your product damages a customer’s property or causes bodily harm to a user, you are covered. Should the client sue your company, your legal fees are covered, too.

Let’s revisit the example of the window treatment company. The installer successfully comes to a client’s home and sets up new blinds. The customer is happy with the result, but after a few days’ use, the customer notices the blind’s brackets are coming out of the wall.

Before they know it, the whole blind detaches from the frame, hitting your customer on their head on the way down. So now, they have a set of defective blinds, in addition to a massive hole in the wall and a concussion, to boot. Despite this unfortunate series of events, a product liability policy would cover the costs of replacing the defective blinds, repairing the hole, and the customer’s medical bills.

Professional liability

Once reserved for professions like legal services and accounting, professional liability is becoming more critical than ever. This type of insurance comes into play when the product or services you sell aren’t delivered in a quality or timely manner.

Let’s say you own an online website design company. Due to a series of circumstances, you miss a deadline to launch a client’s new site. Naturally, the client isn’t happy and believes the delay causes their sales to drop.

Or maybe you deliver the website on time, but it is full of errors and omits many of the features the customer contracted you to include. Of course, the client doesn’t like that and believes their poor site experience is hurting their business.

In both cases, professional liability insurance would cover the damages should the client pursue legal action against your company.

You hate to think about circumstances like these because you want always to provide excellent products and services to your customers. But the reality is things happen, and perfection simply isn’t possible. When you fall short, professional liability picks up the slack.

Commercial property & auto

Even though your online business probably doesn't have a storefront, you have to run your business from somewhere. Maybe it’s a rented office or a space in your home. Wherever you do business, commercial property is an essential coverage type.

Contrary to public opinion, your homeowners or renters policy won’t cover an office space used for a business. So if your home is lost to fire, flood, or another disaster, your office, and its contents won’t be covered.

Getting a commercial property policy protects your office, supplies, and equipment, no matter where they are. Commercial property insurance will also reimburse your costs if your products or tools are damaged or stolen.

And commercial auto insurance works the same way. Despite having an individual policy on your personal vehicle, you need a commercial policy to cover damages that occur while conducting business.

These policies are no-brainers for the business-owned and operated fleet vehicles. For example, a commercial auto policy would cover the damage if you have an installation van for your window treatment business and an installer accidentally backs into a client’s car.

Workers’ compensation

This type of insurance may require a little research because every state has different worker compensation requirements. However, most states require online businesses to secure workers’ compensation insurance if they have one or more employees.

No matter what the laws are in your state, it’s always a wise decision to have workers’ compensation. If an employee gets injured on the job, these policies cover medical costs, lost wages, retraining, and even provide survivor benefits.

Why do online businesses need insurance?

Many entrepreneurs believe that operating an online business carries less liability than a traditional brick-and-mortar company. In some ways, they’re right. Online businesses often have less direct interaction with the public and more control over the riskier aspects of running a business.

But that doesn't make online businesses immune to problems. They simply face different ones. And just because an online business's challenges differ from traditional companies, it doesn’t make them any less liable for damages.

Getting insurance boils down to protecting your company from risks. And no one can argue that there are risks in every type of business.

If you don’t have insurance for your online business, now’s the time to assess your risks and protect your company.

posted September 6, 2022
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