Subscription Biz Basics: Business Insurance 101, Part 1

Primer to protect your company from potential risks and financial loss

Whether your subscription business is brand new or has been around for a while, you want to protect your assets against potential risk which includes everything from personal injury and loss of inventory to professional liability and data breaches. Ideally, you’ll never face any of these perils, but protecting yourself and your subscription company with the right types of business insurance now can prevent huge losses later. Better safe than sorry, right?

Despite the doom and gloom, there is good news: Subscription Insider is here to help! As part of our Subscription Biz Basics series, we’ll explain the various types of business insurance in part 1 of this article, outlining the options and explaining what each type of coverage is for. Next month we’ll publish part 2 which will cover how to buy business insurance. First, let’s take a look at the types of business insurance available to you.

Types of Business Insurance

There are many types of business insurance, but we’ll focus on the types of insurance a subscription or subscription box company is most likely to purchase. While many types of business insurance are optional, some are required by law, particularly for employers. Additionally, lenders and investors may require that you maintain certain types of insurance, so their assets are protected too.

Requirements are dictated by individual states, so it can be helpful to work with an experienced business insurance broker who is licensed to do business in your state.

Now let’s review the various types of insurance coverage a business owner should consider.

Business Owner’s Policy (BOP)
General Liability Insurance
Product Liability Insurance
Professional Liability Insurance
Officers and Directors Insurance
Commercial Property Insurance

All-risk policies
Peril-specific policies

Business Interruption and Loss of Earnings Insurance
Home-based Business Insurance
Commercial Auto Insurance
Life Insurance

Permanent Life Insurance vs. Term Life Insurance
Individual Life Insurance vs. Group Insurance
Key Person Insurance

Data Breach
Workman’s Compensation
Unemployment Insurance
Health Insurance
Disability Insurance

Short-Term Disability
Long-Term Disability

1. Business Owner’s Policy (BOP): A BOP combines different coverages into a single insurance package which may have a lower insurance premium than having multiple policies. A BOP typically includes property, general liability, business vehicles, and business interruption coverage.

A BOP is a good option for startups, but it is important that you understand what types of coverage are included and which are not. If you have specific risks like product liability or professional liability, for example, you may want to purchase separate coverage.

2. General Liability Insurance: This type of policy protects a company if the business owner, its employees or the company’s products and services cause or are alleged to have caused bodily injury or property damage to a third party. A general liability policy usually covers legal expenses related due to accident, injuries and claims of negligence as well as payments that result from bodily injury, property damage, medical expenses, libel, slander, legal costs, and settlement bonds or judgments required during the appeals process.

For additional liability coverage, you might consider an umbrella business liability policy. Coverage limits typically range between $1 million and $5 million and are appropriate for companies with higher risks or large assets.

3. Product Liability Insurance: Companies that manufacture, wholesale, distribute or retail a product may be liable for the safety of that product. A product liability insurance policy protects a company against financial loss that results from a defective product that causes injury or bodily harm to a third party. This type of coverage is particularly important for subscription box companies who are mailing out products to subscribers each month.

4. Professional Liability Insurance: Also called Errors & Omissions Insurance (E&O), professional liability insurance provides defense and damages for the failure to render professional services or for improperly rendering of professional services. Coverage protects your business against malpractice, errors and negligence in your service to customers.

Professional liability coverage is not included in a general liability policy, and it typically applies to professional service firms like attorneys, accountants, notaries, real estate agents, insurance agents, technology providers, consultants, etc. There is also medical professional liability insurance, often referred to as medical malpractice insurance. Such insurance is required by some states, so be sure you understand your state’s laws.

5. Officers and Directors Insurance: This type of business insurance covers costs and damages resulting from a lawsuit brought due to the actions of officers or directors that negatively impact the profitability or operations of your company.

6. Commercial Property Insurance: If your company owns or leases a building or has property like office equipment, computers, inventory or tools, a property insurance policy will protect your subscription or subscription box company against fire, smoke, wind and hail storms, floods, earthquakes, vandalism, civil disobedience, theft and other perils.

If any of this property is financed, your lender may require you to have property insurance. Note: Some perils (e.g., earthquake, flood, etc.) may be excluded, so review the policy carefully to be sure you understand what’s covered and what is not. It may be possible to purchase policy riders or a separate policy to cover such items.

Property insurance can be broken down into two types of policies: all-risk policies that cover a wide range of occurrences and perils except those specifically excluded, and peril-specific policies that cover specific losses. All-risk policies generally cover risks faced by the average small business, while peril-specific policies are more common in areas where those specific perils present a higher risk, like flood and crime. Business interruption insurance is peril-specific.

7. Business Interruption, Continuation and Loss of Earnings Insurance: This type of insurance can be added to a property insurance policy. It covers lost earnings if your subscription company must be shut down due to a peril covered in the property insurance plan. It also covers expenses related to running the company including payroll and utility bills. Coverage is based on the company’s financial records.

8. Home-based Business Insurance: If you are just starting out and are working out of your home, your homeowner’s policy probably does not cover home-based business losses. You can, however, add riders to that policy to cover normal business risks like property damage. You may wish to have supplemental coverage in the form of general or professional liability insurance.

9. Commercial Auto Insurance: With this type of insurance, subscription companies can protect corporate vehicles that transport employees, products or equipment. If your company doesn’t have vehicles but employees use their personal vehicles to conduct company business, you can purchase a non-owned auto liability policy to protect the company if the employee doesn’t have insurance or their policy is not sufficient.

10. Life Insurance: Life insurance is a very broad category, so we’ll just touch on it briefly here. Life insurance protects an individual against the inevitability of death. In many cases, an individual purchases a life insurance policy to provide for their family and protect their assets upon their death.

Life insurance, like key person insurance, can also be used to protect a company against financial loss if they lose the business owner or another key officer within the company. Key person insurance, for example, can be used to help a company continue operations while they search for a replacement for the person who died, or to buy out the key person’s heirs to acquire their shares of the company.

We can further break life insurance down into individual and group insurance and permanent and term life insurance policies. An individual policy covers one person, where a group policy covers a group of people, such as a group of employees. Permanent insurance, also called whole life insurance, insures a person for their entire life, while a term policy covers someone for a set period of time, such as 10 years, 20 years or 30 years.

11. Data Breach: In recent years, widely-publicized data breaches have occurred at companies like Target and Home Depot. In fact, last December, Target agreed to a $39 million settlement with several U.S. banks over its data breach². Yikes! With data breach insurance, however, you can protect your company against potential loss if such a breach occurs and customers’ data is lost or compromised.

For Employers:

Each state sets the insurance requirements for businesses in their state. Most states require that employers carry worker’s compensation insurance and unemployment insurance.

12. Worker’s Compensation: Most states require worker’s compensation, often called worker’s comp, insurance to protect employees who are injured at work. Worker’s compensation covers lost wages and provides medical benefits to workers who are hurt on the job. To receive these benefits, employees give up the right to sue the employer for the accident or injury.

Workman’s compensation coverage can be purchased through a commercial carrier, through your state’s workman’s compensation office, or companies can self-insure. Note: Business owners, independent contractors, domestic employees in private homes, farm workers and unpaid volunteers are usually not eligible for workman’s compensation.

13. Unemployment Insurance Tax: Most employers pay federal and state unemployment taxes to provide benefits for employees who lose their jobs. Consult your accounting and legal teams to determine the federal and statement requirements that affect your business.

14. Health Insurance: The Affordable Care Act (ACA), sometimes referred to as Obamacare, is a federal statute that added several provisions impacting small businesses, including the Small Business Health Options Program (SHOP) marketplace, health care tax credits, and new reporting and notification requirements. Visit http://healthcare.gov/small-businesses for details.

15. Disability Insurance: Disability insurance coverage helps replace lost income if you or your employees are unable to work for an extended period of time due to physical or mental illness or injury. Short-term disability coverage typically covers claims for three to six months. Long-term disability coverage usually begins after six months of disability. Coverage and limits will vary by policy.

Some U.S. states and territories, including California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico, require employers to provide disability insurance.