November 22, 2021

Types of Insurance for Small Businesses

Types of Insurance for Small Businesses

In order to run a small business smoothly and effectively, you need to ensure it’s adequately protected even when you’re busy taking care of clients or holding meetings with your investors. The unfortunate truth is, countless businesses collapse every year due to unforeseen events such as fire, workers’ strikes, loss of valuable stock in transit, and other perils. One of the surest ways to secure a small business is to insure it!

Small business insurance offers financial protection to shops, restaurants, warehouses, and factories against a myriad of risks, such as:

  • Earthquakes and floods
  • Machinery breakdown
  • Legal action against your company

And a lot more.

We have compiled a comprehensive list of business insurance policies that will provide your small business sufficient, well rounded protection against a host of prevalent risks:

1. Fire and Allied Perils insurance

A comprehensive insurance policy that every business can benefit from! This policy covers assets like building and structures, plant and machinery, stocks, and other assets against loss or damage caused by fire, explosion, riots, strikes, landslides, floods, and over a dozen other perils.

There are three main Fire Insurance policies that cater to different businesses based on their size- the Standard Fire and Special Perils policy (SFSP for businesses with assets worth more than ₹50 Crore, Bharat Laghu Udyam Suraksha policy (BLUS for businesses with assets worth less than ₹50 Crore but more than ₹5 Crore, and Bharat Sookshma Udyam Suraksha policy (BSUS) for businesses with assets worth less than ₹5 Crore.

2. Burglary and theft

It is important to secure stocks and valuables kept at your warehouse, shop, office or factory from being stolen or damaged during a burglary. Burglary and theft insurance is an ideal financial protection for such risks. This policy will reimburse you for the market price of the insured assets that have been lost. But keep in mind that there are certain limitations to the kind of asset you will be covered for, which depends on your insurer.

This policy is usually offered as an add-on to Fire Insurance.

3. Commercial Motor Insurance

If you use motor vehicles for your business activities, buying a commercial motor insurance policy is vital, since any loss or damage to these vehicles can cause huge financial casualties that will be hard to recover from. Depending on your business model, there are different types of policies available such as Passenger carrying Vehicle (PCV) Insurance, Goods Carrying Vehicle (GCV) Insurance, and policies that cover movable plant and machinery. These policies cover against loss or damage caused to your vehicles, and any death or injury caused to the vehicle’s driver/owner, its passengers, or third parties.

4. Engineering Insurance policies

Engineering acts as the backbone of every construction and development project. Whether you are expanding your business or building your first factory/office, there are various engineering activities that you need to engage in. These large scale projects are accompanied by a large number of risks, and that is where policies like Industrial All Risk (IAR), Contractor’s Plant and Machinery policy, Machinery Breakdown Insurance, and many others come into the picture. These can offer comprehensive covers against all losses that may occur during developmental projects, civil engineering projects, and other construction work.

5. Marine Cargo Insurance

Marine Cargo Insurance covers loss or damage to cargo/goods in transit (between points of origin and final destination) against risks such as fire, lightning, collapse of bridge, collision, and other accidents. The goods in question may be transported via water, air, road, rail, registered post or parcel, courier, or any of their combinations.

Marine cargo insurance comes in different categories like Single Transit for businesses who ship goods only occasionally, Open Cover for export and import merchants dealing in international trade, and Open Policy for large businesses who deal with numerous transit transactions.

Related: Marine Hull and Machinery Insurance

1. Workmen's Compensation

In India, employers are legally liable to provide compensation to their workers in the event of an accident that may result in injury or death. A Workmen’s compensation insurance policy is a way to financially cover this liability. Through this policy, employees working in factories, mines, workshops, etc. can get easily compensated for any bodily injury, death, or disability. This policy is also known as Employee Compensation Insurance.

2. Director's and Officer's (D&O) Liability

This liability cover provides financial protection to the directors and officers (board of directors, executives, managerial employees, etc.) of your company against legal action arising out of any wrongful act conducted by them in their managerial capacity. This covers risks such as regulatory investigations, accounting irregularities, wrongful termination of employment, and discrimination charges, among other things.

3. Professional Liability

Professional indemnity insurance covers businesses and individuals against damages caused to third parties during the execution of their consulting or other professional services.

This policy is also known as Errors and Omissions Insurance and is aimed at protecting your company and its subsidiaries against any legal action arising from negligent acts or omissions. This policy is ideal for consultants, medical professionals, media companies, financial institutions, insurance brokers, and other service-led businesses.

4. Group Health Insurance

The most important resource your business has are its employees. Hence, investing in Health Insurance for them is a great way to provide them with financial protection in times of need. A Group Health Insurance policy provides comprehensive health cover to a group of employees and their families. This insurance policy is much cheaper than individual health covers and the premiums are usually borne or subsidised by the company.

5. Group Personal Accident Insurance

This is similar to a Group Health Insurance cover in that it provides cover to a group of your employees. However, Group Personal Accident Insurance, as the name suggests, covers all expenses associated with accidents. Through this policy, employers can give their employees comprehensive coverage that includes accidental death, permanent disability, ambulance charges, change in lifestyle expenses, etc.

Further Reading

Insurance policies that are mandatory for businesses in India

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.