Business insurance policies can be a legal requirement for all companies and the laws do not just apply to multinational business conglomerates and medium-sized local firms. There are insurance requirements that apply to even the smallest of handyman side gigs run by two people. However, there are several differences; not only in how the business insurance laws apply to small businesses but also in their specific requirements. Let’s get started with the legal requirements.
What is Business Insurance?
In a nutshell, business insurance is an umbrella term for a range of insurance types that protect businesses from various risks. In return for paying a small sum, the insurance covers your business if the worst happens, and something goes wrong. Follow the link to learn more about the cost, how to get business insurance, and more.
Small Business Insurance: Legal Requirements Overview
As far as business insurance laws are concerned, only the state laws and then the local laws (city, town, county, etc.) should be of concern to the business owner. Visit the local government’s official website and look in the small business section for answers. If you can’t find all the answers or if you need more information on the subject, contact the city/town/county directly with your questions.
The legal requirements will vary in accordance with your business’s field, employee strength, entity type, etc., but you can still expect general liability insurance to be the most common licensing requirement for most businesses. The following examples should help get the point across:
- Businesses within the supply chain industry – Commercial vehicle insurance, and general liability insurance.
- General contractors, roofing contractors, etc. – Contractors liability insurance.
- Loan companies, engineering companies, drafting companies, underwriting firms, etc. – Errors and omissions insurance.
- Medical practices, healthcare clinics, law firms, etc. – Professional liability and malpractice insurance.
Depending on the concerned field of work, what is being insured (company, company vehicle, company equipment), and the local laws, different types of liability insurance policies will have different clauses. If you choose well, your small business insurance provider itself will help you learn more about small business insurance requirements, and guide you in finding out what would be best suited for your particular small business.
Employer’s Insurance Requirements
Employer’s insurance refers to insurance coverages that an employer may choose to or be legally obligated to provide to the employees. Employer’s insurance policies can be classified under two broad categories, namely workers’ compensation insurance and disability insurance.
Workers’ Compensation Insurance
If a worker gets injured, develops an illness, and/or dies because of either, they or their immediate survivors could be entitled to insurance coverage from the employee. In general, a worker’s compensation insurance policy should cover all expenses related to the employee’s:
- Lost wages
- Medical treatment
- Rehabilitation and retraining
- Funeral arrangements and beneficiary payments (in case of death).
That’s workers’ compensation in a nutshell, but the exact details vary a lot depending on the concerned state, field of work, cause of the accident, etc. The following examples should provide a better idea regarding how different the legal requirements can be for workers’ comp insurance policies from state to state.
- Arizona, California, Alaska, Connecticut, Illinois, Kentucky, and Michigan are just some of the states where every business with even one employee must carry worker’s compensation insurance.
- Worker’s compensation insurance is mandatory in Delaware, Ohio, and the District of Columbia, if the business has two or more employees.
- Texas is the only US state where worker’s compensation insurance is not mandatory for any employer.
- Employers with less than five employees don’t need to opt for workers’ compensation insurance in Missouri, Montana, Mississippi, Florida, South Carolina, Tennessee, West Virginia, and Alabama.
If the employee got injured on the job and none of the fault could be attributed to the employee’s own carelessness, mistake, or disregard to mandated safety precautions, then the employer may need to pay them disability checks, or settle with them after a one-time, lumpsum payment. However, if disability insurance coverage is not a part of the workers’ compensation policy, then it might only be optional at the employer’s discretion. On the other hand, that does open employers up for hefty lawsuits.
In California, New York, Hawaii, New Jersey, Puerto Rico, and Rhode Island, it is mandatory for employers to cover their employees’ disability payments, even if their disability or illness did not originate because of the work that they do for the employer. However, employers will only need to pay a portion of the wages in such instances, which itself can be covered by opting for employer’s disability insurance policies.
Other insurance coverages that small businesses should consider would include commercial property insurance and business equipment insurance. These are not mandatory, but highly advisable all the same. Even if your business is home-based, there are alternatives to commercial property insurance, called home business insurance to consider.