When it comes to doing business online, some business owners either ignore the risks they face or simply don't understand them. Not dealing with people face-to-face can cause some to put their risk management on the back burner. But any business that does that can suddenly find themselves dealing with unforeseen events they're not prepared to deal with.
Online businesses have many similar needs to brick and mortar companies, but they have some unique ones, too. Here are the insurance options that are most recommended for protecting your online business.
General Liability Insurance
At a bare minimum, every business – online or otherwise – should have a good general liability insurance policy. To understand why, consider the following scenarios (they're more common than you might think).
When a dispute arises over an item or service purchased online, the buyer can still sue you even though they’ve never set foot in your actual business premises. If you operate an IT consulting company, computer repair service, or you’re a web or graphic designer, you have the same legal liability as a brick and mortar business.
A business or individual can also sue you for advertising injury offenses such as libel, slander, product disparagement, rights violations, and copyright infringement. These lawsuits are almost always totally unexpected and can result from seemingly innocent actions. You might, for instance, re-post an article or image to social media. Even if you provide a link or credit to the source, the copyright holder can still sue you for copyright infringement if they hold exclusive rights over the content (learn more about Liability Risks on Social Media).
Many business owners don’t realize that social media platforms ask you to certify that you are the owner of the intellectual property rights for everything on your account, so you end up in court for what you thought was a common, acceptable practice.
Even if you outsource your work, you might still find yourself on the wrong end of a suit. If a freelancer you hired writes a disparaging comment about a competitor or their products using your business name, you could be held liable for tarnishing their reputation. Not only does it make you look bad, but you could be forced to pay for damages.
Home-based businesses are not immune to lawsuits, either. If clients come to your home office and get injured, they could sue your business. Even third-party marketplace sellers using platforms such as eBay and Amazon risk lawsuits if their products or services harm a customer or their property. That means if you sell someone electronics that turn out to be faulty and cause fire damage to their house, they could sue you for substantial damages to recoup their losses (see Working from Home? You Might Need Insurance for That for other home business considerations).
Online businesses are open to these and other similar financially devastating events. That's what makes general liability essential. A general liability policy will cover lawyer fees, court costs, and settlements if your business is found liability for personal injury or property damage. Without it, these costs will come out of your profits and may sink your company.
Professional Liability Insurance
Professional liability insurance (also known as errors and omissions insurance) protects you if your company makes a mistake or provides inadequate service, causing financial harm to another company or person.
This insurance coverage protects professionals who are expected to meet industry standards of care, such as financial advisors, physicians, lawyers, and computer consultants. If a client sues your business because they believe you did not meet these expectations, your policy pays legal expenses and settlements.
This coverage is extremely important for sole proprietors, since they can rarely survive the financial burden of a lawsuit. If your business outsources work to contractors, take the time to make sure they have professional liability insurance, too. Otherwise, your business could end up paying for their mistakes.
Cyber Liability Insurance
Operating an online business means spending countless hours on the internet. Unfortunately, that also makes you very vulnerable to data breaches and data loss, especially if you’re a small operation.
Half of small businesses in the U.S. were victims of a breach in 2016. Without dedicated IT staff and adequate training, they are easier targets for email malware, ransomware, phishing, e-commerce attacks, and social media and mobile breaches. Although these cyber attacks are increasingly common, a standard business insurance policy still won't cover these issues.
If your business maintains a customer database with personal information, you could incur many additional expenses following a data loss. Most states require you to notify the affected parties, and it's a costly and time-consuming process.
A 2017 study found that the average cost per breach is $37k for legal fees, improved protection, investigations, audits, and crisis management. Additional costs include consultant fees, lost opportunities due to your damaged reputation, and marketing to reduce the impact. This could easily amount to another $8k. Without the protection of a cyber liability policy, your business bears these costs.
Business Owner’s Policy (BOP)
A business owner’s policy combines property and liability risks into a tailored package. It includes general liability coverage and often property and vehicle insurance. You can also add specialty coverage such as flood insurance and business interruption insurance which protects against revenue losses during a major event.
This is worth looking into. Combining coverage under one policy can be very cost-effective and simplifies the insurance process (find out how a BOP differs from a general liability policy).
Commercial Umbrella Policy
If you already have a business insurance policy, but you’re concerned your general liability coverage is too low, you can supplement it with an umbrella policy. It increases business liability coverage to protect you when lawsuit costs exceed the limits of your underlying business liability coverage. And the best part: it's a lot of additional coverage at a very affordable price (learn more in Umbrella Insurance for Businesses: Is It Necessary?).
Get the Protection You Need
Proper coverage is a reasonable precaution that is worth more than its premium price. There’s no reason to risk your business when you can have peace of mind instead.
Internet-driven business requires standard and specific coverage. Discuss your needs with your insurance agent. They can tailor your coverage, protect you, and respect your budget.