8 Common Vendor Insurance Requirements
Carrying insurance as a vendor is a method of asset protection that we hope never to have to use — but are glad to have if/when we need it.
But, unlike personal insurance policies, which only come in a few common coverage types, vendor insurance coverage can vary substantially. For instance, what you’ll need as a business that sells firearms will be more extensive than what a cotton ball vendor would need.
No matter what kind of product or service you offer, though, it’s possible that damages can occur. Somewhere in the chain of supply, from worker to consumer, insurance may be necessary.
So how do you know how to separate what’s required to have from what you really should have and what’s not necessary?
1. Commercial General Liability Insurance
Investing in a Commercial General Liability policy (CGL) is a way to keep your business protected from costs incurred through non-professional acts of negligence.
When property damage or a personal or advertising injury is caused by your company — either through the service, product, daily operation, or an employee — CGL kicks in.
Medical and legal expenses, compensatory damages, and punitive damages are taken care of by the insurance company. Until the costs reach the policy limits of your coverage, your business does not have to deal with the financial repercussions.
When CGL is Important
You’ve heard of “slip and fall” accidents. A customer visits your business and is somehow injured, perhaps slipping in a small puddle of water that wasn’t mopped up yet. A lawsuit follows.
Or, a contractor purchases a bulk order of lumber from you, but the wood was warped and ended up causing damage to a home they built.
As the investigations continue and the lawsuits are in process, this can be stressful for any business owner. Even if you ultimately end up not liable, the defensive legal expenses add up.
Typical policies include:
- Bodily Injury and Property Damage Liability
- Independent Contractors Liability
- Contractual Liability
- Product Liability
- Completed Operations Liability
Minimum/maximum amounts vary based on the contractor’s discretion. These are commonly seen in amounts such as $1 million for a combined single limit, per occurrence, and $2 million for aggregate occurrences.
2. Workers’ Compensation
When you own a business that has employees, Workers’ Compensation insurance is always a smart idea. Whether it’s required or not depends on your state and the features of your company.
This kind of insurance covers your employees if they sustain an injury in the course of their job. It steps in and pays them partial wage replacement benefits. If they need medical treatment, they can see doctors on the workers’ comp insurance list.
Should their injury become so severe that they’re unable to perform the same work they were doing, workers’ comp insurance will pay for them to learn another skill. This is done through vocational rehabilitation programs.
Do You Need Workers’ Compensation Coverage?
Every state has its own workers’ compensation laws. In general, it depends on how many employees you have.
Many states say if you even have one employee on your payroll, you need the coverage. But others will let you get away with having up to three workers before you have to invest in a policy.
If you’re not sure, the State Workers’ Compensation Officials can help you get clear answers.
Check with your agent to see what your policy excludes. Some state laws don’t require coverage for independent contractors, domestic workers, or farm employees.
3. Employer’s Liability Coverage
The Employers’ Liability (Compulsory Insurance) Act of 1969, enacted in the U.K., opened the door to policies in the U.S. Now, businesses can choose whether to invest in Employer’s Liability Coverage as an added form of protection against financial damages.
This coverage is a type of insurance that employers often carry to protect employees against personal injury. It’s similar to workers’ comp but goes a step further.
What’s the Difference?
While workers’ comp pays for medical and lost wages, employer’s liability protects your business from lawsuits.
Many on-the-job injuries end up having two main parts to them:
The employee’s medical issues and the subsequent lawsuit they file against your business for causing the injury.
In a nutshell, workers’ comp protects the employee from being financially impacted by the accident. Employer’s Liability Coverage protects you (or rather, your business’s assets) if the employee decides to sue.
4. Business Automobile Liability
If you or your employees drive on contractor or client property, consider business automobile liability insurance.
Also called a business automobile policy (BAP), this coverage takes care of any damage caused by a vehicle while it’s carrying out a job for you.
Your BAP should cover the following:
- Vehicles that are leased or owned by your company
- Vehicles hired out in your name
- And cars owned by your employee but used for the business
What a BAP Covers
During the course of the job, should a vehicle commissioned by you end up damaged or causing damage, your BAP takes care of it. This includes collision, specified perils, comprehensive coverage, and liability.
Check your policy before purchasing the coverage. It should include bodily injury and property damage for owned, hired, and non-owned vehicles.
Many contractors will require a minimum policy limit of their own choosing. If your business subcontracts with a company and your employees drive to the job, expect to be asked for your proof of insurance.
5. Professional Liability
General liability covers much of what most businesses need. But professional liability is essential in careers like healthcare, legal jobs, and other areas where malpractice and negligence are common.
Suppliers with professional designations or state licenses that provide their service should have professional liability coverage (PLC).
What PLC Protects You From
Also called Errors and Omissions (E&O) or professional indemnity insurance, this coverage protects you from the consequences of mistakes you might make.
Possibly the most universally recognized reason for PLC coverage would be protection for physicians from a malpractice lawsuit. But this is by no means the only reason a business would need to have a professional liability policy.
If a customer claims your business was negligent, misrepresented your product or service, or gave inaccurate advice, they can file a lawsuit against you.
The legal expenses to defend your business will add up. PLC policies cover these fees while the lawsuit is in process.
However, the policy doesn’t cover:
6. Umbrella or Excess Liability Coverage
Umbrella coverage (also called excess liability insurance) protects you from costs that may exceed other policy limits.
If your coverage limits aren’t enough to pay for the legal costs, medical bills, or other damages incurred, umbrella coverage kicks in.
Some contractors will accept an umbrella policy as sufficient if your other policies don’t meet the minimum insurance they require.
When You Need Umbrella Coverage
This type of insurance is less frequently purchased. Some factors make it a good investment, though.
Businesses that have substantial client interaction, work on other people’s property, or have open hours for public visitation should consider umbrella policies.
This is also commonly used when event insurance is necessary. An umbrella policy may come in handy for food vendors, someone in a trade show, or anyone renting a booth at a farmers’ market.
Verify your deductibles before you invest in an umbrella or extended coverage policy, though.
7. Cyber Risk Insurance
More and more common today, cyber risk insurance is necessary if you have a third party that accesses private information during the project.
If the third party can store or access private, protected, or confidential information, cybersecurity insurance covers you from negligence or cyberattacks.
When the job you provide requires you to partner with another party, this insurance may be necessary. But it’s also a good idea to have it regardless of who you’re working with. Cyber attacks are a real threat to any entity that stores information online.
Cybersecurity Insurance Coverage
Breaches happen all the time, even with companies that have complex, multi-million dollar security systems. Unfortunately, any breach that occurs related to your business is ultimately your responsibility.
Cybersecurity insurance covers:
8. Product Liability Insurance
As a business in a supply chain, you’re liable for any damage caused by your product or service. Sometimes referred to as vendor liability insurance, product liability coverage (PLC) is a way to protect your business from financial harm if said damage occurs.
Out of all the personal injury lawsuits that occur each year, product liability is one of the most expensive. Unless you want to pay for the injured party’s medical bills, your legal expenses, and any compensation they are awarded yourself, you should have product liability insurance.
How Product Liability Insurance Benefits You
Say that somewhere in the supply chain, someone sustains an injury, and it’s possible that your business’s product was involved. It can take years to clear your name or become officially liable.
You’ll still need to cover many expenses during that time, including your legal defense and the injured person’s medical bills. But those aren’t the only financial repercussions.
When a lawsuit becomes public knowledge, it often negatively impacts the business’s reputation and sales. PLC policies can provide a buffer should that happen, too, helping you stay afloat while the lawsuit is going on.
No one wants to be on the receiving end of a negligence claim. Having product liability insurance makes dealing with the lawsuit and damage a lot less stressful.
9. Why Vendor Insurance is Important
The point of all insurance is asset protection. The policies you choose from medical coverage to liability issues are strategically intended to protect your business’s assets. In some situations, your personal assets are at risk, too.
The type of coverage you purchase is a choice based on your individual business’s needs. If you’re trying to get certificates of insurance to prove to event organizers that your business is covered, they’ll tell you what you need as exhibitors or vendors. Short-term policies may be sufficient in these situations.
But as a small business owner, you may want a liability insurance policy to cover you against expensive costs from lawsuits. The peace of mind you get from knowing you’ve protected your business is worth the investment.
Yet, having a backup plan in place beyond insurance policies is also smart business practice.
What will you do while the insurance company is investigating to see if they’ll cover your claim?
A Plausible Situation
As an example, a company with a liquor license covered a one-day special event during which someone under 21 was injured. The medical reports state the individual was intoxicated, and the prosecution says that the liquor company’s employees provided the injured party with alcohol.
Their business’s liquor liability insurance is investigating whether the situation meets the policy’s coverage guidelines. In the meantime, the business’s liquor license is temporarily suspended.
How will they cover their overhead and stay in business while they wait for their license to be reactivated?
This situation is a plausible example of why you need a backup plan.
If your business invoices clients, one possible solution is to partner with an accelerated invoicing company, like Now. Now will pay you for your invoices, minus a small fee, and then collect the money directly from the client.
It’s an easy way to cover your overhead and expenses when you need working capital fast. Whether the problem is as simple as a slow season or as complicated as a lawsuit, your backup plan can be the same thing.
As a business owner, most of your insurance policies will go unused— which is a great problem to have!
But when you need it and don’t have it, the problems spiral into a domino effect of financial woes.
Each of these eight common vendor insurance policies has its own unique reasons for being important.
Will your business need them?
It’s up to you and the backup plan you have for dealing with a significant economic hit.
See if you qualify for accelerated invoice payments by signing up for your very own NowAccount!