Not all insurances are required or necessary, but they do offer extra protection should something unfortunate happens. Also if you want your product on the shelves of stores like WalMart, those stores will often require that you have a certain type of insurance.
General Liability Insurance
This is the most common insurance for small businesses. Although it’s almost too general of an insurance and many things slip through the cracks and aren’t covered.
The main purpose of this insurance is to cover damages during operations, should you happen to drive a forklift through the wall or a customer gets hurt while on your property.
This insurance also usually covers marketing errors, should you accidentally false advertise or infringe on someone’s copyright.
While most recommend this insurance for every business, I’m not so sure. Many businesses don’t even have storefronts. If you’re manufacturing in China and just sending the inventory to Amazon, then you don’t really have a true place of operations where things can go wrong.
Product Liability Insurance
This insurance protects businesses if their product causes injury or other damage to third parties. Consumers can be harmed by how a product is manufactured, designed, marketed or misused. Even if a product is used incorrectly, your business could still be liable for damages.
I find this insurance to be much more relevant, especially if you’re simply selling a product. Most small business aren’t worried what’s happening at their office (most likely home office), but they are worried once their product is out in the world.
An insurance endorsement is an amendment or addition to an existing insurance contract that changes the terms or scope of the original policy. An insurance endorsement may be used to add, delete, exclude or otherwise alter coverage. Endorsements may also be referred to as riders.
When discussing product liability coverage for small businesses, the most popular endorsement requested is Vendors Coverage. This endorsement extends coverage to specified vendors, which may sell or distribute products for the insured. Purchasing this endorsement can eliminate the need for the vendor to purchase a separate product liability policy for those products. Big chains like WalMart will demand that you have this.
Occurrence Policy vs Claims-Made Policy
There are two types of insurance policies: Occurrence and Claims-Made. Claims-Made means once you've exhausted your protection limit, you're no longer insured. So if you are protected up to one million dollars, and someone sues you for a million dollars, you are no longer covered going forward. You'll need to get a new policy. Whereas Occurrence restarts every year. At the start of the next year, you have a fresh one million dollars worth of protection. Occurrence also provides protection for the years you had the policy, even if you no longer currently still pay for the policy. So if you had a policy from 2013-2015, and someone sues you today for something that happened back then, you are still protected.
Duty to Defend vs Duty to Reimburse
If a policy is Duty to Defend, that means the insurance company is obligated to fight the legal battle for you. They take care of everything, they put their lawyers on the case. Duty to Reimburse means while they can still defend you, they also have the the option of making you do everything and simply reimbursing you and your own lawyer when you're done. This is a slow process and they may not reimburse everything you thought they would.