(By: Brittany Brooks)
Is business insurance mandatory? Depends on your state. Most state laws require some type of business insurance coverage to protect your company and employees from the human condition.
However, the federal government requires all businesses with employees to at least maintain a policy for:
- Workers’ Compensation
- Unemployment Insurance
- Disability Insurance
Let’s discuss the importance of having these three. Afterwards, we’ll break down the must-haves.
1. Workers’ Compensation
Workers’ compensation helps your employees if they’re injured or become ill due to work-related reasons. It covers their medical expenses, rehabilitation, and a portion of their salary while they cannot work.
It’s essential to have because these are the costs the company will pay out-of-pocket if they don’t have workers’ compensation insurance coverage. Covering these costs yourself can amount to a severe cash flow problem.
Not to mention the fines and penalties implied by the state or federal government for not carrying a workers’ compensation policy. Noncompliance runs the risk of the business being shut down, losing revenue, and even further legal action.
2. Unemployment Insurance
There isn’t an unemployment insurance (UI) plan to buy for your company. The company pays for it through their payroll in the form of two taxes:
Some states might list their unemployment insurance tax as State Unemployment Insurance (SUI).
The amount of taxes paid is based on the amount of wages paid on your payroll. Since this is mandatory, there are some stiff repercussions if you neglect to pay the UI tax or commit UI fraud.
You’re subject to fraud if you miscategorize an employee as an independent contractor on purpose to pay less in UI taxes.
Depending on the state, UI fraud can be classified as a misdemeanor or felony with punishments as severe as jail time and a few other penalties are awaiting you:
- Forfeiture future tax returns
- Repayment of the UI tax owed
- Loss of UI eligibility
- Fines up to $10,000 and more in certain states
3. Disability Insurance
Disability insurance isn’t required in all states, and it’s actually only mandated in the following states:
- New York
- New Jersey
- Rhode Island
As an employer, you can get your plan through a private insurance carrier, but the carrier must be certified by the New York State Department of Financial Services. Find out your state’s requirements for disability plans to ensure you’re purchasing the correct one.
There are requirements based on employee eligibility, the type of coverage, and contribution amount.
State-sponsored disability programs are also available, e.g., the New York State Insurance Fund (NYSIF).
Failure to stay compliant is considered a misdemeanor in the state of New York and could result in incarceration and fines. Repeated offenders will be forced to pay more fines, getting more expensive with each offense.
How to Save Money on Business Insurance
You can save money by bundling certain policies together. We already know that unemployment insurance is paid through the FUTA and SUTA taxes from your payroll, so we don’t have to worry about a separate plan.
However, you can find an insurance carrier or agency to get you the best deal for disability insurance and workers’ compensation together. You’ll most likely receive a quote for one monthly or quarterly payment versus paying two separate bills to different companies.
Not Required, But Nice (Coverage) to Have
There are other business insurances available. Some are required by law, depending on your business type. However, most are not mandatory, but they give your business added protection.
Data Breach Insurance
Most companies store some form of customer information such as credit card payments, addresses, phone numbers, and emails – often without even knowing it (because of the interwebs). If this sensitive information is accessed without permission, data breach insurance will assist you with the aftermath:
- Let you know what data was breached
- How it happened
- And help your customers impacted by the breach
Key Person Insurance
Great for businesses to protect themselves in case your star player becomes disabled or passes away. It covers:
- Revenue loss due to that employee’s absence
- Hiring and training their replacement
- Operating costs until the replacement is found
Key person insurance is more for businesses that depend on a particular employee’s advanced skill set, network, or expertise. It may not be worth it if most of your employed staff perform general skills.
Professional Liability Insurance
Professional liability insurance protects your company in the event your client files a lawsuit suing you for an oversight, negligence, mistake, or bad advice.
There are different types of professional liability insurance depending on your business type, here are the most common:
- Medical malpractice insurance
- Errors & Omissions
- Directors & Officers Insurance
Not sure what type of business insurance is right for you? Contact Zupnick & Associates for their insurance expertise!