Why Online Businesses Need Commercial Insurance

As an online business or an E-commerce store, you may think you don’t need conventional insurance coverage—but you would be wrong. Online retailers face just as much risk as brick-and-mortar retail businesses. As a small business owner, how do you protect your business? What business policy or policies do you need? Insurance for online retailers can be complicated—so let us simplify it for you.

Why an eCommerce Business Needs Insurance

An online retail business or eCommerce store isn’t just a website. You take payment from customers and communicate via email. You likely have inventory or products in your home or stored in a warehouse. If you sell a service, it leaves you open to being liable for professional errors.

• What if your website is hacked and customer information is stolen?
• What if your products are damaged in transit to your warehouse?
• What if one of your products is defective and hurts a customer or causes property damage?

The right business insurance can protect you from all the “what ifs” that you may face in your business. What online businesses need business insurance?

• Online retailers
• Drop shippers
• Manufacturers
• Importers
• Service providers

If you operate an online store, make sure you speak to an agent to verify the policies you may need for your specific industry.

What Other Insurance Policies Do Online Retailers Need?

Because an online retailer faces a variety of business risks, you need to consider a wide variety of coverage. 

Consider a Business Owners Policy

The first insurance we usually recommend to small business owners is a business owners’ policy (BOP). A BOP is an insurance bundle that typically includes general liability insurance, commercial property insurance, and business interruption insurance. An insurance company will usually offer this policy to small businesses at a more affordable rate than purchasing each coverage separately.

• General Liability Insurance: A commercial general liability policy (CGL) protects a small business from claims of third-party bodily injury, third party property damage, and personal advertising injury. 
• Commercial Property Insurance: Sometimes referred to as business property insurance, this covers any building that houses your inventory. Property coverage can also protect computers and other electronics if you work from home. 
• Business Interruption Insurance: Also referred to as business income and extra expense, this can provide you with compensation if you’re unable to operate your business. This can include lost profits, payroll, taxes, bills, and even the cost of a temporary location. 

Cyber Liability Insurance + Data Breach Insurance

As the store owner of an online retail business, you're aware that you store and process sensitive customer data daily. You need to do your part to protect your customer's private information and mitigate the risks you face. Cyber liability insurance (also referred to as data breach insurance) protects your retail business if you are subject to data breaches. This insurance can reimburse the cost of a cyber-ransom, help you notify impacted customers, and offer them a credit-monitoring service. It can also help you restore your damaged reputation.

Product Liability Insurance

Product liability insurance is important if you sell a product in your online store. If the item harms your customer or damages their property, they can sue you for liability. Product liability coverage can provide you with legal representation to defend your business in court and pay out settlements or judgments when deemed necessary. 

Professional Liability Insurance

Do you run an online store where you sell courses or offer coaching services? If a customer suffers a loss that they claim is directly due to your advice, professional liability insurance (or errors and omissions insurance) comes in handy. For example, let’s say you sell a course that claims you’ll help customers 10X their revenue in 90 days. One of your customers sue you because they implemented your steps to success and ended up losing business. Professional liability insurance can cover the settlement if your customer wins a lawsuit.

Workers Compensation Insurance

Workers' compensation insurance is necessary for any business that has employees—even if they’re all remote and you operate solely online. It’s legally required in most states and protects both you and your employees. If one of your employees suffers a work-related injury, workers’ comp can pay for their medical costs and lost wages until they recover.

Example: One of your employees fulfills online orders. Because it’s the Christmas season, they’ve been working overtime to make sure everyone receives their Christmas gifts on time. Unfortunately, this employee suffers a repetitive stress injury in their wrist. Their doctor recommends that they allow their wrist to heal for two weeks. Workers' compensation can cover their lost wages and medical expenses while they recover.

Commercial Auto Insurance

If you or one of your employees uses a vehicle for work, you need a commercial auto insurance policy. Another vehicle-related policy that you need to consider is inland marine insurance. Inland marine insurance protects your inventory and other cargo while it’s being transported to your warehouse. The moment your inventory is transferred into your vehicle, it is your responsibility. If it is damaged or destroyed in an accident, your cargo is not covered by commercial auto insurance.

Suspension and Chargeback Insurance

Do you sell your products on Amazon, Etsy, or a Shopify platform? If you work with Amazon you know that having your account suspended for any reason can absolutely destroy your retail business. If you depend on any of these distribution channels, it can cripple your supply chain. Unfortunately, it doesn't take much for Amazon to suspend your account—and it can be a time-consuming and costly process to get reinstated. Suspension insurance is a newer coverage that can help cover your losses if you are suspended from an online marketplace. You can expect more insurance companies to begin to offer this coverage as online retailers take over the marketplace.

Chargeback insurance comes into play for online retailers who primarily use credit cards, debit cards, etc. as their main form of online payment. If a stolen credit card is used to purchase from you, a bank can force a chargeback. It simply means you may lose out on payment for your product because it was flagged as fraudulent. It can also come into play if a customer claims a product they purchased was never delivered.

Commercial Umbrella Insurance

Why does an online business need an umbrella policy? Commercial insurance policies tend to cost more for more coverage. Sometimes—instead of paying for an insurance policy with higher limits—it's more cost-effective to purchase commercial umbrella insurance. If a customer submits a claim that exhausts the limits of your general liability insurance policy, for example, an umbrella policy can pay whatever remains so you don't have to.

How Much Does Business Insurance Cost for an Online Retailer?

As an online business owner, you may be concerned with how much you have to pay for insurance. But you have to weigh the cost of the insurance against what not having it may cost you. The average cost varies significantly due to numerous factors, including:

• What things your online retail store sells
• How many employees you have
• Whether or not you have a warehouse/physical location
• If you use a car for business
• The deductible and policy limits you choose
• The insurance company you choose

We always recommend speaking to a knowledgeable agent or insurance broker to determine the type of insurance you need to protect your company.

How to Get Business Insurance as an Online Retailer

Insurance for online retailers doesn't have to be complicated. Our goal at Tivly is to help you simplify the process. If you have questions about what types of insurance to get or what your business needs, we've got you covered. Complete the form at the top of the page or give us a call at 877-907-5267. We will gladly help you get the coverage you need for your small business.

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