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E-Commerce Business Insurance: What Online Business Owners Should Consider When Looking for Coverage

Insurance
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Joey Randazzo
Joey Randazzo
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Published:
Jan 16, 2023
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E-Commerce Business Insurance: What Online Business Owners Should Consider When Looking for Coverage

If you’re ready to start your e-commerce business, or have recently started one and aren’t sure you have the right coverage, looking at the multitude of different e-commerce insurance policies can be intimidating. 

What’s covered? 

What’s not? 

How do you know which policies your business is required to have, and which would benefit your business?

Insurance can be overwhelming. This is why we’ve done the majority of the research to get you started on your insurance-buying journey. Learn the types of insurance e-commerce businesses should consider, why you might need them, and how to go about making a purchase. 

Why Do E-Commerce Businesses Need Insurance? 

Running your online business doesn’t just involve creating a website. There’s so much more that goes into it. 

Aside from business insurance being legally required for specific businesses, there are many other reasons why e-commerce business owners should consider different types of insurance.

You likely use social media to promote your business. You use your email, SaaS software (the marketplace you’re using to sell your product or service), and other digital platforms for all of your daily operations. 

Utilizing all these platforms, as well as payment processing systems, data tracking systems, customer relationship management (CRM) tools, etc. leaves your business open to a multitude of potential risks. 

Whether you’re an online auction site, online retailer, or another type of online business, different coverages are crucial to protect your business. 

What Types of Insurance Does an E-Commerce Businesses Need?

The types of insurance your e-commerce business needs may vary based on the products or services you offer. You must also consider the type of business operations you’re running, and the insurance requirements put in place by the state you are in. 

Some of the most common business insurance policies your e-commerce business may need can include: 

  • General liability insurance
  • Product liability insurance
  • Business property insurance
  • Workers’ compensation insurance
  • Transit insurance
  • Business interruption insurance
  • Cybersecurity insurance 

How To Decide Which Types of Insurance Your E-Commerce Business Needs

if you’ve never shopped for business insurance policies before, knowing exactly which type of insurance is best for your business can be difficult. 

It involves asking the right questions, coming up with potential scenarios you could be put in, and understanding exactly what your business (or you personally) can be held liable for. 

The best way to decide which types of insurance your e-commerce business needs is to: 

  • Do your research
  • Know your state’s requirements 
  • Discuss options with an insurance agent or broker 

7 Types of Insurance Policies E-Commerce Businesses May Benefit From

#1: General Liability

General liability insurance covers claims relating to the … 

  • Operations
  • Premises
  • Completed operations; and
  • Products 

… of your business. 

Standard general liability insurance policies may cover a variety of claims, including: 

  1. Bodily injury: Whether harmed through interacting with a product or service — or even a delivery driver tripping over a broken piece of cement when dropping off a package at your business location — liability policies may cover medical bills, legal fees, and settlement costs associated with the accident or injury. 
  2. Personal and advertising injury: Slander, copyright infringement, or claims of libel from third parties may be covered under general liability insurance. Say your marketing team publishes an article about your e-commerce brand and makes a false claim about your competition. If the competitor decides to sue your store this policy will cover associated legal fees and settlement costs. 
  3. Property Damage: This type of policy will cover certain claims involving damage to your premise, or damage caused by your company to someone else’s property. 

As an e-commerce business owner, you may not feel that liability insurance is an absolute must. You have to remember that even if you’re not receiving a “well-founded” legal claim against your product or business, fees must still be paid. 

#2: Product Liability

Product liability insurance covers instances when claims are being made related to the use of your products. 

E-commerce business owners rely on these policies in cases where damage has occurred to a person or their property, because of your product. 

Although most general liability policies include some of the coverage product liability policies cover, those businesses with great product liability risks need to consider purchasing a separate product liability policy. 

Product liability policies are especially important to e-commerce businesses that:

  • Sell products to customers; or
  • Sell products to other businesses

They generally cover legal expenses related to injuries or property damage claims caused by products your e-commerce business sells, manufactures, or distributes. 

Product liability insurance may also cover claims involving improper labels, missing product warnings, or product defects. Note that defects are generally only covered if the fault or defect causes property damage or bodily harm.

Examples of when product liability insurance may be needed include when a third party files claims, such as: 

  • Bodily harm or injury caused to the consumer by the product
  • Damaged caused to property because of the product
  • Illness resulting from ingesting beverages or food produced or sold by your business 

#3: Business Property Insurance

As an e-commerce business, if you own physical assets, property insurance is a must-have. Whether you own the business space, lease it, or run an e-commerce business out of your home, this insurance will help cover these physical assets. 

Business property insurance covers damage to not only the building and outside property but also the …

  • Equipment
  • Electronics
  • Furniture
  • Tools

… and other products housed within the building. 

It may cover theft, loss, damage, or destruction of your property and inventory. For example, if your business’ building were to burn down and your products were damaged, your property insurance would kick in. 

#4: Workers’ Compensation

If you’ve hired employees or contractors to work for your e-commerce business, you may be required to have a workers’ compensation insurance policy. 

Each state is different, so it is especially important that you contact your state’s worker’s compensation officials to determine your specific state requirements for your e-commerce business. 

Workers’ compensation generally covers medical bills and lost pay for an employee if they are injured on the job. 

#5: Transit Insurance

Transit insurance is a type of policy that covers physical products being transferred or shipped. 

It covers any damage to items while in transit so that your business doesn’t lose money if you must replace the item or cover the damages. Transit insurance is very similar to the shipping insurance that is available through your shipping company. 

#6: Business Interruption Insurance

Business interruption insurance protects businesses by replacing lost income in cases where they’ve stopped operation due to physical loss or damage. It reimburses policyholders for costs related to natural disasters, fires, etc.

In the event of loss of income due to covered situations, business interruption coverage typically includes: 

  • Lost profits: reimbursement for profits that would have been earned if the event hadn’t occurred
  • Fixed costs: operating costs and other business expenses
  • Taxes: ensuring that your taxes are still paid on time 
  • Employee wages: the funds to pay your employees, even during a time when your business is shut down due to a covered occurrence
  • Loan repayment: continue to make loan payments while you’re not generating income due to a covered occurrence. 

#7: Cybersecurity Insurance

Every e-commerce store has to worry about digital security, with data breaches alone costing businesses millions of dollars. Hackers are always looking for ways to gain access to consumer information, including credit card information. 

Cybersecurity insurance, or cyber liability insurance, covers your e-commerce business for any lawsuits, penalties, settlements, or fines related to a cyberattack or a data breach. It may also cover: 

  • The expenses to investigate the attack
  • Costs to restore lost data
  • Funds lost related to the attack
  • Cyber extortion
  • Public relations management after a breach
  • Consulting costs to prevent future breaches or attacks 

What Does Insurance Cost for an E-Commerce Business?

Various factors will help determine the cost of your e-commerce business insurance policies, including:

  • Number of employees 
  • Location of your business
  • Any general aggregate limits
  • Per-occurrence limit
  • Deductibles

For example, an e-commerce business could spend between $350-$900 a year for general liability coverage up to 1 million dollars. When searching for prices and types of insurance, always discuss your options with your insurance provider. 

Oftentimes, insurance providers will offer discounts for bundling policies. 

3 Steps for Purchasing E-Commerce Business Insurance

#1: Assess Your Risks

Understanding what types of e-commerce business insurance policies are right for your business involves assessing the risks your business may face. 

Keep in mind that the bigger your business, the more risks you may be exposed to. Home-based businesses, for example, usually need less coverage than large corporations. 

Risks you should consider include: 

  • Potential accidents
  • Unplanned disasters that could affect the area your business is in or serves
  • The number of employees you have
  • Potential lawsuits

Once you’ve assessed the possible risks you could face, it will be easier to determine the right types of protection for your business. Not every business is the same, so never base your insurance needs solely on the needs of another business. 

#2: Compare Policies With Assistance or On Your Own

Once you have a clear idea of the type of insurance you need, it’s time to start shopping around for different insurance providers and collecting quotes. 

Don’t jump at the first policy offer available. Get quotes from various companies to ensure you find the best deal. To get quotes, you can gather them through: 

  • A broker: Professional brokers generally have the most knowledge regarding different insurance policies. These brokers get a percentage of your premium from your insurance company. Buyer beware: some insurance brokers will add additional charges for helping you find insurance, so be sure to ask questions BEFORE working with a broker. Consider finding an insurance broker who specializes in commercial insurance. 
  • An insurance marketplace: Online marketplaces for business insurance are a faster option if you’re an e-commerce business that needs insurance fast. These marketplaces, or exchanges, partner with a variety of companies and provide quotes from these companies. This option takes some of the legwork out of finding the right e-commerce business insurance policies. 
  • Find insurance on your own: If you already have an insurance provider in mind, or you only need specific, simple coverage, you can contact them directly to learn the different policies they offer, ask for quotes, etc. 

Before purchasing e-commerce business insurance, ensure that you consider the following when comparing quotes: 

  • Coverage
  • Liability limits
  • Premiums and deductibles
  • Payment terms
  • Insurance provider reviews and ratings
  • Quality of customer service

Be sure that you are finding a reputable insurance carrier that offers the coverage you need at a price you can afford. 

#3: Purchase Insurance 

When purchasing your e-commerce insurance plan, ensure you know:

  • When payments are due
  • How to file a claim
  • What to expect when filing a claim
  • How to contact your provider when necessary 

Once you know all the ins and out’s of your policies, you’re ready to purchase. From there, you’ll typically need to renew annually. When the time comes to review, be sure to review your policy and make adjustments as necessary. 

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