Ecommerce businesses may not have the same liabilities as brick-and-mortar companies, but they do have liabilities unique to ecommerce success.
Any or all of those liabilities can make it difficult to stay in business. It doesn't matter how many sales you have a day if your profits are being eaten up by costly returns, shipping delays, and canceled orders.
Ecommerce businesses have overhead like rent, utilities, and payroll—even if you're the only employee. Your business doesn't have any time or money to waste if you want to prove to your audience that your brand is the best in the industry. And whether it's a mis-shipment, a tornado, or theft at a distribution facility, you need to be ready for "what if."
What you need is a safety net for your ecommerce business to keep it open and profitable. That way if a mishap does occur, you have a plan in place to solve the problem and get on filling customer orders and growing your company.
This is why ecommerce businesses need to put in place the same type of safeguards as any other business does, but instead of needing to protect your retail store in case of a customer slipping and falling, you should have in place ecommerce business insurance to keep your operation running smoothly, so you can continue fulfilling customer orders. Ecommerce business insurance is a must.
What is ecommerce business insurance?
Ecommerce business insurance is coverage designed to protect online businesses from financial losses caused by natural disasters, accidents, shipping issues, and lawsuits that happen in the course of doing business.
While there may be various insurance requirements depending on where your business is located geographically, your business should be insured against any factor that could create a loss of revenue that would impact your business.
Just because your business is online and not in a brick-and-mortar store, doesn't mean it's not a store. As an ecommerce business, you have increased liability in some areas that don't affect other stores as much.
A key liability is shipping. It doesn't matter if you are doing the shipping in-house or dropshipping.
Since an ecommerce business relies on on-time and accurate shipping to get orders to customers, any problem with shipping will cost you money at the very least. It can also cost you customer satisfaction and may cost you customers, too.
Ecommerce business insurance is insurance that will cover your losses in the event of natural disasters, accidents, and any lawsuits that are that happen in the course of doing business.
Why do ecommerce businesses need insurance?
Ecommerce businesses need insurance to help them recover any financial losses from damage that occurs during business operations.
Most businesses can find themselves in need of insurance from unexpected issues that crop up. Risks that ecommerce businesses face typically include:
- Defective products can cause injury to a person or property
- Cyberhackers and data breaches can expose personal information
- Vendor supply chains are backlogged causing delays in shipments of products
- Lawsuits that occur when a delivery is lost or delayed, or if you're in breach of a contract
- Damaged or stolen merchandise or inventory at your business, in transit to you or a customer, or in storage at your warehouse or third-party dropshipper
How to know if your ecommerce site needs business insurance
This is kind of a trick question because if you have an online business, you need online store insurance. No matter how lucky you are, and whether you've needed online retailer insurance in the past, you will need it when you least expect it. Like personal home insurance, online business insurance is there to support you just in case.
Types of ecommerce business insurance coverage
Your insurance needs depend on what you sell, where you sell it, how products are stored and shipped, and any regulations your industry has to follow. On top of industry-specific coverage, you also need the general business insurance that most companies carry.
Where your business is located matters, too—some cities, counties, states, or countries require additional coverage, so check with local insurance providers or your local government to find out what applies to you.
It pays to do your research upfront because an accident or incident can happen at any time, and without the right coverage, you could be liable for more than your business can absorb. Here are the main areas ecommerce businesses need to consider:
- General liability: Covers third-party claims of physical harm, property damage, and personal and advertising injury, like defamation or copyright infringement.
- Product liability: Protects against claims of flawed or defective products, which is essential for any retailer selling physical items.
- Shipping and logistics: Covers losses tied to shipping, dropshipping, storage facilities, third-party warehouses, and distribution centers.
- International coverage: If you ship internationally, your policy should extend to claims from international shipments and customers.
- Commercial auto insurance: Protects your e-commerce business against accidents and liability on the road if you use vehicles to pick up inventory, make deliveries, or transport products between locations.
- Location-specific insurance: Some regions require additional insurance depending on where your business operates, so look into any local requirements early on.
General liability insurance for ecommerce businesses
Starting an ecommerce business takes preparation and planning. If you want to succeed and grow your business, general liability insurance must be part of that plan.
Liability coverage typically covers:
- Bodily injury - Claims of injury as a result of interactions with your business
- Property damage - Claims of property damage as a result of interactions with your business
- Personal and advertising injury - Claims of slander, libel, or copyright infringement made against your business
Bodily injury
Bodily injury covers your business against any third-party claims of injury as a result of interacting with your business. If someone visits your office and trips over a box of products and breaks their wrist, a general liability insurance policy covers their medical bills, legal fees, and any settlement from damages.
Even if you're building an online store run entirely from your home, you're still covered. If a delivery driver trips over your rake in the front yard and breaks their arm, a general liability policy covers medical bills, legal fees, and settlement costs from the accident.
Property damage
Property damage insurance protects you and your business from any property damage that happens as a result of interacting with your business.
If a customer comes to pick up an order and you accidentally knock over a bottle of glue that damages their purse, your general liability coverage will provide the funds to replace it.
Personal and advertising injury
If someone claims slander, libel, or that you've infringed on their copyright through your business, your general liability policy will cover any legal fees and potential settlement. This can happen if you or an employee writes a blog post making a false statement about a competitor and they issue a lawsuit against your business — you're covered.
If you run your business from your home, you may be able to add a liability clause to your homeowner's policy. But if you regularly interact with people in the course of doing business in your home, a business insurance policy may be a better choice.
Product liability insurance for ecommerce businesses
Another type of insurance recommended for your ecommerce business is product liability insurance. This business insurance is designed to protect your online store from third-party claims of any property damage or bodily injury caused by a product that you made or sold. This ecommerce insurance will protect you and your business against claims of:
- Product defects from manufacturing
- Any design flaws that cause issues
- Failures that occurred because of inadequate or incomplete instructions, warnings, or labels
This coverage includes any allergy attacks or reactions a customer has from using your product. The product liability insurance pays for medical expenses, any legal fees, and costs needed to settle the case.
If a customer buys one of the products you sell, plugs it into an electrical outlet, and it causes a short or catches fire, any costs associated with this product are covered by product liability insurance.
It's possible to buy general liability coverage as a bundle with or separately from product liability insurance. However, there are many insurance providers that have ecommerce business insurance that includes coverage for product liability.
Other online retailer insurance
It's recommended that every online retailer obtain both general liability insurance and product liability insurance, and that may be enough to cover your ecommerce business. However, some ecommerce retailers like to have more protection. Here are some other online retailer insurances that you can consider.
Business property insurance
Business property insurance covers physical assets owned by the business, including inventory, equipment, and other assets. If the property you own becomes damaged due to severe weather, accidents, or other hazards, you are covered.
If your ecommerce business sells jewelry and your supplies are damaged or destroyed in your studio, business property insurance can help cover the cost of replacing them.
Workers' compensation insurance
Workers' compensation insurance only applies if you have hired employees — it doesn't apply if you use contractors. Depending on where you are located, the government likely has requirements regarding workers' compensation insurance.
This type of insurance protects you, your company, and your employees when an employee gets hurt on the job. To illustrate, if your employee is assembling kits to ship out for orders and cuts themselves on one of the components, workers' compensation covers all of the medical bills from the accident.
Professional liability insurance
This is not the same as general liability insurance. Professional liability insurance is used when someone claims that your business made a mistake, was negligent, committed a breach of contract, or failed to deliver a project or service by its deadline.
If you are a CPA and make a mistake on someone's tax return, or if you are a sign designer and miss a deadline, your client can sue you. They can claim that your negligence or mistake caused them a decrease in revenue or other damages.
Professional liability insurance covers any legal fees or settlements.
Cybersecurity insurance
Cybersecurity has become a growing problem causing businesses, organizations, and even governments serious issues stemming from cyberattacks like hacking, ransomware attacks, and data breaches.
Having an ecommerce business means that you are open to cyberattacks. These can be extremely serious — if your ecommerce site is hacked and attackers release private customer information like names, addresses, or credit card details, the fallout can be significant.
Cyber liability insurance covers costs associated with notifying customers of the breach, instituting credit monitoring, and investigating how the incident happened. You may also be covered for risk assessments to prevent future breaches, legal fees, and settlements if you get sued by a third party.
Business interruption insurance
This insurance covers your business in the case of a major disaster like flooding or fire. If your office gets destroyed by a fire, and it affects the ability to fulfill orders, for example, business interruption insurance covers the lost income while you recover and rebuild from the disaster. It also covers essential business expenses you need to pay while your company is down or isn't back to full capacity.
Inland marine insurance
Many ecommerce businesses ship components and finished products and store them at a third-party location or dropshipper. Inland marine insurance covers business property that is in transit or in storage at a third-party location, protecting against vandalism, theft, severe weather, and disaster events.
If you're waiting for a delivery of electronic equipment and the shipper is involved in an automobile crash that damages your goods, this insurance helps cover the cost of replacing the equipment.
When purchasing insurance for your ecommerce business, you may find that you can combine several types of insurance into a bundle added to your business owner's policy (BOP).
This often includes general liability insurance, commercial property insurance, and business interruption insurance, and can be customized to fit your business needs. Depending on the size of your business and other factors that are industry-specific, buying a BOP may be the most efficient insurance package for you.
How much does ecommerce insurance cost?
There are several key factors that affect the cost of your business insurance, including:
- How many insurance policies you need
- The extent and limits of your policy coverage
- Where your business is located
- Whether you use third-party storage facilities or dropshipping
- Type of products or services that you sell
- How many employees work for you
- Cost and age of your business assets
- Any previous claims history your business has
In most cases, businesses that have higher risk and need more insurance coverage also have higher insurance costs.
If you have a home-based ecommerce business with minimal customers or other visitors, your ecommerce business insurance most likely has lower insurance costs, while an online retail business with several employees, or one with more than one location likely has higher costs.
These customized assessments can be made by you in partnership with your insurance provider when you discuss recommended business insurance policies.
Pick an insurance provider you trust
Just like buying any other product or service for your business, you should take your time and find an insurance provider that meets your budget, will work with you, and that you trust. Ecommerce insurance is there to protect your livelihood and that of your employees.
Decide what your risks are and how much they would affect your operation, consider which policies make sense for your business and then figure out the best way to shop and compare ecommerce insurance.
It's recommended to get several quotes from at least two insurance providers, so you can compare them and their:
- Insurance policy coverage
- Any liability limits that affect your ecommerce business
- Cost
- Reviews and complaints
- Customer support
When you find the best insurance company for your ecommerce business, you will have peace of mind knowing that you are protected. Then, you can focus on finding ways to grow your business, for example, connect to Mailchimp to market to your audience and drive traffic to your ecommerce store.
Growing an ecommerce business requires you to market to a wider audience. Knowing that you are protected by ecommerce insurance in case something goes wrong, will make it easier for you to focus on business growth and strategies to meet customers' needs.