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Everything Business Owners Should Know About Ecommerce Insurance

Even though you don’t have a physical storefront, you still need ecommerce business insurance. Check out this guide to help you get your online store insured.

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?

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

Your insurance needs vary depending on what you sell, where you sell it, how it's stored, how it's shipped to the customer, and any regulations your industry has to comply with. You also need general business insurance common to most businesses. These can include coverage for general liability, property damage, and bodily injury.

Retailers who sell physical items need product liability to cover claims of flawed or defective products. Other areas that need to be covered by insurance are shipping, dropshipping, storage facilities, third-party warehouses, or distribution centers. If you ship internationally, you need to be sure that your insurance covers your business against claims from international shipments and customers.

Where your business is located may also influence insurance needs. Some cities, towns, counties, states, or countries may require specific additional insurance if your business is located there. You can find more information on local regulations from local insurance companies, and local government, or search for "local retail business insurance for (your location)."

It pays to do your research and get the right insurance for your business because an accident or incident can happen at any time, it could cripple your business, and you could be liable for more than you can afford.

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. For instance, if someone visits your office, and manages to trip over a box filled with products, and breaks their wrist when they fall to the floor, a general liability insurance policy covers their medical bills, legal fees they incur, and any settlement from damages.

Even if you're building an online store that is entirely run from your home, and a delivery driver trips over your rake in your front yard when they deliver a shipment and break their arm, a general liability policy covers medical bills, legal fees, and settlement costs that are 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. This protection includes for instance a situation where a customer comes to pick up an order from your office, and you accidentally knock over a bottle of glue that gets on their purse and damages it. In this situation, your general liability coverage will provide the funds to replace the purse.

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 for instance, if you or an employee writes a blog post on your website and makes a statement about a competitor's business that's false. If the competitor sees the blog post and then issues 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 that was 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 coverage against any allergy attacks or reactions that a customer has from using your product and consequently sues your business. The product liability insurance pays for medical expenses, any legal fees, and costs needed to settle the case.

Another example is if a customer buys one of the products you sell, then plugs it into an electrical outlet, and it causes a short or catches fire. Any costs associated with this product are covered by the 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, for example, 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 you replace them by covering the cost.

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, it's likely that the government 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. For example, if your employee is assembling kits to ship out for orders, and they cut themselves on one of the components in the kit, 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. Hacks can be extremely serious, for example, if your ecommerce site is hacked, and the hackers release private customer information like names and addresses, credit card information, or company proprietary information.

Cybersecurity insurance covers costs associated with your cybersecurity like notifying customers of the breach, instituting credit monitoring, and investigating how the incident happened. You may also be covered for costs from risk assessments to prevent future cybersecurity 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.

Inland marine insurance covers damage or loss of business property from vandalism, theft, severe weather, and disaster events. For example, you are waiting for a delivery of electronic equipment for your warehouse, and the shipper carrying the property is in an automobile crash damaging your equipment. This insurance will help you cover the costs 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 that is 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 or unique to your business, you may find that buying a BOP is 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. For example, 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.

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