Patrick Mulligan
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Yesterday at 00:00
Whether it’s someone being injured by your product, an employee getting hurt on the job, or a natural disaster hitting your warehouse, eCommerce insurance will protect your business, your team, and your financial future.
At a minimum, all online businesses should carry product liability insurance and business property insurance.
You won’t be able to sell on marketplaces, such as Amazon, without liability insurance, which protects you if someone is injured by your products. Liability insurance also covers injuries that happen in your facilities—say a delivery person tripping over a power cord—as well as some copyright or trademark infringement claims. Business property insurance, on the other hand, covers damage to your inventory or equipment.
Beyond liability and property insurance, there are additional options that online retailers should consider to provide protection if your site is taken down by hackers, if a worker gets into a car accident on the job, or if you face litigation from an unhappy employee. We’ll cover everything you need to know about eCommerce insurance in this article.
What Can eCommerce Insurance Cover?
There are many different types of insurance relevant to an eCommerce business, from the essential to the nice-to-have. When building out a policy, these are the coverage areas you should focus on:
General Liability Insurance
General liability first and foremost protects you from claims—i.e. lawsuits—against your business. Sometimes known as personal and advertising injury, a general liability business policy protects you from a range of possible lawsuits:
- A non-employee visiting your brick and mortar location could slip and break their leg.
- One of your employees could accidentally start a fire that causes property damage for other tenants of your building.
- An employee on your company’s social media account could make a libelous assertion that leads to a claim.
- Your company could be sued for false advertising for something mentioned in a Facebook ad.
- Your company could be accused of copyright or trademark infringement.
Product liability insurance is a major subset of general liability, and refers to injuries caused by your product itself.
- Your nutritional supplement could make a customer very sick, or cause an allergic reaction.
- The resistance band you sell could snap and injure a customer’s eye.
- A defect in the wood of your picture frame could make it fall off a customer’s wall, gashing open their foot.
If you sell products, eventually someone will be unfortunate enough to be hurt by it.
Personal injury claims will generally seek $1 million or more. Even if a case has no merit, it will cost thousands of dollars in legal fees to prove that in court. General liability coverage covers not just the potential payout but also all the legal bills.
A general liability policy is essential for an eCommerce operation. You likely won’t be able to rent an office, warehouse, or production facility without one, as the landlord will want proof of coverage in case your actions damage their building.
You also won’t be able to list your products on Amazon or sell into major retailers because those marketplaces will want proof of product liability coverage so that they can’t be sued for injuries caused by your products.
Property Insurance
In addition to protection against lawsuits, you should also have coverage for your inventory and equipment. A warehouse fire can be devastating to your eCommerce business, as this thread attests.
Commercial property insurance for your business works just like renters or homeowners insurance. If the roof in your warehouse leaks and ruins $25,000 worth of your inventory, or if someone breaks into your office and steals your company-owned laptops, your insurance company will reimburse you for the lost assets.
💡Tip: Make sure your home is listed as a covered location for your business policy if you have a home-based eCommerce business, or even if you occasionally keep business property at your home. Your homeowners or renters policy will not cover business assets in the event of a loss
In certain areas of the country, some events such as earthquakes might not be covered under a standard business property insurance policy, and you may want to obtain additional coverage. Floods are usually not covered anywhere unless you have a specific flood insurance policy.
Tips From the ECF Community to Safeguard Your Facility
In addition to your insurance policy, eCommerceFuel members have learned some common-sense measures to protect against disaster striking your facility:
- Put Everything in the Cloud: Assume that all drives and computers can be destroyed in a fire or flood, and make sure everything is backed up to an offsite cloud location. Also, don’t keep anything important on paper or post-it notes.
- Get Everything Off the Ground: In the event of a water main break or a flood, everything within a foot of the ground could be submerged. So keep your most valuable assets off the ground.
- Take Advantage of Fire-Training: Many local fire departments will be happy to come to your facility and give your team some pointers on fire safety.
Cargo Insurance
You should also consider everywhere your property might be. With overseas shipping, the container could be “yours” as soon as it is loaded onto a ship in China. You can obtain cargo coverage (also known as marine or transit insurance) as an extension to property insurance that will cover your inventory no matter where it is.
Commercial Auto Insurance
Many business owners wrongfully assume that personal car insurance covers them when they are using their vehicle for business reasons. 🙅♀️
If you or your employees ever drive a vehicle for business purposes you should have commercial auto insurance. Even if you’re just driving some packages to the UPS Store, car accidents can very easily lead to disability or death, and you’ll want to make sure you’re covered any time you or one of your employees gets behind the wheel on company business.
Workers’ Compensation
Almost every state requires employers to carry workers’ compensation insurance. The insurance pool pays out to employees in the event they’re injured on the job. It will generally provide a percentage of their salary, up to a cap, as well as assist with medical bills and ongoing disability.
This is entirely separate from your general liability and business property coverage, and often with a different insurer. You will be charged a percentage of each employee’s pay, and it will vary by role; a forklift operator will have a higher rate than an office worker.
Workers’ compensation coverage is mandatory for all full and part-time employees in every state except for Texas. The penalties for not having it are severe, up to and including jail time, so make sure you have it set up properly! While workers’ compensation is an additional expense for business owners, it does fully protect employers from any work-related injuries claims. An employee covered by workers’ compensation cannot sue an employer for a work-related injury except in extremely limited circumstances.
Cyber Liability Insurance
There are some newer forms of insurance coverage often grouped together as “cybersecurity” insurance which are relevant to eCommerce businesses:
Hacking and Ransoming
A hacker could gain access to your critical files and threaten to release them publicly unless a ransom is paid. A hacker could also take over your Shopify account or your Instagram account. Your insurance provider won’t pay a Bitcoin ransom for you, but they will cover your losses related to the business interruption, including rebuilding or restoring your IT infrastructure.
Data Breaches
The second type of “cyber” insurance covers data breaches, such as when a hacker breaks into your systems and accesses sensitive customer information. The worst breach would involve hackers stealing credit card numbers, but most eCommerce platforms do not store unhashed credit card numbers, so this risk is somewhat limited.
All the same, a data breach can be terrible publicity for a company. It can ruin the way a customer base perceives a brand, and insurance can help offset some of the financial loss.
Account Suspension Coverage
There is a form of cybersecurity insurance known as “suspension” coverage. A competitor may claim to a marketplace such as Amazon that you’re violating their intellectual property, and Amazon could decide to suspend your account. Or Amazon could make their own determination that your products don’t comply with their terms of service and could shut you down. In situations such as these it could take weeks or months to lobby Amazon to lift the suspension, and an insurance policy designed for this will cover you for the lost revenue.ADA Lawsuit Protection
As ADA lawsuits have become a bigger headache for eCommerce owners, there has been an increased interest in insurance policies that can protect against them. While the coverage is fairly rare, enterprising ECF members have found ways to obtain $500,000 of coverage for under $1000/year.
Employment Practices Liability Insurance (EPLI) insurance
It’s not just outside forces that can file lawsuits against you; business owners are frequently sued by their own employees. EPLI protects you if you’re sued on the grounds of identity-based discrimination, sexual harassment, wrongful termination, breach of employment contract, or infliction of emotional distress.
These lawsuits apply to your entire workplace, not just your own actions, so your company could be held liable for the wrongful actions of one employee. EPLI will limit your exposure to these claims; if you administer payroll through a PEO such as Rippling or Justworks you likely have coverage under their EPLI.
Business Interruption Insurance
Most business property insurance policies will also include some business income protection. Let’s say your warehouse burns to the ground and you have no inventory to sell for three months. 🔥😱
Your property insurance policy will make you whole and pay out the lost income. Policies vary, but most cover your business for 12 months. Beyond that you can acquire supplemental interruption insurance.
How to Buy eCommerce Business Insurance
Insurance is a highly regulated industry, and coverage and companies will vary by state. But there are three ways to obtain coverage:
Go Direct
You can reach out directly to major commercial insurance providers such as The Hartford or State Farm, who will in turn direct you to an agent who can quote a policy for you.
These agents are in almost all cases “captive” agents, meaning they will only quote you for that specific insurer, but they are highly knowledgeable about the policies, and can work with you to find the best combination of coverage and cost.
Use a Marketplace
An online marketplace such as Tivly, CoverWallet, or Layr can provide business insurance quotes from some of the best ecommerce insurance companies. You’ll be able to purchase a policy directly within the platform, and won’t have to interface directly with the insurer unless you need to file a claim.
Use a Broker
If your business requires a higher touch approach you can work with an insurance broker, such as ECF favorite Unbroker. Unlike agents, who represent insurance companies, brokers represent you, their client.
A broker will evaluate your risks and determine how much coverage you need, and will work to place you with the insurer who is the best fit. A broker will in most cases charge you a fee, which they are required to disclose up front.
How Much Business Insurance Coverage to Get, and How Much Does It Cost?
A standard general liability business insurance plan has a $1 million/$2 million cap. That means you are covered up to $1 million per occurrence, and up to $2 million per year. Above these levels, it is often cheaper to obtain an umbrella policy rather than paying to increase the limits of your primary policy.
An umbrella policy can be as little as $500/year for each additional million dollars in coverage. It may seem excessive, but keep in mind that payouts for death or disability can easily exceed $1 million.
Cost Contributors
What your business insurance will cost depends on these factors:
💰Annual revenue
The larger your business, the more likely you are to be sued, so insurance costs generally scale up with revenue.
⚙️ Business Assets
Similarly, it will cost more to insure $2 million of inventory and equipment than $200,000 of inventory and equipment.
🏢 Your Facility
Your insurance company will ask a lot of questions about where your inventory and equipment is stored. Does the building have a security system? Is the building wood-framed, steel, or brick? Is there a fire suppression system? How old is the roof? What is the crime rate in the area? The riskier they judge your facility to be, the higher your costs will be.
👥 Headcount
Workers’ compensation will absolutely scale up with your payroll cost, but so too will your general liability coverage.
📦Your Product
The insurer will make a judgment of how likely your product is to injure someone, or lead to any other type of claim. If you sell street luge equipment your rates will be higher than if you sell t-shirts! But it’s not always obvious what types of products could lead to lawsuits; your insurance company will want to know how you create and source your products (to head off potential copyright or trademark claims), as well as how you advertise them and any assertions you make about their effectiveness.
⌛Claims History
You will have to declare any recent claims you’ve filed with other insurers, as well as answer if your company has ever been sued. If you’ve had claims against you, your business will appear to be a high risk for future insurance payouts, and your cost will go up. In rare cases where there have been excessive claims over a number of years, you could even find that your business is uninsurable.
➕Ancillary coverage
A standard plan will include general liability coverage, business property insurance, and some degree of hired/owned auto accident coverage. If you add on more, such as cyber insurance coverage, or more robust business interruption coverage, your cost will rise.
How Much You’re Likely to Pay
With the caveats out of the way, how much will eCommerce business coverage run per year? According to ECF members, “average” online businesses (say $2 million in revenue and $500,000 in equipment and inventory) are paying $3,000 to $4,000 annually for general liability plus property coverage.
Larger businesses will pay more, of course, but it doesn’t scale up dramatically, as a business with twice the revenue and twice the assets won’t necessarily pay twice the price.
At a few hundred dollars per month, insurance likely costs less than some pieces of software you’re paying for. It’s really a no-brainer.
What Happens When Something Happens?
If your warehouse catches on fire, or you’re served with a lawsuit for trademark infringement, you should immediately reach out to your insurer and start the claim process.
If you’ve suffered a loss, this will get you on the path to quick reimbursement. If you’re facing litigation, your insurance company will likely want to provide you with lawyers to defend against the claim.
All insurance comes with a deductible. A typical plan will have a $1,000 deductible for property loss in a single incident, and for business interruption insurance there could be a 72-hour deductible. If hackers take down your site for 36 hours, you won’t see a penny from your insurance company.
Deductibles can be brought down if you’re willing to pay a higher premium, but remember that insurance is really designed to prevent catastrophes, not annoyances. A good, reasonably priced insurance is there to nudge away the asteroid heading toward your business planet, not provide you an umbrella every time it rains.
Closing Thoughts on Insurance for Your Online Business
Insurance is literally a must-have; you won’t be able to sell into all channels without it, or even rent space. But it will also protect your online store, your employees, and your livelihood if you’re struck by an unforeseen tragedy. And given the low relative cost it’s a no-brainer to give up a tiny bit of cash for some peace of mind.
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Post by Patrick Mulligan
Patrick Mulligan is the cofounder of Pop Chart, a DTC wall décor company, which he has been running since 2010. Prior to Pop Chart, he worked as a book editor at Penguin for nearly a decade.