Insurance is rarely a go-to topic when you’re at a party or on a date.  (If it is, RIP social life). 

That being said, it’s a pretty important thing to understand – particularly when you own a business, and your goal is to scale and increase revenue. Most entrepreneurs play on the offense, trying to eclipse their competitors with better products, better images, and better marketing. And that’s all well and good. But as anyone knows who has ever watched a soccer or football game, it doesn’t matter that your offense is unshakeable if your defense isn’t covered.  

In this article, we will sift through 7 types of insurance policies that often need to be more understood by eCommerce and business owners. Our goal is to help you 1) understand the differences between similar policies and 2) either make you feel more at ease with the insurance products you currently have or help you understand where you may have gaps in your coverage.

General Liability Insurance vs. Product Liability Insurance

If you are an Amazon seller, you (hopefully) understand that your business is required to carry both general and product liability insurance. One of the biggest mistakes Amazon sellers make is assuming that general liability insurance overarchingly covers your business for most things – including product liability. Hate to be the Debbie Downer, but it probably doesn’t (although, this is something you and your insurance agent should probably discuss).   

If your current policy doesn’t cover product insurance, then you need to rectify the situation immediately. Below outlines the difference between the two types.  

What does General Liability Cover for my Amazon Business?

General Liability insurance (also known as Business Liability insurance) is fairly straightforward. Similar to how homeowner’s insurance advocates for the home, general liability insurance advocates for you and your business in the unlikely event someone or something gets injured/sick/damaged while interacting with your business. It’s the first line of defense against lawsuits and other prejudicial business exposures.

General liability insurance covers three main areas:

• Bodily injury (or mental/emotional trauma) claims made by a consumer or anyone that has had a negative interaction with your product or business.
• Any property damage that occurred as a result of using your product or business.
• Any claims of slander, libel, or copyright infringement made against your company.

Generally speaking, business liability insurance is most often used to protect oneself against lawsuits. This may seem like a no-brainer for companies that sell risky products like electronics, medical equipment, or baby products. However, it’s still important coverage for businesses that sell seemingly harmless products. Regardless of how safe you think your products or business is, any device/toy/clothing/appliance/food/homegood can actually have massive consequences. Look no further than these newsworthy lawsuits as a demonstration of how simple products can lead to recalls, lawsuits, and loss of business.  

But here is where the gray area between general and product liability insurance lies and why so many business owners believe they are covered fully with a general liability policy when they really aren’t. 

What is Product Liability Insurance, and Do I Need It if I have General Liability Insurance?

To answer the latter question, yes, you need both. General liability has certain parameters in which it will cover a claim.  

To answer the first question, product liability insurance is implemented specifically for claims that involve the product’s design and build or defects caused by manufacturing or distribution.

Product liability insurance is implemented in cases such as the following: 

• A part of a sippy cup falls off and lodges into a child’s throat 
• A blow dryer short circuits and causes a house fire 
• A supplement has an adverse reaction in a customer  
• The directions on a product were mislabeled and caused injury or mental distress 
• A piece of clothing contained a chemical component that caused a severe rash 

The point is that a plethora of things could cause serious inimical results and your company needs to be covered in the event that you need to pony up for medical bills, settlements, and legal fees/costs related to trials and legal advice.  

Cyber Insurance vs. Data Breach Insurance

Movies and television have done a masterful job of creating excitement and heroism around cyberattacks and hackers. But when a cybercrime happens to you and your business, that excitement quickly morphs into a nightmare.  

In reality, a data breach can result in business interruption, lost clientele, lawsuits, and thousands of dollars spent on recovery. 

While software and security programs have improved tremendously in recent years, cyber-attacks are more prevalent now than ever before. And most small businesses don’t have the funding to truly protect their computers and accounts.

What is Cyber Liability Insurance and What Does It Cover?

Cyber insurance (formally entitled Information Security and Privacy Liability Coverage, but “ain’t nobody got time for that”) covers your business’ liability in the event of a data breach in which your computer system or private customer information is compromised. Cyber liability insurance helps you with: 

• Legal fees if a client/customer sues 
• Compensation for lost wages and revenue as a result of business interruption. 
• Contacting customers to notify them of the breach. 
• Covering the costs associated with recovering from the breach. 
• Customer credit monitoring. (While this isn’t a service you are required to offer victims, it goes a long way in gaining the trust back of your customers.

What Is Data Breach Insurance and What Does it Cover?

A Data breach policy is business protection on a smaller scale and is largely recommended over cyber security to those with smaller businesses and operations. 

It is valuable if personal identity information gets stolen – whether it’s the result of an unknown hacker or one of your employees. If your files or computer systems get hacked, breach coverage will cover the costs associated with: 

• Notifying your customers about the breach 
• Offering credit monitoring services to said, victims 
• Hiring a public relations firm

Additional coverage that you can add to your data breach policy includes business interruption expenses, extortion coverage (applicable in the event of a ransom), and a few other perks that may or may not be necessary for your company.

The difference between the two aforementioned types of policies can be confusing, so we’ll try to make it a bit less ambiguous. Data breach coverage is under the umbrella of Cyber Liability. Depending on your insurer, Cyber Liability coverage can be written in a variety of ways with egregiously contrasting limits, so it’s recommended you talk to your broker or insurance agent about specifics.

If your company has Cyber Liability coverage, you probably also have Data Breach coverage. However, if you have Data Breach coverage, that doesn’t necessarily mean you have cyber liability coverage. In other words, Cyber Liability almost always has limits that cover the repair of breached data systems and computers. Yet, Data Breach insurance probably won’t offer the limits that cyber insurance does.

In short, cyber liability is offered to large businesses, whereas data breach liability is recommended for smaller operations. It’s up to you to be diligent in figuring out which type of policy meets your business needs.

Cargo Insurance vs. Inland Marine Insurance vs. Property Insurance

As is the case with the other insurance policies we just mentioned, cargo, inland, and property insurance are often confounded and seem redundant, with sellers misconstruing these policies as the same thing (spoiler: they aren’t). So, we’ll try to provide more clarity on how each policy provides a different service.

 

What is Cargo Insurance?

Cargo insurance is appointed when your inventory is damaged as a result of theft or cargo being mishandled, resulting in loss or damage. This coverage is specified for cargo being handled and transferred via plane or watercraft. Before you ask, yes, businesses that offer these transit services should already have insurance of their own to cover damaged inventory, but it’s not always that simple.

Many scenarios that result in cargo damage are outside a carrier’s liability parameter, including fire, natural disasters, strikes, insufficient packaging, etc. With these provisions in place, proving a carrier is legally responsible for your freight’s integrity can be quite an uphill battle.   

Furthermore, there are many outside companies that handle your products – between inspections, shipping, transit, and storage, there is a lot of hands-on inventory. This can make it difficult to find the responsible culprit that caused injury to your units.  

Lastly, even if the plane or ocean carrier is held legally liable, they generally have limited liability. An ocean carrier is generally responsible for $500.00 USD per package/shipping unit or the actual value of the goods – whichever is less. And air freight carriers are only liable for 19 SDR per kilo (around $24.00 USD). In either case, there is a high probability that your cargo is worth more than either of these payouts. While cargo insurance isn’t a requirement to sell on Amazon or any online platform, you may decide it’s worth adding it to your overall insurance plan. 

Bottom line: with a cargo insurance policy in place, you are covered for these losses, regardless of who or what compromised the integrity of your products.

 

What is Inland Marine Insurance and Why Should I Have it for My Amazon business?

Inland insurance is arguably the most comprehensive form of these types of coverage. Inland insurance covers the transportation of goods on land. So if, say, you or a truck driver get into an accident while transferring your cargo, and your units get damaged, you would implement your inland marine insurance policy to cover the loss of your products. This insurance type also covers moving property that is related to your business such as a trailer, office equipment, and other expensive devices. In short, Inland Marine insurance is a property policy designed to protect cargo or any other business property during transit or holding. In certain cases, it can safeguard your finances by covering property damage in the event of breakdowns, expedited repairs, or loss of income, and can be written as an all-risk policy. In this instance, your inventory will be insured for all traditional forms of loss too, including fires or theft.

The situations you can implement your Inland marine plans is as follows: 

• During the transit of any kind (while on land) 

• When your units are in the possession of a bailee (who may not have their own Care, Custody, and Control insurance 
• While your units are being handled by a storage facility or prep center (particularly important if said facility either doesn’t have insurance or has let their warehouse insurance lapse).  

This is the important, underlying thing to consider when purchasing inland insurance and/or property insurance: Inland marine policies are often designated under general purpose/broad form property insurance because it insures business equipment, tools, and other assets which would be far more costly if placed on other policy coverage (like property insurance). This leads us to…

 

What is Property Insurance?

In brick-and-mortar retail, business property insurance is (for all intents and purposes) a no-brainer. It covers your building/s, the contents within those buildings, and any loss of income should your company be inoperable during an open claim. Its primary use is for issues stemming from severe weather, theft, and incidents like fires or floods. It can even be used if there is heavy construction blocking people from being able to get to your shop. 

As an eCommerce seller, it may be hard to reconcile paying additional coverage for business property insurance when you don’t even own or rent a building. However, it may be worth the additional insurance expense because business property coverage helps with damaged inventory if your business operates out of your home. As Ashlin, CEO and founder of Ashlin Hadden Insurance, explains: 

“You don’t have to have business property [insurance] to run an online store. For example, if you sell on Amazon, they don’t list it as a requirement. However, we absolutely suggest online merchants have it as part of their insurance plan. If they have a home-based business with products in the home, those products wouldn’t be covered by homeowner insurance if, say, your home gets flooded or there was a fire.”

 

In Summary

Insurance is undoubtedly a mundane topic of interest. It’s rarely a topic of interest at all, to be blunt. And while we at Ashlin Hadden Insurance do not advocate for it being a hot conversation starter in most social settings, we do recommend that you discuss it with your insurance agent first, and your business partner and accountant second.  

Why? Because it’s really *insert cuss word here* important. Understanding your coverage and choosing policies based on your needs could quite literally make or break your business. All it takes is one bad snowstorm, one bad interaction with a customer, one bad cyber hack, or one bad carrier to make your business go bankrupt. Is that something you are comfortable risking? 

To make savvy financial decisions about which policies make sense for your company’s particular needs, you need to understand all your policies’ intricacies by reading the fine print. Or having your insurance agent explain them to you. Much like Ashin Hadden Insurance, most insurance companies will audit your current insurance coverage for free. 

We mentioned a few types of insurance policies and how they differ but trust us when we say there are a ton of other classifications that you should know about. The ball is in your court whether you are going to be proactive or not about defending your company.