Ecommerce Business Insurance – A Beginner’s Guide

All businesses experience risk. Typically, the higher the amount of risk the higher the potential reward. This can easily be seen by using two ecommerce examples:

Example 1 

Tommy starts an ecommerce store.

He starts very small, investing just $1,000 in stock and $500 in setting up his website and marketing channels. He keeps his stock in a spare room in his house and does all the packing, shipping, and other admin tasks himself.

Although $1,500 may be a substantial sum of money to Tommy, most would consider his business low risk. However, the amount of profit Tommy can make is also fairly low.

Example 2 

Sara also starts an ecommerce store.

She gets a loan from the bank for $150K to invest in stock, storage, her website, business systems, employees, and marketing expertise.

The business that Sara set up could be considered high risk. It also has very high earning potential.

Businesses like Sara’s benefit massively from investing in various types of business insurance. This is because it can help her protect against the high level of risk associated with her business.

However, Tommy could also benefit from investing in business insurance to ensure that his smaller, personal investment is protected. For example, it is very unlikely that his home insurance would cover him for any damage to stock – meaning inventory insurance would be a worthwhile investment.

You can never totally eradicate risk in business, even if you follow ecommerce best practices, but getting the right ecommerce business insurance can help you minimize it.

In this section, we cover some of the most common types of ecommerce business insurance. We will also offer insight into which businesses would benefit most from investing in that type of insurance.

1. General Liability 

The first type of insurance that all ecommerce businesses should carefully consider is general liability insurance.

Investopedia defines liability insurance as:

“[…] an insurance product that provides protection against claims resulting from injuries and damage to other people or property. Liability insurance policies cover any legal costs and payouts an insured party is responsible for if they are found legally liable. Intentional damage and contractual liabilities are generally not covered in liability insurance policies.”

Unlike the majority of other types of insurance, liability is primarily used to pay others when an injury occurs as a result of interaction with your business. For example, general liability will typically cover you for:

• Claims of libel, copyright infringement, or slander made against your business
• Claims of injury made by anyone who interacts with your business (such as delivery drivers)
• Claims of property damage resulting from interacting with your business

Although it might seem very unlikely that anyone would injure themselves by interacting with your business, it can happen in practically any case. For example, a delivery driver severely cuts themselves on your packaging or a customer has an allergic reaction to the materials your product is made of – these claims could be covered by general liability.

So, it is strongly recommended that all businesses invest in general liability insurance. 

2. Product Liability 

Product liability is similar to general liability, except it focuses specifically on any injury or damages made resulting from manufacturing or design flaws. 

Product liability insurance will cover you for:

• Any personal injuries caused by faulty products
• Unforeseeable circumstances – for example, product faults that could not be identified by quality control systems
• Any loss or damage caused by your faulty product

In most cases, product liability insurance will not cover you for:

• Product faults created by poor workmanship
• Product faults that result in financial losses to a business or person

Product liability insurance is typically best suited to businesses that manufacture their own products. However, you may still be liable for products you sell if they meet certain criteria such as having your business name on them or if you repair, refurbish, or change parts of them.

When you sell other businesses’ products, it is best to check with an insurance professional whether you are fully covered by the manufacturer’s insurance.

3. Business Property 

Business property insurance is used to minimize the risks associated with maintaining a business property. This typically includes covering the cost of building repairs as well as your stock. Business property insurance is split into two types: building and content insurance. 

Building insurance will cover any property issues such as:

• Flooding
• Fire damage
• Falling trees
• Burst pipes
• Theft

Content insurance will cover the cost of any damage to stock.

Business property insurance is essential for any business that maintains permanent business premises. It can also be a worthwhile investment for those that run their business from home, because it is unlikely that personal home and content insurance will cover any items used for business purposes.

4. Cyber Security 

As an online business, ecommerce security is likely to be at the top of your list of concerns. Cyber security insurance can help mitigate these risks.

This type of insurance will help cover any losses relating to your digital business such as loss of data or damage to IT systems and networks. Helpfully, many cyber security insurance policies will also offer businesses assistance with managing any incidents and PR support after an attack has been identified.

All ecommerce businesses deal with data and IT systems, so will benefit from this type of insurance.  

5. Business Interruption

Interruptions to business can have a serious and negative impact on your business. These can occur for countless reasons such as natural disasters, pandemics, and the breakdown of essential equipment. Business interruption insurance can help you protect against these unforeseen circumstances. 

This insurance will help you cover costs while you are unable to operate such as:

• Wages
• Taxes
• Loss of profits
• Loan payments
• Cost of premises
• Other fixed costs

All businesses could benefit from business interruption insurance. However, it is especially important for businesses that have large financial commitments and rely on income to pay essential wages.

6. Transit 

All ecommerce businesses that sell physical products need to get their product from storage to the customer when an order is placed. During this journey, there is a risk to your products such as theft, loss, or damage. Once your product leaves your premises, it is no longer covered by your business property insurance – this is where transit insurance comes in. 

Transit insurance isn’t always required. Often you will be covered by warehousing insurance or insurance by your shipping company. So, you need to check your coverage before taking this type of insurance out. Transit insurance is most commonly used when shipping high-value stock.

7. Workers’ Compensation 

Workers’ compensation insurance will help protect your business against the risk of your employees getting injured or sick as a result of work-related causes. This type of insurance can also cover your business for disability benefits, death benefits, and missed wage replacement.

This type of insurance is essential for any business that employs ecommerce company job roles.

In reality, it is impossible to say how much any type of insurance will cost your business. This is because many factors come into play such as how likely it is that you will make a claim and how much that claim is likely to be.

However, here is a rough idea of what an average ecommerce business could expect to pay for each insurance listed in this article:

• General Liability: $1000+ annually (although varies greatly dependent on risk profile)
• Product Liability: $300 – $1300 annually
• Business Property:  $750 annually
• Cyber Security: $1600 annually
• Business Interruption: $500 – $1500 annually
• Transit: $180 annually
• Workers’ Compensation: $600 annually

Ecommerce business insurance is an important consideration for all store owners. Which insurances are best for your business will depend on your type of ecommerce business. Taking time to understand your business risks and investing in the correct insurance to protect against them is a smart way to ensure business longevity.