Why is e-commerce insurance a must for online retailers?
An online e-commerce business often shares the same risks as a traditional business, such as lawsuits from customers over a product that harmed them or destroyed inventory due to a fire. E-commerce insurance helps pay for legal fees and other costly expenses that could otherwise devastate your business.
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6 insurance policies every e-commerce retailer should consider
These insurance policies help online retailers recover quickly from common liability and property risks.
Business owner's policy
Small, low-risk e-commerce stores are usually eligible for a business owner's policy, or BOP. It bundles general liability coverage and commercial property insurance at a discount.
- Medical expenses from customer bodily injuries
- Damaged customer property
- Stolen or damaged business property
General liability insurance
Commercial general liability insurance protects against common third-party claims, such as customer injuries. Some e-commerce businesses, like Amazon sellers, are required to carry this coverage.
- Personal injuries
- Product liability coverage
- Advertising injury and copyright infringement
Workers' comp insurance
Most states require businesses with employees to carry workers' compensation insurance. Personal health insurance won’t cover work-related injuries, which makes this policy crucial for sole proprietors too.
- Work-related medical bills
- Disability benefits
- Lawsuits from workplace injuries
Cyber insurance
This policy helps small business owners recover from data breaches that expose customer information, such as credit card numbers. It's also called cyber liability insurance or cybersecurity insurance.
- Cyberattack and data breach investigations
- Customer notification costs
- Fraud monitoring services
Commercial umbrella insurance
This policy covers expensive lawsuits that exceed the limits on your general liability, commercial auto, or employer's liability insurance coverage. It activates when the underlying policy reaches its limit.
- Customer injuries
- Auto accidents
- Employee injuries
Commercial auto insurance
Almost every state requires commercial auto insurance for vehicles owned by an online retail store. It covers costs in the event of an accident involving a delivery truck or other company vehicle.
- Legal fees from an auto accident
- Vehicle vandalism
- Vehicle theft
E-commerce and online business insurance costs
From our customer data, here's a quick look at average e-commerce business insurance costs:
General liability: $42 per month
Business owner's policy: $95 per month
Workers' compensation: $86 per month
Factors that can influence your premiums include:
- Products you sell, such as electronics, household items, jewelry, or clothing
- Number of employees
- Value of your business property
- Types of insurance purchased
- Policy limits (i.e., aggregate, per-occurrence)
- Claims history
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Common questions about insurance for online and e-commerce retailers
Review answers to frequently asked questions (FAQs) about e-commerce business insurance.
Are e-commerce retailers required to have product liability insurance?
A key coverage online marketplace sellers should carry is product liability insurance.
Your online shop, including Amazon stores and Etsy shops, could be held liable should a customer file a lawsuit over a product your store sold – whether you manufactured it or not. This means you could end up paying legal defense costs for a product defect or labeling error that wasn't even your fault.
And, product liability claims are extremely expensive, costing an estimated $12 billion annually. A lawsuit of that scale could financially damage your online retail store to the point of permanent closure.
Plus, depending on where you operate, your state may require you to carry product liability insurance to sell certain products as part of its insurance requirements.
This coverage is usually included in most general liability and business owner's policies. You can also buy product liability insurance as standalone coverage if it's not included, along with product recall insurance to cover the cost of recalling a potentially harmful product.
Does e-commerce insurance cover theft?
Yes, you can buy commercial insurance to protect your online retail store against theft and burglaries, along with damage caused by fires and storms. It's important to secure this coverage, as your homeowner's insurance provides little to no coverage for business property.
There are two kinds of business insurance that protect against theft:
- Commercial property insurance: This coverage protects your inventory and other business property against losses from a wide range of causes. This includes theft, fires, storms, burglaries, and vandalism. You can bundle it with general liability insurance in a BOP to save money.
- Fidelity bonds: A fidelity bond provides reimbursement in the event of employee theft. For example, an employee might forge a customer's signature or commit embezzlement.
When you buy a policy, check with your insurance company to see if they offer any discounts. You might be able to save money on insurance by installing an approved security system or taking other steps recommended by your provider.
What other kind of insurance coverages do I need for an e-commerce business?
In addition to those mentioned above, the following insurance products help online stores avoid financial loss:
- Business interruption insurance: Also called business income insurance, this policy covers costs related to a temporary closure from a fire, storm, or other covered property claim. It can be added to a BOP as an endorsement.
- Equipment breakdown coverage: This helps pay for financial losses related to the sudden breakdown of specialized machinery or equipment, such as a 3D printer. However, it does not cover general wear and tear.
- Electronic data processing (EDP) insurance: This policy helps policyholders recover financially from corrupt or lost data resulting from a power outage or similar event that affects your computer systems.
- Inland marine insurance: If you store your inventory at a storage unit, then you need this coverage to protect it from property damage and other risks, like theft. Commercial business property insurance only covers your business's building and its contents, not items stored off site.
