Dropshipping is a business model in which eCommerce entrepreneurs sell products without having to carry any inventory. However, that doesn’t mean that it’s completely risk-free. Therefore, a dropshipping business needs business insurance. Let’s look at your options.
Dropshipping Business Insurance Policy Options & Cost
The four most common types of insurance for dropshipping businesses are as follows:
- General liability insurance, which protects you from lawsuits arising from injuries or property damage that occurs as a result of your business activities. General liability insurance can also help protect your dropshipping business’ assets in the event of a lawsuit. Typical costs are $500-$1,000 per year for a small business.
- Commercial property insurance, which can help reimburse you for lost or damaged property caused by fire, theft, or other covered events. Typical costs are $500-$2,000 per year for a small business.
- Workers’ compensation insurance, which helps dropshipping businesses cover the costs of employee injuries or illnesses. This type of insurance can help businesses pay for medical expenses, rehabilitation costs, and other related expenses. Workers’ compensation insurance is required in all states except Texas. Workers’ compensation insurance typically costs between 1% to 1.5% of your total payroll costs.
- Business income insurance, which is sometimes called business interruption insurance or business continuity insurance. This insurance helps businesses recover from certain losses caused by events such as property damage, theft, or business interruption. This type of insurance can help businesses cover the costs of not being able to operate for a period of time. It can also help businesses pay for expenses such as employee salaries, rent, and other ongoing costs. Typical costs are $500-$5,000 per year for a small business.
Other types of business insurance to consider based on the specifics of your dropshipping business include:
- Product liability insurance, a type of insurance that helps businesses protect themselves from lawsuits that may arise due to products that they sell. Typical costs are $500-$5,000 per year for a small business.
- Professional liability insurance, also known as Errors and Omissions (E&O) insurance, helps professionals protect themselves from lawsuits.
- Employment practices liability insurance, also known as EPLI, helps dropshipping businesses protect themselves from lawsuits that may arise from the way they employ their staff.
- Cyber liability insurance, which protects you from lawsuits that may arise from a data breach or other cyber incident.
- Business identity insurance, which protects your business from theft or misuse of your company name or logo.
- Commercial auto insurance and commercial fleet insurance, which protect you from lawsuits that may arise from accidents involving employees while driving for work.
- Key person insurance or key man insurance, which protects your dropshipping business from losses that may arise from the death or illness of a key employee,
- Equipment breakdown insurance, which can help pay for the cost of repairing or replacing damaged equipment,
While this list of insurance options covers most dropshipping businesses, you may be required to purchase additional coverage depending on the specific nature of your dropshipping business. It is important to speak with an insurance company to determine which policies are right for your business.
The cost of business insurance will vary depending on the type and amount of coverage you purchase. However, business owners can expect to pay a few hundred dollars per year for general liability insurance.
It is important to talk to your insurance company to make sure you have the right coverage in place for your dropshipping company.
How Much Insurance Should a Dropshipping Business Have?
This is a difficult question to answer, as the amount of insurance you need will vary depending on the type of services you offer and the size of your company. That being said, most insurance experts recommend that business owners purchase enough coverage to protect their assets in the event of a lawsuit.
When shopping for liability insurance, be sure to ask your insurance company about the coverage limits and supplemental coverage options available.
In summary, all businesses, including dropshipping businesses, should have some form of business insurance in place. The type and amount of coverage you need will vary depending on the specifics of your business. However, most insurance experts recommend that business owners purchase enough coverage to protect their assets.