E-Commerce Business Insurance: Coverage Options and How to Get It
Most e-commerce businesses should have liability insurance. Additional coverage can be beneficial based on the risks you face.
Randa KrissSeptember 17, 2021
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To protect your e-commerce business from potential lawsuits, accidents and disasters, you’ll likely need multiple types of business insurance.
Most online stores should have general liability insurance and product liability insurance to protect against some of the most common risks e-commerce retailers face, such as customer injury and property damage. In fact, some third-party platforms, like Amazon, may require proof of business insurance to allow you to sell using their site.
Here’s what you need to know about e-commerce business insurance, as well as how to find the right coverage for you.
Why do e-commerce businesses need insurance?
Although running an e-commerce business might mitigate some of the risks that traditional brick-and-mortar businesses face — such as slip-and-fall accidents or physical damage to a storefront — online retailers are not risk-free.
Therefore, e-commerce insurance is needed to help online stores cover financial losses and damage that occurs as a result of business operations.
Here are some of the common risks that e-commerce businesses face:
Defective products that injure a customer or damage their property.
Website data breaches that expose customer information.
Being unable to fill customer orders due to a vendor or supply chain issue.
Lawsuits resulting from failure to deliver a product or service on time or breach of contract with a client.
Damaged or stolen merchandise or inventory — whether at your business location, in transit or while being stored at a supply warehouse.
What's the best fit for your business?
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What types of insurance do e-commerce businesses and online retailers need?
Generally, most e-commerce businesses should have standard general liability insurance to cover claims of third-party bodily injury and property damage. For online retailers that sell physical goods, product liability insurance can offer specific coverage for claims related to defective or flawed items.
However, you may be able to hold off on purchasing e-commerce insurance if you’re just launching your store, or if you offer services that are fairly low risk, like transcription or tutoring.
Bodily injury: Third-party claims of bodily injury as a result of interacting with your business. If a customer visits your office or storefront, trips over a box of inventory and sprains their wrist, your general liability policy will cover their medical bills and any legal fees or settlement costs if they sue your business.
Even if you run your e-commerce business from home, this coverage is still applicable. For example, if a delivery driver visits your home to drop off a shipment for your business and they trip over a broken stair on your front porch, breaking an arm — this policy would cover any medical bills, legal fees or settlement costs associated with the incident.
Property damage: Third-party claims of property damage as a result of interacting with your business. If a customer is coming to your home-based business to pick up an online order, and while taking their payment you spill a cup of hot coffee on the table that fries the customer’s cell phone, your general liability insurance will cover the costs to replace it.
Personal and advertising injury: Third-party claims of libel, slander or copyright infringement made against your business. If one of your employees publishes a promotional article on your e-commerce website and makes a false statement about a competitor — and the competitor reads the article and sues your store — this policy will cover any associated legal fees and settlement costs.
Although some online retailers will benefit from a dedicated e-commerce liability insurance policy, others like home-based stores with few business-related visitors may be able to simply add a liability endorsement to their existing personal homeowners insurance policy.
Product liability insurance for e-commerce businesses
Product liability insurance helps protect online stores from third-party claims of bodily injury or property damage caused by a product that it made or sold. This type of policy will cover physical or property damage as a result of:
Failure to provide adequate instructions, labels or warnings.
If your e-commerce business sells shampoo, and a customer purchases it, has an allergic reaction to one of the ingredients and sues, your product liability insurance will cover associated medical expenses, legal fees and settlement costs.
Similarly, if your online store sells lamps, and when a customer receives their purchase and plugs it in, a fire breaks out and ruins their carpet, this policy will help cover the costs to replace it.
Some insurance providers sell product liability insurance separately from general liability insurance, but several companies that offer e-commerce insurance policies incorporate both types of coverage within their general liability policy. For example, Next’s general liability insurance for e-commerce businesses includes standard and product liability coverage, as does The Hartford’s.
Additional insurance options for e-commerce businesses
Although general and product liability insurance may be sufficient for some e-commerce businesses, others may benefit from additional coverage.
Here are some of the different types of business insurance that online retailers might consider, and what these policies typically cover.
Employee medical expenses for work-related illnesses or injuries. Most states require employers to have workers' compensation for their employees. If an employee is prepping online orders to ship from your inventory warehouse and they accidentally cut themselves with a box opener, your workers’ comp policy would cover any related medical costs.
Claims of error, professional negligence, breach of contract or failure to deliver a promised service on time.
If you’re a digital copywriter and you fail to deliver marketing materials for your client’s new website launch on time, the client could sue you, claiming that the delay caused a decrease in business. This policy would cover any associated legal fees or settlement costs.
Financial losses caused by cyber incidents such as data breaches, ransomware attacks and hacking.
If your e-commerce website is hacked and the hackers release the stored credit card information of all your customers, this policy would cover the cost of notifying your customers, investigating the incident and providing credit monitoring services.
Cybersecurity insurance can also cover costs such as risk assessment for future incidents, as well as legal fees or settlements if a third party sues your business as a result of a cyber incident.
Lost income and operating expenses, such as payroll and rent, after a major disaster.
If a fire destroys the warehouse where you ship your store’s online orders, this policy would cover the income you’re losing as you rebuild, as well as the essential expenses you need to pay until you’re up and running again.
Business property while it’s in transit or while it’s stored at a third-party location. Covers damage that results from theft, vandalism, as well as certain hazards and weather events.
If you’re receiving a delivery of computers for your online electronics store — and during the process, the delivery van is broken into and several boxes of computers are stolen — this policy would help cover the costs to replace them.
E-commerce businesses looking to purchase multiple types of insurance may opt to bundle coverage through a business owner’s policy, or BOP. Typically, a BOP combines general liability insurance, commercial property insurance and business interruption insurance, but it can be customized to meet your business’s needs.
You may find a business owner’s policy allows you to add data breach, or cyber liability coverage, as well as professional liability insurance.
For smaller online retailers that only need a few types of coverage, business owner’s policies can be more cost-effective than purchasing multiple policies separately.
Typically, businesses with higher risk — and those that need more insurance coverage — will have higher costs. Therefore, a home-based e-commerce retailer with limited customer foot traffic will likely have much lower costs than an online business with multiple employees, or one that runs operations through a separate warehouse.
To find out how much e-commerce insurance will cost your online store, we recommend contacting insurance providers to get customized quotes for your business.
How to get e-commerce business insurance
To get business insurance for your e-commerce store, you can follow these six steps:
1. Evaluate your risks. What kind of accidents, hazards, disasters or lawsuits pose the greatest risk to your business? Is your online store home-based? Do you have employees? Where do you store your inventory, and how do you transport it to customers? Answering questions like these can help you identify the risks your business faces.
2. Decide which types of policies you need. Based on the risks you’ve identified, you can determine which e-commerce insurance policies will best protect your business. General liability and product liability coverage can be good options to start for most online retailers, but additional policies — such as cybersecurity insurance, professional liability insurance and commercial property insurance — can be beneficial as well.
3. Choose how to shop. You have multiple options to choose from when deciding how to shop for your e-commerce business insurance. You can work with a broker, use an online marketplace or contact insurance providers directly. Online retailers may find it easier to opt for either of the latter options, as these can be much quicker and more hands-on than working with a broker.
4. Pick a provider. NerdWallet recommends getting quotes from multiple insurance providers before making a decision. In order to choose the provider that’s best for your business, you’ll want to look at factors such as:
5. Buy your policies. After you’ve determined which provider is right for your needs, you’re ready to purchase your e-commerce business insurance. Once you’ve purchased your coverage, you can set up your online account, if available, set up monthly payments and learn how to file a claim.
You should also make sure that you know how to contact customer service — and, if you need a certificate of insurance to sell using an online marketplace like Amazon — that you request it from your provider.
6. Keep your policies up to date. You should renew your e-commerce insurance on an annual basis. When your policies are up for renewal, you can reevaluate your risks to determine if you need to change or adapt your coverage. However, if your online store experiences an impactful change before your policy is up for renewal, such as hiring your first employee, you can reevaluate your insurance coverage at that time.