If you own a retail store, it is always a good idea to make sure you protect your business with proper retail store insurance. There are unfortunately too many horror stories of business owners who lost their livelihood due to one unfortunate event that was not covered by their retail business insurance.
This guide will walk you through the types of retail insurance available for your store, what type of retail store insurance is right for your store, the costs of retail store insurance, as well as some other considerations to take into account when choosing the right insurance for your retail store.
More specifically we will cover:
Retail store insurance is any insurance policy that provides coverage to your retail business to prevent it from losing money in the event that problems arise. Financial losses can come from lawsuits against your business, property or inventory or equipment damage and theft, as well as lost wages and revenue if your store is forced to close when it otherwise would not be closed; retail insurance covers those losses.
In short, as much as you can afford. The amount of retail insurance that you will need varies greatly based on what you are selling, where you are selling it, as well as how comfortable you are with risk.
For those who would like a more precise answer, your coverage should be able to get you through a minimum of 3 months of your store being closed (rent, wages, lost revenue, etc.,) as well as 100% coverage of all inventory you have on hand.
With regards to comfortable levels of risk, if your store is located somewhere where there are a lot of hurricanes, it would be smart to pay for the extra flood and storm insurance coverage. Likewise if you live in an area where there are a lot of burglaries, you might want robust theft insurance coverage. It is not needed but highly recommended.
A good rule of thumb is $100 per month for every $1 million in insurance. However it is important to note that for certain coverage, like theft insurance for a high end jewelry store, these amounts can go as high as 5% of inventory value per year, or $50,000 to cover $1 million in inventory.
Edge cases aside, typically most retail stores can expect to pay around $300 per month in insurance to cover lawsuits (if your store gets sued), inventory or equipment replacement (if your store gets robbed or damaged), and lost wages (if your store has to close).
The amount you pay for insurance can be influenced by a variety of factors including:
Keeping the above factors in mind might lead you to carry less inventory, hire more seasoned sales staff, choose a different location for your store, or invest in security measures, all of which can help to reduce your cost of insurance.
In most countries you are required to have insurance as soon as your store hires its first employee. However some states and provinces require insurance even if you are running your business by yourself.
We would recommend you check with your local retail council or consult a lawyer on when you need to have insurance in your area.
Also there are certain store types where additional types of insurance may be needed or recommended, including:
General liability insurance covers a retail store in the event that the store or its owners have to pay claims resulting from the loss of a lawsuit. In other words, if someone sues your store for almost any reason, this covers almost any payouts your store owes should you lose in court.
Keep in mind, this type of insurance aims to protect the retail business in the event that a third party claims the business caused them bodily injury, property damage, loss of income, or any other damages. It does not cover damages (financial or otherwise) to the retail store itself (eg: fire or theft).
Examples of what general liability insurance for a retail store covers would include:
Where general liability insurance protects you when third parties suffer a loss at the hands of your business, commercial property insurance is the store insurance that provides first party protection to you in the event of a loss or damage to your property, inventory, or equipment.
The coverage offered by your commercial property insurance policy is something you (or your lawyer) will want to go over with a fine toothed comb. Great policies offer protection from theft, crime, property damage, inventory loss, electrical damage, natural disasters, business interruption and more.
These policies will cover replacement, repairs, or both, if and when needed.
Some examples of what commercial property insurance covers as part of your retail store insurance includes:
*One important thing to note is that as of 2020, American retailers are no longer protected for fraudulent credit card transactions in the event that their POS or payment terminal does not support chip and pin technology. Commercial property insurance may still cover you in those instances.
This policy protects you in the event that a product you sell injures or harms (physically or financially) one of your customers. Regardless of whether the injury is the fault of a design defect, manufacturing defect, or you or your staff failing to provide the customer with safety warnings or instructions, you could be on the hook for any injuries resulting from your products.
So far we have covered policies that protect you when injuries occur on your property, as well as injuries that occur to your property and equipment, but product liability insurance covers you for injuries that happen away from your business.
If you sold fireworks to someone without warning them against storing them in a hot car on the fourth of July, or if their child was injured by a toy before a recall was announced, or if your employee sold a video game to someone under the ESRB age on the box, you could face legal repercussions as the seller of the product.
This is where product liability insurance is key. Now some stores have lower risks than others, a toy store might have a higher risk of getting sued by parents of a child, than say a jewelry store, however if it is not cost prohibitive, most retailers should carry this insurance policy just in case.
Workers compensation insurance protects your store in the event that any of your workers suffer an injury, illness, or disease that results from their employment. This protects you and your store in the event that an employee is owed money for medical expenses, lost wages, rehabilitation costs, or settlement for disability, resulting from work they performed at your store.
Whether an employee injures their back from lifting heavy boxes, or trips over boxes in the storage room, or even suffers eye damage due to poor lighting, your store could be held responsible for some or all of their medical expenses. Workers compensation insurance protects you in such scenarios, which protects both you and your employees.
Business interruption insurance covers retailers for lost revenue or earnings as a result of their business being shut down due to a disaster, or during the process of rebuilding following a loss.
This insurance is different from commercial property insurance as commercial property insurance (CPI) typically only covers the repair or replacement of damaged or lost property, and not the money your store would have earned if it was not temporarily closed.
To better explain, if your business has a fire and 50% of your inventory is destroyed due to fire and water damage, your CPI coverage will replace the 50% of your inventory that was lost. However if it takes you 3 months for you to reopen after the fire, and you would have sold $500 per day, CPI does not cover the $45,000 (90 days X $500) in lost earnings due to the closure.
This is where business interruption insurance comes into play. It will cover your expenses as well as provide compensation for lost revenue during the period in which your store remains closed following the disaster.
It is important to keep in mind that some policies are limited in what they cover, maybe they cover fire, flood, or water damage, but not large storms like hurricanes, or even public health shutdowns. So be sure to know what is and is not covered before signing a policy.
BOP insurance covers small low-risk businesses by combining interruption, property, and general liability insurance in one simplified plan. This allows for the small business to have one policy that covers them for a wide range of issues from theft, to disaster, to lost wages.
The advantages of a BOP plan is that it gives the retailer wider coverage under one policy and this usually translates into lower monthly costs for insurance. However, it is very important to note that these policies also tend to offer much lower coverage and any damages exceeding the coverage amount will be the responsibility of the store owner.
For example, if a fire results in lost inventory (burned or damaged by fire), lost revenue (store remains closed for weeks), and a lawsuit (landlord sues the owner for damage to building) all three may be covered by a BOP insurance plan. However, if the plan only covers $100,000 in damages, and the lawsuit ends up with a claim for $500,000, the business owner will have to pay the remaining $400,000 out of pocket.
As such, these plans are typically best for small retailers, kiosks, artists, or anyone with low value inventory for sale.
Commercial umbrella insurance extends coverage above and beyond what is offered with general liability insurance. For example, general liability insurance might cover $1 million in claims, with the retailer being responsible for any amount above that coverage. Umbrella insurance is typically for the piece of mind of the retailer, that in the event of larger claims they will still be protected.
Umbrella insurance is recommended for retailers who might be exposed to increased risk depending on their business type or even location. For example, in a large shopping mall, if you are found responsible for causing a fire, you might not only have to pay to fix your store, but also all other stores in the mall. In which case, $1 million of coverage might not be enough.
Therefore it is recommended that you think worst case scenario and if you do not have enough coverage for those worst cases, supplemental coverage might be needed.
Until a few years ago, we likely would not have recommended commercial auto insurance to a retail establishment. Sure this type of insurance is a must for restaurants who handle their own delivery, but for retailers?
Well the truth is more and more retailers are offering at home delivery, from furniture stores, to pet stores delivering food, to flower shops and more. If your business owns a company vehicle or does its own delivery, commercial auto insurance is a must.
This type of insurance covers the retailer and their business against any claims no matter who is driving their vehicle (assuming they have proper licenses and permission) and what incidents or accidents occur.
If you store customer data, whether it be an email address for notifying your customers of new promotions, or a credit card so they can place phone or online orders, or an address for delivery, it is your responsibility to keep that data safe.
If you fail to do so, for example, if your database gets hacked, you could be held liable for any damages that occur from the misuse of your customer information. Cyber liability and data breach coverage is probably that last thing most retailers think they need. However if you store a lot of customer data in-house, it may be worth insuring yourself in the event of future problems.
*Note: Most retailers should use a CRM to store customer data, or have their payment processors store customer credit card details, we would not recommend storing customer data on your own computer or server.
Very few retailers need this type of insurance, but if you deal with installations, whether it is TV wall mounting, swimming pools, or appliances, you might be on the hook if your work results in losses to your customers.
We will not go too much in detail on this coverage as it is rare for retail, but if you deal with customers outside of your store, where a mistake could prove costly, you might want to consider exploring this type of coverage.
As your retail business grows, you might need additional insurance like management liability insurance, employment practice liability, and more.
At the bare minimum a retailer should insure themselves, their employees, their store, and their inventory. Although we hope that retailers will never need to file a claim, their coverage level can be the difference between a small problem, and a business ending one. Carefully research different providers, read the fine print, and look for the best coverage you can afford.