Running an ecommerce business certainly has its benefits; from lower operational costs to the potential for global customer reach, ecommerce operations can be lucrative ventures for motivated business owners. On the other hand, running an ecommerce business doesn’t come without some inherent risks.
Like any brick-and-mortar business, ecommerce businesses can still face lawsuits, product claims, inventory loss, and cybersecurity issues. As a result, they can often benefit from having ecommerce business insurance policies in place for added protection and peace of mind—especially as they scale and grow.
Not sure where to begin when it comes to business insurance for ecommerce? We’re breaking down common types of ecommerce insurance, costs, and what to look for in a policy that suits your needs.
Do ecommerce businesses need insurance?
One of the most common questions business owners have about business insurance is, “do I really need it?”
In general, ecommerce insurance is not legally required in most circumstances—but this doesn’t mean that operating without it is a good idea. In fact, many online businesses still face significant financial and operational risks. And without the right coverage in place, there’s nothing protecting any online business from such costly issues as lawsuits, liability claims, or similar damages.
Likewise, there are some cases where insurance for ecommerce business may be required, such as when:
- Selling on marketplaces like Amazon or Walmart.
- Leasing storage or warehouse space.
- Working with suppliers or fulfillment partners.
In other words, even if you aren’t in a situation where ecommerce insurance is legally required, it’s generally a good idea to have.
What insurance do I need for an ecommerce business?
You know proper coverage is important, but exactly what kind of coverage does your business need? Ultimately, this will depend on what your business sells and how it operates, but some common policy types for ecommerce businesses include:
- General liability insurance – Protects from third-party claims related to bodily injury, property damage, and copyright infringement.
- Product liability insurance – Similar to general liability (in terms of what it covers), but more specific to claims arising from defective products or design flaws.
- Cyber liability insurance – Protects businesses from losses related to IT risks, such as cyber attacks and data breaches.
- Commercial property insurance – Insures physical business assets associated with an ecommerce business, such as physical inventory and equipment.
- Workers’ compensation – Protects against medical expenses, lost wages, and related expenses for employees who are injured on-the-job.
- Business interruption insurance – Covers lost income in the event that a covered event (such as a fire or natural disaster) forces a temporary halt in business operations.
Ultimately, most ecommerce businesses won’t need every type of coverage outlined here—but it’s important to review your options and choose the coverage that reflects your actual business risks.
What general liability insurance covers for ecommerce businesses
General liability insurance is one of the most common types of coverage that ecommerce businesses will opt for, and for good reason. This broad type of insurance covers many costs that could otherwise impact the successful operation of an ecommerce business, including:
- Any customer injuries that are connected to the business itself.
- Any property damage claims related to the business.
- Advertising or copyright-related claims.
For example, if a delivery worker was injured in a home-based inventory space, this is something that would typically be covered under general liability insurance. The same applies to a customer who makes a claim about their property being damaged during delivery or pickup.
Although general liability insurance does provide a lot of protection and peace of mind for ecommerce business owners, it’s important to understand that it does not replace product liability coverage for businesses that need it.
Why product liability insurance matters for ecommerce
In addition to general liability insurance, ecommerce businesses that sell physical goods may also need product liability insurance to protect them from additional risks. Specifically, product liability insurance provides protection and coverage for costs related to:
- Customer claims involving defective products.
- Design flaws or labeling issues.
- Any customer injury or property damage related to products sold.
Even if your business sells products that it doesn’t directly manufacture, product liability insurance is still a wise choice because your business could be held responsible for damages—even if you weren’t the one who designed or manufactured it.
How much is ecommerce business insurance?
As an ecommerce business owner, you’re always looking for ways to save money and boost your bottom line. By knowing what to expect in terms of the cost of insurance for ecommerce business, you can get the coverage you need without overspending.
The cost of ecommerce business insurance, as you can probably imagine, varies greatly depending on the specific coverage you need, the size of your business, your inventory, and even the products you sell. Higher-risk products or larger inventory operations, for example, tend to drive up the cost of coverage.
In general, however, ecommerce businesses can expect to spend anywhere from about $200 to $1,400 per year on coverage, according to MoneyGeek.com. Average annual costs per product type include:
- General liability: $882
- Workers’ compensation: $261
- Professional/product liability: $739
What affects ecommerce insurance costs
The only way to know for sure how much ecommerce business insurance will cost you is to request a quote for the exact coverage you’ll need, as even the location of your business can affect insurance premiums. In addition to your location and coverage type, some other factors that could impact how much you pay for insurance include:
- The types of products/inventory you sell (some products are considered a higher risk than others, especially for product liability coverage).
- The size of your inventory and where/how it is stored (home-based businesses often pay less than warehouse-based operations).
- The average revenue and order volume of your business.
- Whether you have any employees (and, if so, how many).
- Your previous insurance claim history.
- Desired coverage limits.
At the end of the day, ecommerce business insurance pricing is risk-based—so anything that increases your likelihood of needing to file a claim will also increase your rates.
Business owner’s policies (BOPs) for ecommerce businesses
Rather than purchasing the different types of coverage you need individually, many business owners end up “bundling” their ecommerce insurance policies into a package known as a business owner’s policy (BOP). This type of policy typically combines general liability and property insurance, as well as basic business interruption coverage for more comprehensive and cost-effective protection.
For many business owners, bundling these types of coverage under a BOP can save a significant amount of money when compared to purchasing policies individually. However, specific coverage details and costs can vary between providers—so it’s a good idea to compare before deciding.
How ecommerce businesses choose insurance coverage
Where should you begin shopping for coverage if you run an ecommerce business? Before you get started, it can be helpful to consider any legal obligation you may have through a third-party marketplace or other contract when starting an ecommerce store, especially if you sell on a platform like Amazon. Specifically, you’ll want to check your seller agreement/contract to determine what types of coverage you’re required to carry and how much.
In addition to any required insurance coverage, you may also want to consider purchasing more protection based on:
- The risk level of the product(s) you sell.
- The value of your inventory at any given time.
- The level at which your business handles potentially sensitive customer data.
- Shipping and fulfillment options that could open your business up to property damage, personal injury, or similar claims.
Most business owners find that their coverage needs evolve as their businesses gradually scale and become more complex. In other words, you may not need as much coverage when you are just starting a business. However, as it scales, your inventory inevitably grows and you might need to hire employees. This, in turn, can increase your risk and your need for coverage. With this in mind, it’s important to revisit your coverage needs at least once annually.
Ecommerce business insurance California
If you’re starting a business in California, you’ll see that the Golden State is one of many states that does not require a universal ecommerce insurance policy. However, there are many common situations where insurance becomes necessary for ecommerce businesses, such as when:
- Businesses need to start warehousing inventory.
- Businesses need to hire employees, as California requires all employers with one or more employees (part- or full-time) to carry workers’ compensation insurance.
- Businesses begin working with vendors or selling on third-party marketplaces.
Meanwhile, ecommerce industries that sell certain higher-risk products (including dietary supplements, high-value electronics, and jewelry) may be subject to higher insurance costs. This applies across-the-board, however, and isn’t necessarily specific to California businesses.
Preparing your ecommerce business before getting insurance
Having the right ecommerce business insurance coverage in place can provide your growing business with much-needed protection and peace of mind—allowing you to worry less and focus more on growth.
At the same time, before you even purchase any type of business insurance, it’s important to have your business properly structured and set up for success. This includes not only choosing the business structure that’s right for your needs, but obtaining an EIN, getting your financial records in order, and setting up inventory and fulfillment processes.
When your business is properly organized, it’s easier to obtain accurate quotes for coverage and, ultimately, to secure the insurance protection your business needs.
At Tailor Brands, our expert team can help with every aspect of structuring and organizing your business, including:
- Legally forming your ecommerce business.
- Organizing documents and operations.
- Accessing services (like business insurance) during setup and growth.
And although coverage, pricing, and depend on the insurer and the business itself, our team can make sure you have all your proverbial ducks in a row to secure the right coverage for your needs.
Protect your ecommerce business with the right insurance policy
Believe it or not, ecommerce businesses face many of the same legal risks as traditional businesses—which is why having the right ecommerce business insurance coverage in place is so important. Many ecommerce businesses start with basic coverage and scale their protection over time as their needs grow and change—but choosing coverage based on your own unique risk, products, and operations is always best. By understanding your risk, you can choose the protection that meets your needs.
At Tailor Brands, we’re committed to helping you set up and structure your business so securing the insurance coverage you need doesn’t have to be such a headache. Contact us to learn more about the services we have to offer and how we can help your ecommerce business take flight!