The skinny on eCommerce business insurance
Anticipating disaster is never fun, particularly when you’re starting an eCommerce business. While every business needs to protect its assets and reduce the potential for harm, planning for risk can feel overwhelming.
For eCommerce business owners, the cure to averting pricey disasters is relatively simple: get liability insurance. This is good advice whether you’re an established business or just beginning to create an eCommerce business plan.
But, sifting through the different types of insurance and figuring out what you may or may not need can be overwhelming.
In this post, we’ll break down the ins and outs of eCommerce business insurance—starting with why it's so important for your business to have insurance in the first place.
Why does your eCommerce business need liability insurance?
The short answer: having insurance reduces your risk.
For SMBs, risk can come in many forms, including loss of inventory, employee injuries, and cyberattacks. Business insurance (aka “commercial insurance”) protects you from legal liabilities in situations like these—and goes beyond what most homeowner’s insurance policies are able to cover, even if you’re a small home-based business.
For example, small businesses are at particularly high risk when it comes to things like malware, ransomware, and brute-force attacks. In 2022 alone, 43% of data breaches involved small businesses—and a single data breach cost an average $2.98 million for businesses with fewer than 500 employees.
Businesses with cybersecurity liability insurance are covered from lawsuits, fines, and other legal penalties stemming from these types of cyberattacks.
Moreover, some retailers (like Amazon) or third-party logistics providers that you work with may require you to purchase commercial insurance as part of your contract. So, there may be situations in which you don’t have a choice but to insure your business.
Types of eCommerce business insurance
There are several types of business insurance to choose from. They include:
General liability insurance - Covers claims of bodily injury or property damage, like slipping on a wet floor or fire and flood damages. Also covers copyright infringement.
Product liability insurance - Covers damage or injury to a customer from faulty products that you sell or manufacture. This includes the cost of medical bills and legal defense fees in case you are sued.
Cybersecurity liability insurance - Covers losses you incur as a result of data breaches, cyberattacks, and other cyber-related incidents.
Business interruption insurance (aka “business income coverage”) - Covers lost income or operating expenses if you're forced to shut down temporarily due to a covered disaster, like a fire, repairs, or inventory theft.
Transit insurance - Covers the cost of goods damaged or lost while in transit and/or being stored off site (e.g., at a warehouse).
Business property insurance - Covers the things you own and use to run your eCommerce business, like furniture, computers, and merchandise.
Workers' compensation - Covers medical expenses for workplace-related injuries and illnesses, plus lost wages due to injury.
An insurance broker can work with you to narrow down the coverage that works best for your specific needs. For example, you probably don't need worker's compensation if you're a sole proprietor running an eCommerce business.
Again, it's all about risk. If you own a tree cutting business, you're at a much higher risk of injury than if you're packing and shipping products from your garage.
Also, keep in mind that there's some crossover with policy types. General liability typically covers bodily injury, property damage related to your business and copyright infringement claims, so you may not need separate business property insurance unless you have a physical store.
On the other hand, you may choose to purchase a business owners policy (BOP) that bundles several types of insurance into one. This generally includes general liability, business property, and business interruption.
How much does eCommerce business insurance cost?
A $1 million general liability insurance policy for eCommerce businesses in the U.S. generally ranges from $350 to $900 per year, according to TRUiC.
The other six insurance products tend to fall within these ranges, according to eCommerce CEO:
Product liability: $300 to $600 annually
Cybersecurity liability: $140 monthly
Business interruption: $30 to $140 monthly
Transit insurance: $14 monthly
Business property insurance: $63 monthly
Workers' compensation: $47 monthly
Ultimately, your cost will depend on many things, including (but not limited to) the types of products you plan to sell online, the size of your business, your physical properties (e.g., a physical storefront or warehouse), and more.
How to pick the best eCommerce insurance provider
Once you're familiar with the type of business insurance types available, you can begin searching for a provider.
01. Assess your risk
Every business is different, and every business owner has a different tolerance for risk. When shopping for coverage, start by assessing your own risk tolerance. Here's a list of questions to ask yourself:
Is any type of insurance required by your state, licensing body, or client?
Do you collect and store customers’ personal information like email addresses and credit card numbers (e.g., you run a subscription box service that requires you to have these details on file)?
Who (staff, partners, vendors, etc.) has access to your critical systems? (The more people who use your critical systems, the more vulnerable you are to a breach.)
How long can your business sustain a service disruption?
What financial reserves do you have or will eventually need if you’re unable to work?
Are you financially protected if someone sues you for injury, copyright infringement, or any other harm they might claim as a result of doing business with you?
Are you working with dropshippers or third-party suppliers? (If so you may need extra protection for goods lost in transit.)
Does your business have any physical locations? If so, are there any natural disasters or accidents that could impact your business?
Start forming an idea of the type of business insurance you’ll need. Note that not every insurer offers every type of commercial insurance, and some may only offer coverage in certain states—so you’ll want to come prepared with your list of must-haves.
02. Review insurance providers
There's no shortage of insurance providers, so a good place to start is with a website like NerdWallet that vets finance companies for you.
NerdWallet offers research into various insurance providers, providing star ratings and recommendations for specific types of business. For example, NerdWallet recommends Thimble for “crafty businesses,” noting that Thimble offers temporary coverage tailored to merchants who sell at craft fairs or markets.
Similarly, marketplaces like Insureon compile information around multiple carriers. Insureon simplifies the process of pulling quotes and weeding out various options for your business.
Alternatively, you can engage a broker to gather quotes and provide their professional opinion. Make sure to find a broker with experience working with eCommerce businesses. Even better, ask other business owners for referrals so that you can identify the most trusted professional.
03. Weigh your options
Getting quotes from multiple companies lets you do a side-by-side comparison of monthly premiums, coverage limitations, and services. It additionally gives you a good understanding of what’s available to businesses like yours in the larger insurance market.
Make sure you understand what is and isn't covered with each policy, plus any exclusions or limitations that might apply before signing on the dotted line.
It's always a good idea to get a second opinion (i.e., consulting an insurance broker or agent) when assessing your options. There may be certain policies or bundling options that expand coverage for risks specific to eCommerce businesses. You may even find yourself needing to buy insurance from a few different providers.
04. Get reviews
Customer reviews can give you a sense of how an insurance company handles claims and customer service on a regular basis.
Websites like Bankrate and NerdWallet offer comprehensive reviews on popular insurance companies using ratings systems that factor in interest rates, account fees, account types, and overall customer experiences.
NAIC additionally provides info into any complaints filed against a provider. You can search its database for complaints, as well as information into a company’s financial strength as of the last three years.
05. Choose a plan and keep it current
Once you’ve picked a reliable insurance provider, plus a policy (or policies) that meet your needs and budget, it’s time to make a purchase. Create your account, set up payments, and familiarize yourself with the process of filing claims.
It's worth noting that many eCommerce insurance policies require annual renewal. Make sure to contact your insurer ahead of time to renew your policy and don't be shy about switching providers if you outgrow your current plan.
Due diligence reduces risk
It may be tempting to make your budget the main factor when choosing an eCommerce insurance plan. But price shouldn't be the only thing you consider. The cost of not having good insurance can stack up to be much more expensive than the cost of a premium plan. So, take the time to assess your risk, do your research, and look for a policy that offers the right amount of coverage.
Editor, Wix eCommerce
Allison is the editor for the Wix eCommerce blog, with several years of experience reporting on eCommerce news, strategies, and founder stories.