What If You’re Sued? Insurance for E-commerce Businesses

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With great innovation comes great risk. The E-commerce world is no exception. As one of the fastest-growing industries both nationally and abroad, sometimes it’s hard to keep up with the changing landscape and the new risks that it brings. That’s why many E-commerce business owners find themselves asking, “Do I really need insurance?” and “What insurance do I need?” In this increasingly litigious world, where one misstep can lead to a lawsuit, the answer to this question is “Yes, you most definitely need insurance — several different types of insurance.”

General Liability

This is the foundation of any risk management strategy and it is highly recommended for E-commerce business owners. It will protect your business from third-party claims of bodily injury, property damage, and slander. This is essential if you lease office or warehouse space or plan to expand to a physical storefront.

General liability insurance can be consolidated with commercial property insurance under a business owner’s policy. In addition to general liability coverage, it would also provide coverage for physical assets like computers, equipment, and inventory used in your day-to-day operations. Keep in mind, combined coverage is usually more affordable than purchasing each policy individually.

Product Liability

This is another essential type of insurance that E-commerce business owners should consider. It will protect your business if a product you sold injured a buyer or damaged his or her property. This includes claims regarding manufacturing defects, inadequate labels or warnings, and product malfunctions. Product liability insurance is still important even if you are selling products that were made by others. As long as you are in the distribution channel, you can be held liable for product claims.

Cyber Insurance

This may, in fact, be the most important type of insurance on this list for E-commerce business owners. It covers the cost of investigating cyberattacks and data breaches and also covers you in the event of a lawsuit from a consumer. E-commerce businesses are especially vulnerable to cyber risks. They also collect and store sensitive information, including email addresses, usernames, passwords, Social Security numbers, and banking and credit card information.

As the E-commerce world has catapulted in popularity due to the COVID-19 lockdowns, online retailers have become a huge target for all sorts of hackers. From phishing, malware, ransomware, data breaches, and distributed denial of service (DDoS) attacks, cyber liability insurance is now more important than ever. The costs of defending against and recovering from these attacks and the litigation that follows is enough to put even the most successful E-commerce website out of business.

Professional Liability

If your E-commerce business offers any type of professional services like marketing or consulting, professional liability insurance is an important type of coverage. It covers claims of negligence, deception, malpractice, and general client dissatisfaction. Lawsuits of this nature can be quite costly to your bottom line and your reputation, so it’s important to make sure you’re fully protected.

Other Insurances

Other types of insurance to explore include:

  • Worker’s compensation – covers claims of work-related injuries
  • Employment practices – covers claims of wrongful termination, discrimination, harassment, and retaliation
  • Umbrella insurance – covers liability claims in excess of a general liability policy

These policies are common to many different businesses and should definitely be considered for your E-commerce venture, as needed

Make Sure You’re Covered

At Tree Street Advisory, we understand the ins and outs of risk management for E-commerce businesses. We can help you choose the right types and levels of insurance coverage so that you can get back to running your business with confidence and peace of mind. Call (615) 219-9802 or schedule a free 30-minute introductory appointment today!

Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Allan Phillips, and all rights are reserved.

Allan PhillipsAllan Phillips is a Certified Financial Advisor (CFP®) and founder of Tree Street Advisory. He works with E-commerce business owners and Physicians who are concerned with issues such as cash flow management, high-earner retirement planning, debt repayment approaches, tax strategies, and business planning.


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