Is business insurance for an online store required?
Even if the law doesn’t require coverage to start or grow your online business, the real world might. As your business matures, it’s more likely you’ll run into situations where insurance isn’t optional. Partners, clients, vendors, landlords and more may ask for proof of your business insurance coverage before they’ll sign a contract.
Many online business owners choose to protect themselves with e-commerce insurance from the beginning, even when they aren’t legally required to carry it.
Online business owners should consider coverage if they:
- Sell physical products
- Keep inventory or equipment
- Collect customer information or process payments
- Have employees
- Rely on their business as a source of income
As your business changes, it’s also a good idea to review your coverage annually to make sure it still fits your needs.
Here are a few scenarios where business insurance may be required for an online business owners:
| Business insurance requirements |
|---|
| If you rent or lease a warehouse or retail space | Commercial landlords often require tenants to carry general liability insurance and/or commercial property insurance before they’ll allow you to sign a lease. |
| If you hire employees | Most states require workers’ compensation insurance if you have employees, though rules vary by state. |
| If you or your employees drive for work | If you or your employees use a car, truck, van, trailer or other vehicle for business, you may need commercial auto coverage in your state. |
| If you apply for a business loan | Many banks or lenders require business insurance before they’ll provide financing for your growing business. |
| If you want to work with wholesalers or distributors | Some suppliers may require proof of insurance before entering into a contract. |
| If you sell regulated retail products | Online retail sales for regulated products like food, alcohol or cosmetics can come with requirements for buusiness insurance or licensing. |
| If you want to work with wholesalers or distributors | Some suppliers may require proof of insurance before entering into a contract. |
| If you use an online payment processor | Some online sellers of high-risk products like supplements, CBD and adult goods may require liability coverage. |
In addition, if you run your online store through a third-party e-commerce platform like Amazon, Shopify, Etsy or Walmart Marketplace, the platform may require you to carry business insurance as your business grows.
| Online e-commerce platform | Business insurance requirements |
|---|
| Amazon | Amazon may require sellers to carry commercial liability insurance once they exceed certain sales thresholds or receive a request under its Business Solutions Agreement. |
| Walmart Marketplace | Walmart Marketplace may require proof of commercial general liability insurance as part of its seller requirements and vendor agreements for some sellers. |
| Shopify | Shopify doesn’t require business insurance, but it’s still worth considering if you sell physical products or store inventory. |
| Etsy | Etsy doesn’t require business insurance, but sellers are the ones solely responsible for complying with the law and responding to customer claims related to the products they sell. |
Keep in mind that marketplace rules can change, and requirements may vary depending on what you sell or how your business is structured. Before you assume you’re covered — or that you don’t need coverage at all — check your platform’s latest seller agreement or insurance requirements.
5 real business risks for e-commerce businesses
An online business isn’t safer than a brick-and-mortar business. It just means the business risks look different.
The reality is that you’re still selling (and liable for) products, handling sensitive customer financial and contact information, investing resources into your business and relying on your work as a source of income. Whether you work from a warehouse or your spare bedroom, your bills don’t get any smaller when something goes wrong.
For many online sellers, the question isn’t “Do I need business insurance?” It’s “What happens if something goes wrong and I don’t have it?”
Here are a few of the most common risks online sellers face.
1. Sudden loss of business income
Sometimes the biggest expense isn’t the damage itself — it’s what happens afterward.
A warehouse fire, severe weather or equipment failure could slow or temporarily stop your ability to fulfill orders. Meanwhile, your recurring bills and expenses don’t pause.
When your business depends on getting products into customers’ hands, even a short disruption can have a ripple effect on revenue, customer relationships, reviews, reputation and future growth.
2. All of your products and inventory get wiped out
If your business depends on the products that you sell, losing it can be a huge setback. For many e-commerce sellers, products and inventory are one of the biggest investments they make. Replacing it out of pocket could cause a major financial strain.
Imagine if someone breaks into your garage and steals a pallet of products waiting to ship. It could leave you scrambling to replace stock and fill orders.
3. Product liability claims
If you sell physical products, there’s always a chance something doesn’t go as planned.
Maybe a customer claims a skincare product caused a rash. Or a toy breaks and someone gets hurt. Whether you manufactured the product yourself or not, you could still end up liable for any injuries or property damage caused by a product that you sell.
4. A customer takes legal action against your business
Lawsuits aren’t limited to businesses with physical locations. Online sellers can face legal claims, too. Say another company says your marketing used copyrighted images without permission. Or a customer claims your advertising was misleading.
You may never run into these situations. But if you do, defending yourself can cost time and money — even if you’ve done nothing wrong.
5. Cyber crime and data leaks
Customer names, addresses and payment information can make online stores attractive targets for cybercriminals. And small business owners are a preferred target because they often lack the resources for security methods and protocols.
A hacked website, ransomware attack or data breach could interrupt your business and create unexpected expenses, from recovering lost data to notifying affected customers.
Which types of business insurance could benefit an online seller most?
There’s no one-size-fits-all policy for online businesses. What you need specific to your business comes down to what you sell, what you store, your employees and your day-to-day business operations. If you only sell digital products — like templates, online courses or downloadable files — you may need different coverage than someone shipping physical inventory.
These are a some of the most common types of business insurance coverage for e-commerce sellers:
General Liability insurance
This is a common first business insurance policy — and for good reason. If someone says your business damaged their property or they got injured where you do business, general liability for retailers is often the policy that could help protect you.
General liability insurance can also come into play for libel, slander or advertising issues if, say, there’s a copyright claim tied to your marketing.
Product Liability insurance
If your business makes or sells physical products, you could be held responsible if someone claims your product caused damage or an injury that led to a financial loss.
Picture this: A customer says your candle started a fire in their home. Or that a packaged snack food you sell made them sick. Even if you didn’t make the product yourself, you can still be pulled into a claim as the seller.
Product liability coverage could help protect your business if someone makes a claim against you for a product that cost them in injury or damage. This can be an especially important coverage if you sell things like food, cosmetics, supplements, toys or electronics.
At ERGO NEXT, product liability coverage is included with a general liability insurance policy for retailers.
Commercial Property insurance
Just because customers don’t walk through your door doesn’t mean your business doesn’t own valuable property. Inventory and products. Computers and electronics equipment. Shelving. Packing supplies. Before you know it, you’ve invested thousands of dollars in the things that you need to keep your business running.
If you run your business from home, don’t assume your homeowners insurance has you covered. Many homeowners policies limit or exclude business-related losses. It’s worth double-checking, especially if your business inventory has grown.
Commercial property insurance could help protect those physical items if they’re damaged by events like a fire, theft, vandalism, burst water pipe or heavy winter storm damage caused by hail, wind or snow.
Many small business owners also don’t realize that commercial property insurance includes business income coverage. This could help replace some of your lost business income if a covered event forces you to close temporarily for repairs.
Business Owner’s Policy (BOP insurance)
BOP insurance combines the protections of general liability insurance and commercial property insurance into one policy that’s easier to manage, and often more cost-effective.
If your online store has grown beyond a casual side hustle, a BOP is definitely worth a look.
Cyber Liability insurance
If your store lives online, so do many of your biggest risks. If you’re collecting customer data or processing payments, this protection is more affordable than you might think and one to seriously consider.
Cyber liability insurance could help with costs tied to certain cyber incidents, like data breaches or ransomware attacks. You could get help with expenses that might include notifying customers, restoring data or handling other related claims.
Workers’ Compensation insurance
Hiring your first employee is exciting — but it also comes with new responsibilities. Rules vary by state, so it’s worth checking what applies where you operate.
Retail workers’ comp insurance could help cover medical expenses and lost wages if an employee gets hurt or sick because of their work. Even in a small setup that’s moving inventory or packing orders, injuries can happen.
How much does business insurance for an online store cost?
There’s no one-size-fits-all answer because insurance costs vary depending on several factors, including:
- What you sell.
- Your annual revenue.
- Your business location.
- Your number of employees.
- The value of your inventory and equipment.
- The coverage limits and deductible you choose for your policies.
- Your insurance claims history.
The easiest way to find out what you’ll pay is to get a free quote specific to your business. At ERGO NEXT, it takes about 10 minutes to see an exact price specific to your business — no agent required.
