Recommended coverage

The Salon and Spa Association (SSA) recommends several layers of coverage:

Professional liability coverage. This type of insurance provides coverage in the event an employee's negligence results in injury to a customer. For example, if your salon is sued because an employee fails to sanitize tools and causes an infection, professional liability insurance would cover court costs.

General Liability. This covers legal costs and judgments against you that result from a bodily injury that occurs in your salon. For example, if a customer slips and falls on the steps leading to your salon's entrance, general liability would cover medical bills and court costs, if the customer sues. According to SSA, this coverage also would protect you financially if you damage the business space you're renting.

Workers' compensation. This type of insurance is required by law in some states and covers medical costs and lost wages for employees who are injured or who become ill as a result of doing their jobs.

Property insurance. Property insurance covers your building and equipment in the event of a fire, theft or other covered disasters. Keep in mind that many property insurance policies generally exclude floods and earthquakes.

The Insurance Information Institute also recommends getting business interruption coverage. Property damage coverage pays to replace your building if it is damaged in a disaster -- but what about the lost income while your building is under construction? Business interruption coverage can pay for that lost income based on what you earned before the disaster, utilities and possibly even the costs of operating out of a temporary location.