One of the first tasks to check off your list when starting a new business is ensuring that you have the appropriate insurance. Knowing you have insurance coverage means you can proceed to build your business with less worry about all the things that can go wrong due to risks outside of your control.
For some businesses, contents insurance is particularly important. We’ll go over what exactly is covered by business contents insurance, whether you should consider getting it, and how to get this type of insurance.
What is small business contents insurance?
Small business contents insurance is a type of small business insurance that covers the possessions or equipment located at your place of business. Covered possessions include computers, inventory, and raw materials.
It doesn’t matter if you own your business property, rent it, or operate out of your home, the contents of the building are covered. However, property damage to the building is not covered by this insurance.
While plans will vary depending on your insurance provider, contents insurance generally covers policyholders that experience damage to, or loss of, business equipment and possessions from:
- Fire or smoke damage
- Theft or malicious acts that damage your possessions
- Water damage
- Wind damage
- Smoke damage
Who needs contents insurance?
Contents insurance should be considered by any business owner who would have a difficult time covering the cost to replace their belongings and equipment in the event of damage or theft.
For example, some entrepreneurs only require a laptop to operate a business. In that case, contents insurance may not be necessary, because replacing a laptop would be an inconvenient but manageable expense.
Other businesses require much more stuff to operate such as custom furnishings,, raw materials and components for their product, finished inventory, manufacturing equipment, multiple computers, and more.
For such a business, getting contents insurance would likely be a wise decision. If a fire damaged all the equipment, tools, inventory, and computers, the replacement costs would be very high.
As a general rule, product-based businesses and businesses that have pricey tools, equipment, and furniture should consider contents insurance. The value of contents insurance largely comes down to the quantity and value of the business’s possessions.
What contents are covered?
Business contents coverage applies to a wide variety of business assets. These include:
- Manufacturing or processing equipment
- Raw materials
- Computers, photocopiers, and other office equipment
- Fixtures and fittings that you installed
It’s worth noting that normal wear and tear on possessions is not covered; rather, damage or loss must be incurred as a result of specific causes outlined in your insurance policy, such as fire damage.
Why get contents insurance for your small business
Contents insurance can give you peace of mind knowing that in the unfortunate event of a fire, severe weather, or break-in, you won’t have to pay out of pocket to replace everything. The cost of replacing furniture, equipment, inventory, and other belongings covered by contents insurance can be hefty. You may have accumulated some items over years, only to have to replace them all at once.
How to make a claim
If you have to file a contents insurance claim, you should follow the process set out by your insurer. Typically, you’re able to submit your claim online. In most cases, you will be reimbursed for today’s value of your items. In other words, you receive a reimbursement based on the depreciated value of your item, rather than the value it had when it was new.
Once your claim is processed and approved, you should receive the value of your claim, less your deductible. You will be told what the deductible is for your contents insurance policy at the time that you purchase it. This is usually a dollar amount that you have to pay out of pocket to replace your items before the insurance coverage kicks in. In some cases, the deductible is a percentage.
Small business claim example
Let’s say you rent a small warehouse space with an office attached. The following list of items is insured with the corresponding depreciated value at today’s price:
Warehouse racking: $12,000
Warehoused inventory: $30,000
Office furniture for 4 employees: $4000
Two new computers: $2500
Two older computers: $1500
Your list of insured possessions might be quite a bit longer, but we’ll keep it simple for our example.
If fire and smoke damaged all of the listed items, and you had a deductible of $1000, you would be reimbursed $70,000. This would cover the cost of replacing the damaged contents with used contents with a similar level of wear; it would be more costly to purchase new replacements.
If the same small business experienced a robbery and had the 4 computers stolen, their claim would be for $4000, and after the deductible, they would receive $3000.
Small business contents insurance is not legally required. The decision to purchase it comes down to your personal assessment of its value for your business. The more belongings required to operate your business, the clearer the benefit of contents insurance.
However, businesses ranging from small home-based operations to large enterprises can all benefit from contents insurance. It can come down to your comfort with risk. If you have a home-based business that carries considerable inventory, you may find value in this contents insurance coverage because it eliminates personal financial risk should your inventory become damaged.
How to get contents insurance
You can get contents insurance just as you would get any other type of personal or business insurance. You may go through the insurance division of your bank or an independent insurance broker. Other small business owners or local business networking groups can be a great source of referrals if you’re not sure where to start your search.
Since there are multiple places you can purchase contents insurance, it’s generally a good idea to shop around to compare coverage and cost.
Getting a quote
Most insurance providers have an online form through which you can provide basic information about your business and the type of insurance you are seeking.
Next, you’ll be contacted by a representative who may ask more detailed questions about your business and insurance requirements before providing a quote. You may be asked the size of your business, how many years you’ve been in operation, and type of industry.
Once you have a few quotes, you’ll get an idea of what a reasonable rate is for your business, and you can compare the specific details of each plan.
How long does it take to get a quote?
While the time required to obtain a quote may vary from one provider to the next, you should hear back from them within a day or two. If more information is required to complete your quote, you will typically hear back within another 2 to 3 business days.
Some insurance providers advertise turnaround times of as little as 24 hours. Since it’s a good idea to compare quotes, it’s best to wait until you hear from a few providers.
Questions to ask your provider
Before choosing a plan, it’s a good idea to get as much information as possible from your insurance provider. Here are some questions to ask your provider before signing the dotted line.
- What is my deductible?
- What payment options are available?
- Am I eligible for any discounts?
- What is the complete list of items covered by my insurance?
- Do I need to provide a list of my belongings upfront?
- How do I submit a claim?
- How quickly are claims processed?
- Are there any special circumstances not covered by this plan that I should know about? For example, your plan may not cover flooding but may have an add-on for this event.
- Are there coverage limits, or maximum amounts that can be claimed?
How Ownr Can Help
If you choose to incorporate our business rather than register as a sole proprietor, you can count on Ownr to help you prepare all of your important documentation, including your minute book and annual return. With easy-to-understand onboarding pages and helpful reminders, you’ll never fall behind on your documentation.
For some businesses, getting contents insurance is a no-brainer. If your business requires that you carry a lot of inventory, or use expensive equipment and tools, the peace of mind that a contents insurance policy can provide is well worth the investment.
However, not every business necessarily requires this insurance policy. Businesses that run with very low overhead may not benefit much from this coverage, since they don’t have many possessions to insure.
Contents insurance for small business
Policy costs vary widely depending on the replacement costs of insured items, claims history, business location, and other factors. The only way to know what the cost will be for your business is to obtain at least three quotes from insurance providers.
Small business contents insurance FAQs
Legally, do I need to get contents insurance?
No, legally you do not need to get contents insurance in Canada. It is up to you if you want this kind of coverage.
Does home insurance cover a small business?
Maybe, some home insurance plans offer add-ons for small home-based businesses. Your insurance company can help you determine if this option makes more sense for your business.
How do I know what kind of insurance my business needs?
The best way to determine what kind of insurance your business needs is to get professional advice from your insurance company.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.