What Kind of Insurance Does Your Small Business Need?

For entrepreneurs, getting the proper insurance coverage for your business is a must. While you may not be legally obligated to purchase the insurance policies covered in this article, the risk involved in conducting business without insurance is too great. With so many types of business insurance available, you might be confused about which type of coverage you require for your specific business. We'll go over the different kinds of insurance so you can feel confident when deciding how to insure your business. What is small business insurance? You're probably already familiar with some types of insurance policies from other areas of your life outside of business. For example, when you drive a car, you have to purchase auto insurance to cover things like theft or accidents. If you've rented an apartment or home, you've likely purchased tenant insurance. Small business insurance covers you against a variety of misfortunes, mistakes, or accidents that might happen while conducting business. Just as private insurance policies protect you from legal and financial liability in the event of an accident or theft, small business insurance policies protect you from financial and legal claims that could otherwise be very serious—and costly. There are many kinds of small business insurance, and the policies you should look into will depend on the activities your business engages in. You likely won't need every single type of insurance, but getting the coverage that makes sense for your business will give you protection and peace of mind so you can focus on the important things. What is general liability insurance for a small business? Before getting into the various types of business insurance out there, it's worth focusing on general liability insurance, since this type of policy should be purchased by every small business regardless of what you do. General liability insurance provides protection against claims of property damage or bodily injury resulting from your business operations. This includes damage or injury caused by your products, physical location, or the daily operations of your business. Since general liability is broad in scope, it is a must-have for any small business, no matter the business' activities. Types of insurance for small business As you go through the list of types of insurance, consider them in relation to your own business activities. Some will be very relevant to your type of business, and others may not pertain to your business at this time. While insurance policies are an additional expense you have to cover as an entrepreneur, it’s well worth factoring into your financial planning. In the long run, insurance can save your business large sums of money. General liability insurance General liability insurance is also referred to as commercial liability insurance and it’s one type of insurance policy that all business owners should purchase. When comparing policies from different insurance companies, read the terms carefully and choose one that has the broadest scope. It should cover things like injury and property damage to third-parties, product liability issues, and accidental damage to a property if you are leasing or renting. These types of claims can be the most expensive, so it's important that your policy covers them. Commercial property insurance Commercial property insurance can provide coverage not only for the building you operate out of or the office you rent, but also for your inventory, equipment, computers, and other physical items you need to operate your business. This policy will be more important for product-based businesses, and businesses that operate outside of a home office, although those with a home office may still wish to get this coverage if they use expensive equipment or electronics to conduct businesses. Business income insurance While a commercial property insurance policy can cover damage to your property from things like fire or theft, you may still have to shut down your business for a while until you can repair and replace the damage. This downtime can be very costly, since it's time your business would have otherwise been generating income. That's where business income insurance is useful: it can cover your expenses and even your lost income. This type of policy is also sometimes referred to as business interruption insurance. Workers’ compensation insurance If you have employees, you run the risk of them being injured on the job. Workers’ compensation insurance will cover their wage loss and certain medical costs for your employees in the event of an injury. Commercial auto insurance Many businesses require their employees to drive as part of the job. If that's the case in your business, commercial auto coverage is an important policy to purchase. It will help to cover liabilities resulting from accidents caused either by you or your employees. Even if your employees drive as part of the job occasionally, one accident can end up being very expensive for your business if you don't have commercial auto insurance. Professional liability insurance Also known as errors and omissions insurance, this policy protects your finances if you or any of your employees have made a mistake in the professional services you offer that have cost your client. If a client sues you for negligence, you'll want to have professional liability insurance to help cover the fees and expenses you may encounter. Data breach insurance Small businesses may not think of themselves as being at risk for a data breach, but roughly 43 per cent of cyber attacks target small businesses. Data breach insurance, also called cyber liability insurance, can pay the ransom that hackers demand in order to return important files. This type of policy can also cover legal fees you may encounter because of a data breach, and credit monitoring if your customers' sensitive financial information has been compromised. This can help regain your customers' trust in the event of an unfortunate breach of their data. Commercial auto insurance If your business operates company vehicles, they should be fully insured to protect you from liability in the event of an accident. If your employees are driving their own vehicles, their own car insurance may suffice. However, there are instances where you should still have vehicle insurance even if your employee is driving their own car. The most common one is if they are making shipments on behalf of your business. Home-based businesses While many entrepreneurs start their businesses out of their homes, it’s important to note that your home insurance policy doesn't provide the coverage you would get from a commercial property insurance policy. If you want your inventory and equipment to be protected, you will need a separate commercial property insurance policy. What kind of insurance does a business need? All businesses should get a general liability insurance policy to have protection from some of the most common liabilities. Whether your business requires additional types of coverage will depend on your business activities. For example, worker’s compensation insurance will only apply to you if you have employees. If you conduct all of your business from your laptop in your home, you may not require commercial property insurance. However, if you start using more valuable equipment, that policy may become worthwhile. By discussing your business activities with an insurance broker, you'll be able to get advice on the best policies for your specific business activities. Can you run a business without insurance? While you may be able to legally operate a business without insurance, this is very risky and not advisable. At the very least, a general liability insurance policy will give you the peace of mind that your business and even personal finances won't be ruined by something out of your control, like a customer injuring themself with your product. Remember, your insurance premiums are also deductible as business expenses. Business risks are a normal part of being an entrepreneur. While insurance policies are an additional expense, the money saved in the long run in the event of a liability is much greater. With the right insurance policies in place, you can stop worrying about the risks that are out of your control and start focusing more on growing your business.