Last Updated: January 11, 2023
Starting up your own business requires dealing with numerous administrative matters, including insurance policies. However, people who just opened their startups and are building their capital want to save every cent and eliminate unneeded spending. That’s why we often get the question: “Do I need business insurance or not?”
First-time business owners question every expense, and for many startups, insurance premiums seem like an unnecessary cost. But is it really? While not every type of business coverage is essential, most businesses would benefit from protection against risks associated with running an entity.
Let’s talk about the type of small business insurance policy that would support any startup or organization to avoid unexpected and often costly mishaps.
How Does Business Insurance Work?
No matter the work we put into it, running a business of any kind comes with its risks. To minimize the impact of these risks, business owners are advised to take out business insurance. This type of insurance coverage is designed to protect entities against losses that can occur during operation.
Coverage like general liability insurance for small business owners is structured to protect the entity against potential losses incurred by the normal day-to-day running of the company. Such coverage could prevent you from losing your business because of costly expenses due to a claim made against your company.
Different types of business insurance are available, and you can select the coverage that suits your business’ needs. This could include product liability insurance, property insurance, or general liability business insurance.
The basics are the same as with any other type of insurance policy. Your business and the insurance company sign a contract. In exchange for regular premium payments, the insurance company agrees to help carry risks and cover your business losses. Should losses occur and they fall within the policy terms, the insurance company will cover the financial costs of this loss.
The payout amount is dependent on the maximum policy limit agreed upon between your business and the insurance company. Most often, your business will need to pay a deductible amount before the balance of the coverage is paid out by your insurance. But, this amount is often negligible compared to having to close down your company, so don’t let this stop you taking out liability insurance coverage for small business owners.
Processing Insurance Claims
When seeking coverage for losses incurred, your business will file a claim with the insurance company. In most cases, the process is quite simple. Let’s take the example of a damaged truck. You would submit your claim against the auto insurance for business vehicles signed with your insurance provider. The insurer will assess the claim based on the information you provide, and if acceptable, payment will be processed to cover most costs related to the damages claimed.
However, different scenarios come into play when assessing the claim a business submits for recouping financial losses. A range of factors, based on the type of business risks, will impact how the insurance company processes any claim.
For example, your insurance company will assess the situation and determine if the claim can be settled with a payment or if it’s likely to result in a lawsuit. So, make sure you are fully versed on the types of business insurance coverage available and get the right one, so your claims are paid with minimal hassle.
What Does Business Insurance Cover?
Insurances for small business owners can include coverage for damage to property, employees’ claims against the company and its owners, and legal liability. An insurance policy can be signed up to help protect your business against loss of income. You can also take out professional liability insurance, home-based business insurance, and commercial vehicle insurance.
Limited liability companies should consider LLC insurance while startups would benefit from some form of coverage when they open for trading. No single policy will cover you for all the potential losses your business could face. Instead, you’ll need to take into consideration various factors such as:
- The location of your business
- The number of employees
- Potential damages arising from your products, services, or business operations
- Negligence and malpractice
- Work vehicles and company drivers
- Loss of revenue
Based on these factors and more, you’ll need to seriously consider what type of coverage best suits your small business insurance requirements.
Clients and customers
Every business should take out general liability insurance. This type of coverage protects you against third-party claims involving bodily injury, medical expenses, or damage to your property. These damages normally result from your products or services or during the operation of your business. If you’re a business owner thinking, “Do I need business insurance?” consider what happens when a disgruntled or injured client or customer files a claim against your business. Without insurance, legal costs alone have the potential to be ruinous.
Product liability insurance protects you against injury, illness, or death claims caused by a faulty product manufactured or sold by your business. Damages arising from a defective product can also be claimed against your company, and this type of insurance will compensate for financial losses.
Professional liability insurance will protect you and your business from any claims of negligence or malpractice by your clients. This is the most common type of insurance for a small business that operates in the professional service provider industry. These include medical practitioners, lawyers, and accountants.
By law, most US states require businesses to take out workers’ compensation depending on the number of employees you hire. This protects your employees should they get injured or fall ill while working for the company. LLC business owners should also consider LLC insurance that’ll protect them against liability claims filed by their employees.
Loss of revenue is a very real threat facing many businesses in today’s global economy. Loss of income insurance will keep you protected should this happen and will cover you for ongoing expenses such as mortgages and rental payments. Your employees’ salaries will also be covered.
Property insurance will cover any losses or damages caused by storms, fires, vandalism, and natural disasters. This coverage is specifically geared towards your commercial property, which can include: office equipment and furniture.
This type of business hazard insurance is essential for most small businesses if they don’t want to end up footing expensive bills for fire or storm-related losses. However, make sure you know what natural disasters your policy covers. While it may cover some types of water damage, it may not include flooding damage.
Your homeowner’s insurance won’t cover any business-related losses even if you’re operating out of your residential property. With 69% of small companies starting from their residential property, it makes sense to take out home business insurance. This gives business protection insurance for office equipment and furniture while including any property and supplies related to your home business.
Make sure your fleet of company cars and trucks plus your drivers are protected by coverage offered through a commercial vehicle insurance policy. Anything can happen on the road, and this type of commercial insurance will keep your business covered in the eventuality of collisions, personal injury claims, and property damage.
Do I Need Business Insurance?
While not every organization needs to consider taking out insurance for their business, you should weigh the pros and cons of including coverage for your business entity. Insurance coverage keeps you protected when you need it most and could prevent you from having to close shop.
Having business insurance means your assets are protected, and you can keep operations running smoothly despite costly lawsuits or unexpected catastrophes. But, these are not the only reasons you should be considering insurance for a company.
Business insurance may be necessary because of the following reasons:
- It’s a legal requirement: Most states in the US stipulate you need workers’ compensation if you hire employees. Some states require small businesses to take out a general liability insurance policy. Check out the guidelines for the area you operate in and ensure you’re properly covered.
- Provides protection against lawsuits: Faulty products, poorly drafted contracts, and workplace injuries can all result in a lawsuit against your company. Lawsuits can cripple your business and force you to close down if you don’t get business insurance to protect you.
- A buffer against loss of revenue: Storms, arson, and damages to your business property that requires you to close down during repair work could lead to massive loss of revenue. Every business owner hopes this type of interruption to operations doesn’t happen, but it can. So, be prepared for such an eventuality and make sure you’re properly covered.
- Builds business credibility: Both your employees and your customers will trust your business more when you can prove you take risk management seriously. Taking out hazard insurance for business operations is one way of reassuring your team and clients.
When you consider the benefits of having small business insurance, you’ll find they far outweigh the cost of premiums. So the next time you ask, “Do I need business insurance?” weigh the pros and cons of such coverage for your business.
What kind of business insurance do I need?
Your type of business will help you decide what kind of business insurance policy you need. Specific categories will impact the type of business insurance you should consider and how much coverage you should be looking for. With insurance in place, you can rest assured you’re covered for any mishap.
Do independent contractors need business insurance?
In short, yes. Even independent contractors need at least general liability insurance. In addition, it gives you peace of mind should there be a claim against your company.
Factors that can affect business insurance policy
Take into consideration the following aspects of your business and decide if they influence what type of coverage you should take out:
- The type of work your business does
- Physical location
- Property which includes equipment and furniture
- Intellectual property
- The number of employees
- Clients and customers
Different industries may also specify the type of insurance policy your entity needs. A limited liability company would benefit from taking out general liability insurance for LLC, while your real estate agency should always have comprehensive commercial auto insurance.
Business tools used by software companies and online businesses would benefit from insurance that protects their intellectual property. You may also think you’re protected by operating behind a screen. But, online business owners often ask, “Do I need business insurance for online business services?” Online legal services would be well-advised to consider professional liability insurance.
If you want to sign a lease for an office building, you may be required to present a commercial property insurance contract. Contractual agreements between your business partners, clients, and customers should be covered by errors and omission insurance which is a type of professional liability policy.
Sole proprietorship insurance will protect business owners from claims made against their company, while property insurance will give you peace of mind any damage to your physical location is covered.
And, if you’re a new business seeking a bank loan, your application may be more successful if you have small business startup insurance.
If you’re serious about running a professional business while taking into consideration risk management, then you should be looking at insurance coverage. Both startups and running entities would benefit from cover for potential claims, loss of income, and damages to property. Otherwise, you could end up forking out huge sums of money you can ill-afford or worse, be forced to close shop.
When reviewing business insurance solutions, consider the various factors outlined in this article. This way, you can be sure you find the best insurance coverage for your business needs and have peace of mind your company is well-protected.
General liability insurance will protect small business owners from bodily injury claims, medical bills from clients or customers, or property damage. These types of claims can be costly for startups which is why insurance is needed for most businesses.
Business insurance will protect business owners from any losses incurred by damages to their property, assets, or claims from unhappy clients or employees. This type of insurance will also help keep your business running during times of emergencies.
You should get the insurance that will provide the most comprehensive coverage. The exact type of insurance you need depends on various factors such as location, number of employees, the type of work you do, and if you want protection against loss of revenue. Other factors influencing the types of business insurance policies include company vehicles and malpractice or negligence.
Home-based businesses would benefit from business insurance as their homeowners’ policy won’t pay out for any claims made against the entity operating on the residential property.
Yes, you still need general liability insurance, at the very least. If you have employees, workers compensation is also a must. This will protect you against injury or medical claims filed against your company by clients or employees.
If you have a unique business setup and are still wondering, “Do I need business insurance?” and “What kind of business insurance should I get?” check out our guide.