Running a small business is risky. Injuries, natural disasters, as well as client and customer lawsuits can wreck a business and ruin your personal and professional life. By taking out business insurance, though, you help mitigate the risk and avoid expensive legal nightmares.
Insurance helps boost your business' credibility with its clients and customers and makes it more attractive to prospective buyers. Taking out the right business insurance policy can increase your business value.
Every business is different; this means every business insurance policy is different. As a small business owner, you must do due diligence, read the small print and protect your assets.
Why do I need business insurance?
There's one excellent reason to get business insurance: it's the law. To clarify, sometimes it's the law. There are plenty of circumstances where you're legally required to take out a policy.
For example, you're legally required to have employer's liability insurance when your business employs people.
No matter what your business does, makes, or sells, there's a good chance your business is legally required to take out at least one insurance policy. Even if you're starting a micro-business from home, some policies will benefit the business, even if not legally required.
Is business insurance required?
Whether or not business insurance is required depends on the details of the business in question, like location, size, nature of the business, number of employees, and industry.
If you have employees, you're required to have employers' liability cover, even if they only work on a short-term, casual basis. Employer's liability insurance pays compensation if someone who works for you is injured while working or becomes ill because of their work.
If you don't have employers' liability, you might get fined. You can also get sued by your employees if something unexpected happens. While many policies aren't formally required by law, the damages can be so punitive that it makes business insurance the smart way to go.
Small Business Insurance: Managing Risk | TRUiC
What does business insurance cover?
Business owners face the prospect of market volatility, compensation claims, customer and client lawsuits, and dishonest employees. A business owner can suffer a heart attack, their premises can burn down, the warehouse can get burgled, or an earthquake can destroy the whole building.
Essentially, business insurance protects you from the bad things that happen to businesses. Without business insurance, your job of weathering the storm gets a lot harder.
What happens if I don't have small business insurance?
As a small business owner without insurance, you run the risk of getting fined by the government and other regulatory bodies. You can also be hung out to dry in the courts by a costly lawsuit. Even if you win the claim, your business might fold just by covering the legal fees.
Aside from the financial hits, you might accrue without correct cover, an insurance-less business looks terrible and suffers from a bad reputation with clients, customers, and partners because of its negative connotations.
The types of business insurance
There are plenty of different policies that can help a small business survive. Here are some of the most common:
- Employers' liability: Protects your business if people work for you.
- Professional indemnity: Protects your business if a client loses money due to your services or advice.
- Public liability: Protects against claims made by members of the public.
- Product liability: Protects against claims if someone is injured or their property is damaged by a product you sell.
- Business interruption: Protects against loss of income if you're unable to carry out business as usual because of unforeseen events.
- Business property: Covers the rebuild or repair costs of your business building(s).
- Business auto: Commercial vehicle policies protect you if you use a car for work.
What insurance do you need for a small business?
The only insurance policy you actually need (as in required by law) is employer's liability insurance if you employ people. Otherwise, it depends on what your business does.
Many insurers offer pre-designed insurance packages for small businesses. These often include insurance policy packages for shops, restaurants, cafes, self-employed, and sole traders.
As every business's insurance requirements vary across industries, it's important to read the fine print of your insurance policies and agreements. The legalese can be tricky and filled with jargon, but there's plenty of help and advice out there.
How can insurance increase business value?
The biggest way an insurance policy increases business value is by reducing the risk of financial distress. Smooth sailing allows companies to take greater risks, boost performance, and increase value.
Furthermore, credible insurance coverage increases a business' desirability for customers and employees. Going beyond the basic requirements can help lift your business above industry-standard and increase its value.
Preparing a business for sale
Having a complete set of insurance policies can make a business much more desirable when it comes to selling it. Policies tend to include specific details pertaining to selling your business.
Related: Legal Documents for Business Sale
Should I cancel my business insurance before selling it?
No. Business insurance policies are like any other. You wouldn't cancel your car insurance before selling it. You can cancel your insurance as soon as you've sold it.
Do I need business insurance working from home?
Working from home is the new standard for lots of people. While it can seem unnecessary to take out expensive and complicated business insurance policies if you're selling craft jewelry from your living room table, no matter how small your business is, it can help to take out insurance.
What business insurance do I need if I work from home?
Working from home is the same as any other business in the sense that your insurance policies need to reflect what you do. Professional indemnity, stock, and employer's liability might still be relevant to you even if you run your business from home.
How much will business insurance cost?
The cost depends on the specific details of your business. While it's a vague answer, there's no way to pin down a number as the policy prices vary from the tens to the hundreds if not thousands per month because of the size and scope of the market.
What factors contribute to the price of my business insurance?
The price of small business insurance policies varies so much because of the sheer number of variables. The policies reflect the business' size, the number of employees, the nature of the business, the risk it faces, and the level of cover provided by the policy.
What small-business insurance is right for me?
Good insurance coverage can save a business. Equally, inappropriate or inadequate coverage can sink a small business. No one can tell the future, and bad things tend to happen at the worst time. When it comes to taking out insurance for your business, it helps to act sooner than later.