Running a small business can open you up to a lot of liability, and the personal liability protection afforded by the LLC structure can’t protect you from everything that could go wrong. For example, your business premises and equipment could be damaged by a flood, fire, vandalism, or a natural disaster. One of your employees or customers could get hurt on the premises. Unforeseen and, often, unforeseeable events can leave you scrambling to make up for business losses. Business insurance can provide the protection your business needs to deal with lawsuits, employee injuries, theft, and more. But does every small business need insurance? When is it time to start calling insurance agents? You will need insurance if you have any employees, have a business premises that is open to customers and the public, or provide products and services that could create liability for you, the business owner.
Know the Different Types of Insurance Available
There are several types of small business insurance available to business owners. General liability insurance can protect any business owner against financial losses that occur due to property damage; libel or slander; medical expenses; or expenses related to lawsuits, including judgments and settlements as well as legal fees. Commercial property insurance is appropriate for protecting your business property from losses due to storms, fires, floods, natural disasters, and civil unrest or vandalism. Product liability coverage protects against losses related to defective products. Professional liability coverage protects against negligence, malpractice, and losses due to professional error. Insurance for home-based businesses typically exists as a rider that can be added to your homeowner’s policy, providing additional protection for business equipment and liability. A business owner’s policy rolls protections from multiple insurance types into one policy for convenience.
Business Insurance May Be Required by Law
Depending on the specifics of your business and the laws in your state, you may be required to carry some amount of insurance. It’s federal law that every business with employees carry worker’s comp, disability, and unemployment insurance. Your state may require additional insurance, especially if you have employees or provide a product or service to members of the public. You may also be required to carry professional liability insurance if you’re practicing a profession that could leave you open to liability, such as medicine or law.
Assess Your Current Level of Risk to Choose the Right Insurance Product(s)
You may be tempted to only carry the insurance you’re required to carry by law. If you’re a sole proprietor working from home and producing virtual deliverables, you may not feel like your risk of liability is high enough to justify purchasing business insurance. However, before you decide to forego insurance, you should carefully assess your level of risk. A single fire, storm, or natural disaster could cause losses that, without insurance, could be too devastating to recover from.
Consider the types of liability that could affect your business. If you provide professional services or sell products, you could be open to a lawsuit for negligence or product defects, for example. If you live in an area that is prone to hurricanes, you should purchase natural disaster insurance. If you live in California, you should purchase protection against earthquakes and wildfires. If you do business from a physical location outside the home, you’re going to need commercial property insurance to protect that investment. If your business activities involve operating vehicles, you’re going to need commercial vehicle insurance.
Really, most small business owners need some form of insurance, if only to provide for worker’s compensation, disability insurance, and unemployment insurance for their employees. If you haven’t hired any employees yet, you may be able to hold off on purchasing this kind of protection, but it will probably be included in any general liability coverage you buy. When you’re just starting out, or providing services that pose little risk to your clients (like tutoring or ghostwriting), or if you’re just not worried about paying for liability costs out of pocket, then you can hold off on buying insurance until you have some employees and assets worth protecting.
Insurance is an absolute must for the majority of small business owners. If you don’t want to be on the hook for lawsuit costs, employee injuries, property damage, or other catastrophes that can sink a business, you need protection. Call your insurance agent today and make sure you have the coverage you need.