If you’ve started your own business, you probably feel like you’ve taken a big - but exciting! - risk. It’s important that you don’t let fear hold you back, but you do want to protect your livelihood. One way to do that is to properly insure your business. If you don’t know where to start, ask yourself these six questions.
#1 Do I actually need insurance?
The answer to this one is the same for virtually all businesses - yes you need insurance. Many people suffer from the common misconception that their business is too small to insure; almost 50 percent of small business owners choose not to buy insurance, either because they’re afraid it will be too expensive, or because they don’t understand why and how they should be covered. The truth is that no matter how small your business is, you are putting it at risk if you aren’t insured. Take the small example of a home-based business; if you have a courier dropping off or picking up a package at your home for business purposes and they injure themselves while on your premises, you can be sued and your home insurance likely won’t protect you - since your home was being used as a business when the injury occurred. The next five questions will give you an idea of what kind of insurance you likely need for your business.
#2 What am I selling?
If you’re selling a product, you’ll want product liability coverage, which covers you in the event of a claim that a product you manufactured or sold causes serious injury or property damage. On the other hand, if you’re selling a professional service, you would need professional liability coverage in case a client claims that you were negligent in the service you provided them (for example, that you provided advice that lost your client money or caused them bodily harm). In each scenario, even if you are found not guilty in a lawsuit, you would still rely on your insurance to cover court and legal costs.
#3 Where are you working from?
If you own the building where your business is located, you’ll need property insurance in case of destruction or damage to the premises. If you’re leasing or renting space, your landlord probably has property insurance, but you would be responsible for what’s inside your store, which can be covered by contents insurance. If you’re running your business from home, you’ll want to talk to your home insurance provider, as you may run the risk of voiding your policy by running a business from your residence. You may need to change your homeowners’ policy or add contents insurance to cover your business assets. If you’re driving your car from place to place for your business, your car insurance company needs to be alerted to the fact that your vehicle is being used for business purposes. Like your home insurance, you want to make sure that you aren’t voiding your personal policy by using your car for business. No matter where you are operating from, general commercial liability insurance protects you against claims for bodily injury (like that courier that slips and falls on your steps) and property damage (for example, if you’re a providing a service in someone’s home and cause damage to the property).
#4 What is your contingency plan in the case of a business interruption?
Your business could be interrupted for many different reasons, like floods or fires damaging your property. Even if your building is covered by property insurance and your merchandise and assets are covered by contents insurance, your business could still suffer from loss of earnings during the period of time it will be closed for repairs. Business interruption coverage can cover lost earning, and also extra expenses that come with running your business on a contingency plan (for example, the cost of rent while you carry on business at another location or your need to outsource work while you’re getting you and your business back on solid ground).
#5 Do you deal with confidential data?
You may think that your business is too small to be targeted in a cyberattack, but if you deal with confidential information your business is at risk. In reality, small businesses that lack the resources of a large IT team to protect their network and data are actually more vulnerable than bigger businesses. Forty percent of cyberattacks are on small-to-medium sized businesses, and almost 60 percent of those businesses go out of business within six months. In addition to taking steps to prevent an attack - such as knowing how to detect and respond to fraudulent purchases, how to secure your network and how to recognize a phishing scam - you can protect yourself with cyber liability insurance. This kind of insurance covers your liability in the event of a data breach that could compromise your customer’s personal information.
#6 Do you work by yourself, with a partner, with employees?
If you are a sole proprietor, you are personally liable for all the debts of our business. To protect yourself and your family in the event that you are ill or pass away, you can cover yourself with life insurance (in event of your death), disability insurance (in the event that you are unable to work for a specific period of time due to injury) and critical illness insurance (in the event that you are diagnosed with a critical illness). On the other hand, if you work with a partner, partnership insurance allows you to purchase their shares in the business if they pass away, allowing you to continue running the business. As well, if your business operations are reliant on a key employee (someone that you couldn’t easily replace and whose absence would jeopardize your business), you can cover them with key person insurance to protect yourself from their loss. None of these scenarios are pleasant to think about, but once you are covered, you can rest assured that your family and business is protected in the face of tragedy.
If you thought you didn’t need insurance for your business, hopefully this has shown you that there are many ways you need to protect yourself and your livelihood. Use these questions as a starting point to determine what kind of insurance you need, and then start to do your research. Like any other type of insurance, you should shop around for multiple quotes before settling for a provider, since different companies will offer different quotes and coverage for the same business. Having the right insurance for your small business is an important part of your business’ risk management strategy. With the right coverage, you’re taking solid steps to reducing the risk that comes with owning your own business.
About the Author
Vanessa To is a Marketing and Communications Specialist with a passion for covering news, trends and matters on HR and employment law. She has been working with the Canadian Peninsula team which is a business that is an employer resource for HR and employment law supporting over 50,000 small - to medium-sized businesses worldwide. She’s dedicated to helping small businesses benefit from the same expertise that bigger organizations have in place by sharing the company's knowledge and advice on hot topics.