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Small business owners and startup founders that have just begun their journeys as independent business owners can testify to the fact that money is almost always tight in these early stages. That’s why it’s completely natural and normal for business owners to ask “Do I need business insurance?” Most owners are very careful about what they are spending their money on and analyze every potential investment and expense in order to determine whether or not it’s an entirely necessary and unavoidable cost.
Many times, you’ll hear young startups and businesses ask questions like, “Why should I buy insurance if I’m not even profitable?” Believe it or not, if you’re still not making money, that’s all the more reason to purchase the right coverage for your business.
Every business is different, which means that the business insurance needs of every business tend to vary depending on a number of factors, including but certainly not limited to industry, location, number of employees, and a variety of other circumstances and business components.
However, there are certain business insurance policies that all businesses should own, which can protect them from the general risks that come with performing just about any type of product or service professionally.
Want further proof that your business needs insurance? How about the fact that the Internal Revenue Service (IRS) considers most common insurance policies tax-deductible since buying coverage is an expense that’s classified as a necessary cost of conducting a trade or business.
Let’s take a deeper look at not only why your business should purchase insurance but also what types of policies provide coverage for risks that your business might be exposed to in the course of your day-to-day business operations.
Do I Need Business Insurance?
Lawsuits These Days Are Almost Inevitable
The society in which we live in today is a very litigious one, meaning that the chances of your business never getting sued are pretty small. Even though it might be hard for you to believe that your customers, clients, or partners could files claims against you, the truth of the matter is that it’s probably going to happen sooner than later, so you might as well be ready for it.
All it takes is one angry customer or former employee, one breached contract, one accident that occurred on your property. And if you don’t have the right insurance in place to cover your legal expenses and possible costs of settlement, you’re going to be in deep financial trouble.
The costs that are related to your trial alone could force your business to close down if you’re still in the early stages of growing your company, which is why most insurance experts will tell you that small businesses actually need insurance more than large corporations do.
You Desire Peace of Mind
If you could pick one word to define life as a small business owner, it would probably be “stressful.” This is essentially the most general and all-encompassing reason for purchasing insurance. With so many aspects of your business relying on the work of you and your staff, it’s sometimes easy to forget that there are also many factors that are completely out of your control. Things such as natural disasters, fires, vandalism, and severe weather can’t be controlled, but they can absolutely have a huge impact on your business and your bottom line.
The reason you buy business insurance is that you want to reduce your business risks and provide coverage and solutions for situations that you can’t control. And since there is no way to prevent every possible accident or calamity, insurance serves as a prevention method and a way in which you can protect your businesses from unforeseeable situations that are out of your hands.
Knowing that you have insurance that will help you replace your property and get your business back on its feet after a fire, for example, provides you with at least some peace of mind as a business owner and frees you to focus on aspects of the business that you can have an impact on instead of those on which you can’t.
You Have Employees
If you have employees then guess what? You are most likely mandated to have workers compensation insurance by your state legislature. So if your business does employ workers, one reason you do need to buy insurance is that, quite frankly, it’s the law.
When you are an employer, you are responsible for a group of people who work for you. Workers compensation insurance makes sure that your business is covered if a workplace injury occurs. This insurance policy will pay medical bills, lost income, and rehabilitation costs for your injured employees.
Employees can be seen as a business liability in other ways, as well. The Me Too Movement has recently brought to light the seriousness of harassment, discrimination, and abuse at the workplace. That’s why it’s a good idea for businesses to purchase EPLI coverage, which will cover legal costs related to employee claims of discrimination, harassment, failure to promote, wrongful termination, and more.
Furthermore, there are some employees that you simply couldn’t run your business without. If such an employee or partner exists in your company, it’s also a good idea to purchase key person insurance, which is a life insurance policy that kicks in to help assuage the financial losses your business could incur if that key employee was to get sick, injure him or herself, or die.
Your Work Involves Contracts
If you are signing contracts of any type with your clients, customers, and partners, you should have insurance to protect you from possible claims related to your contractual obligations. Errors & omissions insurance protects businesses in a variety of situations of professional liability. If your business is sued for errors made, giving bad advice, not meeting deadlines, or any other type of misstep that could have negatively impacted their partners or customers financially, professional liability insurance will protect you.
There are even types of business contracts that will require you to have insurance before you can sign them. For example, most landlords will not let you sign a lease to rent business property unless you show them proof of commercial property insurance.
You Want to Secure a Loan or Funding
Having business insurance to protect you can also make it easier (and cheaper) for you to take out a small business loan. If you show up to your bank and ask for a business loan without proof of business insurance, you’re either not going to get anything or you’re going to get your loan with a seriously high interest rate tacked on to it.
Also, if you’re a startup that is interested in attracting venture capital funding, you are going to have the proper startup insurance in place, and here’s why. When a VC firm invests in a startup, that usually entails one of their officers joining that startup’s board of directors. This means that they will request that your startup purchases directors & officers insurance so that they know their assets are going to be protected if they choose to invest in your company and join your organization.
You Want to Hire Good Employees and Improve Retention
We’ve talked about how business insurance can protect your business in worst-case scenarios and unexpected, potentially catastrophic events, but it’s also important to remember that insurance can be an agent of growth as well.
For example, offering a high-quality employee benefits program can help you to attract top talent and also retain your best workers. According to a recent poll conducted by The Harris Poll for the American Institute of CPAs (AICPA), 80 percent of polled workers prioritize good health and employee benefits programs over salaries.
You Have Expensive Investments to Protect
In order to make money, you need to invest money in the right resources. While software development companies and startups might invest in people more than anything, every business has different needs. Restaurants will have to invest in their property, equipment, and inventory. Furniture makers will have to invest in equipment and tools of the trade, and so on.
Buying commercial property insurance can help you to protect these investments. And if something does happen to your business property and vital equipment and contents, having the right insurance policy makes it easier for you to replace or repair this property without suffering drastic financial losses and having to cover these expenses on your own.
You Business is Susceptible to Cybercrimes
Now more than ever, your business is susceptible to all types of attacks thanks to the fact that the Internet has become a huge part of every sector of business. It’s not only eCommerce and other online businesses that should be worried about cybersecurity.
If your company stores important data on a computer system or server and if you have databases of customer information such as credit card and Social Security numbers that you are responsible for protecting, you are a prime target for cybercriminals. A cyber insurance policy can help you survive such attacks by providing coverage for various costs that could result from data breaches, phishing attacks, and other types of cyber attacks.
Your Business Has Vehicles and Drivers
Even if you are using your personal vehicle to handle business affairs, you still need to buy commercial auto insurance, because accidents and damages that occurred while you were using your car for business purposes will not be covered by your personal auto insurance.
If you and your employees are using vehicles for any business processes, you’re going to need to purchase a commercial auto insurance policy to make sure that you’re protected from potential losses resulting from vandalism, theft, or accidents and resulting third-party bodily injuries and property damage.
No matter what type of business you are building and how far along you are in the process, every entrepreneur needs a safety net that is going to provide them with the confidence needed to take the risks needed for their businesses to grow and prosper.
Business insurance provides that safety net, offering businesses coverage and protection from common risks and allowing them to place a greater emphasis on growth and innovation. Knowing that you are protected from a myriad of everyday business risks — whether it’s being sued because of an error you made, an employee slipping and falling at the workplace, or a kitchen fire damaging your equipment — having the right insurance program helps you to soften these potential blows so that you can recover from them and continue pursuing your business’s goals and aspirations quickly.
To get a better understanding of what your business’s insurance needs are, reach out to one of our expert brokers at any time to secure the right coverage at the right price.
Let’s break down what types of business insurance policies most small businesses need, what risks those policies protect against, and why businesses buy them.