small business owners often operate on small profit margins. You might be asking yourself, “do I really need to cover my business with different types of insurance?” Some insurance policies are required by law, such as workers’ comp and auto insurance, while other types of insurance are just in case the worst happens. If you look at insurance as simply another business expense, maybe you should think about the positive reasons that your business needs insurance.
6 Reasons Your Business Needs Insurance
Insurance can protect your business against financial loss from covered perils. What would happen if a fire ravaged your business? Would you have the resources to rebuild? If you get sued, how would you come up with money to pay a legal team to defend you? Rather than worrying about what could happen, insurance is a peace of mind. Need more reasons to insure small business?
- Insurance makes you look credible so prospective customers know that you take your business seriously. If you were hiring someone to clean your carpets, wouldn’t you want the company to be “licensed, bonded and insured”?
- Insurance can protect your human resources. Your employees are one of your biggest assets. Workers’ comp and disability insurance protects those assets in case of an accident. You’ll attract and retain better employees when you offer insurance benefits.
- Some contracts require insurance. You may need to carry insurance to get a loan. The lender wants to make sure that your business won’t go under if you get sued. Government contracts often require insurance in case things don’t go as planned.
- You could get sued. It’s not only employees who could be injured on the job. A customer could fall on a newly mopped floor and break an ankle. You could make a mistake that costs a customer thousands of dollars to fix. One of your employees while driving to the bank to make a deposit could cause an accident. Any of these victims could sue your business to pay for their damages. Even if a lawsuit is unfounded, you will have to pay a lawyer to defend you.
- Insurance covers acts of God. Your warehouse could flood and ruin thousands of dollars of merchandise. A tornado might take the roof off your building. Read your insurance policy to know what losses are covered and what are exempt. An all-risk policy covers you from many different risks, while a peril-specific policy only covers specified acts, such as fire and flood.
- Insurance keeps your business running when bad things happen. If your business experiences a catastrophe such as a hurricane, you not only have to cover the costs of the damages, but you can lose daily income while you’re rebuilding.
Consider the Risks to Your Business
To get the most out of your business insurance, you have to balance insurance needs against the biggest risks your business faces. Restaurants face different risks than an office of lawyers. According to the SBA, about 25% of businesses don’t re-open after a major disaster, either manmade or natural acts of God. Although the SBA and FEMA offer disaster assistance loans, your small business might fold while you’re navigating the process of getting a loan and trying to rebuild.
Here are some types of insurance you should consider:
- General liability coverage
- Business property coverage
- Business interruption coverage
- Business auto insurance
- Data compromise coverage (cybersecurity insurance)
- Equipment breakdown coverage
- Product liability insurance
- Professional liability insurance (also known as malpractice insurance)
Fitting Insurance Into Your Budget
Every business owner is always concerned about the cost. The cost of small business insurance depends on many different factors:
- The location of your business
- Your work environment
- The number of employees you have
- The industry of your business
- The scope of your operations
- Your experience in your field
You can’t stop a hurricane. You may not be able to stop a cyberthief from hacking into your computers. As a small business owner, you understand that there are many variables that could shut down your business. All you can do is prepare to mitigate your risk and alleviate the damage.