Why your business needs insurance
Every business should consider insurance, for a number of reasons. One is that your business could face a lawsuit if it has been responsible, even if only allegedly, for an incident that causes harm to someone, illness, damage to property or financial loss. Even if you are incredibly careful and do everything by the book, you could still find yourself facing a lawsuit, for example numerous businesses used asbestos on their premises or in their products when it was thought to be benign; many of these businesses would have been bankrupted when facing the payments required to meet class-action lawsuits if they weren’t properly insured.
Liability insurance for small businesses can give you the reassurance that your company will be covered against future mishaps. However well run a business is, something can always go wrong, and a variety of business insurance exists to cover the potential risks. Every company’s needs are different, for example a company operating over several premises won’t have the same sort of policy as a company that only does business online.
What types of insurance you need
There are numerous different forms of insurance. Many small businesses choose a business owner’s policy (BOP). A BOP can offer coverage against liabilities, business interruption, and insures the property and premises of the business. This is an excellent choice for small businesses running out of “real world” locations, but there are many other forms of insurance available. You may also need additional insurance. You should understand what your risks are and what coverage is available to protect against those risks.
Is Business Insurance compulsory?
Whether business insurance is a legal requirement is dependent on the state in which you operate and the type of business you run. As an example, if companies have more than a specified number of staff, it will be mandatory to take out workers compensation insurance, meaning that if an employee suffers a work-related injury or illness, they will be protected. Every small business owner should check carefully on the regulations that pertain in their state, but even if insurance isn’t mandatory, it’s still an extremely good idea, for the reasons set out below.
Firstly, defending legal actions, even if they are vexatious, is extremely costly. You could be completely in the right but still, be faced with significant financial losses if you are not insured.
Secondly, insurance covers what is known as “acts of God”, things that happen to your business that was completely out of your control and that involve no wrongdoing on your part but could still cost you huge sums. For example, imagine a lightning strike hit a chimney on your premises, causing it to fall and injure a passerby. Under the “act of God” clauses in your insurance policy they would be compensated by your insurance; if you don’t have insurance, the costs come out of your pocket.
Thirdly, some insurance policies not only cover the financial losses you may suffer if found liable for an accident or illness, but they can also cover your costs if you suffer a loss of income through no fault of your own. An example would be if there was a flash flooding in your neighbourhood and you had to close your premises for a month for repairs; with the right type of insurance, you would be compensated for the income lost over this period.
Finally, insurance helps you to remain compliant. In many instances, it is a legal requirement to have an insurance policy in place that protects your employees. Even if nothing goes wrong, you could still end up with substantial financial losses from fines imposed for non-compliance.
What is covered by small Business Insurance?
As above, policies vary. Some policies will only cover the products you make and sell to the public (product-liability insurance), while others cover a wider field. As mentioned above, a BOP policy covers many different aspects of your business, including your property like machinery and premises. These are a type of “blanket” policy for US companies, insuring them against a number of potential hazards.
You need to consider the form of business you’re running and what the legal requirements are in your jurisdiction. Whether or not it is legal not to have insurance, it is frankly unreasonable not to have protection in place for your company and your employees, as nobody can guarantee that they will not experience difficulties at any point in their business life.
Liability examples for Business Insurance
Personal injury and claims for medical costs
Imagine you are unloading supplies from your car to take into your office. You put a box down for a moment to lock your car and a passing jogger who hasn’t seen the box trips over it and fractures their collarbone. In this instance, you could face a lawsuit for medical costs. Without general liability insurance, you will have to pay legal fees to defend yourself and, if you lose, any compensation awarded from your own pocket. With insurance, these expenses would be met (although bear in mind that all insurance policies have limits, so make sure you have sufficient coverage to meet all likely eventualities).
Claims for property damage
Imagine you are a restaurant owner and one of your serving staff trips up and spills a glass of red wine all over a customer’s designer white silk frock. The garment is ruined, and the customer demands $2000 to purchase a new one. This is a legitimate accident that occurred on your premises, and general liability insurance would help with the payment.
Invasion of privacy
Imagine you are in the building business and you have just completed a luxury addition to a customer’s house. Being pleased with your work, you take some photographs of the home and capture the client in the background cooking dinner, and put them on social media to show potential clients what you can do.
Unfortunately, the client sees your pictures and objects to you having used them without permission, suing you for breach of privacy. General liability insurance would help you defend the case and to pay any settlement if it is found against you.
Imagine you run a travel agency and, to advertise a special offer of holidays in Cancun, you put a collection of photographs of the destination on your website. Unfortunately, you forgot to check whether the photographs were in copyright, and the photographer has found your website and is suing you for breach of copyright. Your business insurance would help with your defense and any damages awarded.
Hopefully, you can see from above that the question that should be asked is not why businesses need insurance, but why would any business risk being without insurance. Sure, insurance can sometimes look like an unnecessary expense as years go by without you ever having to make a claim but carrying on paying premiums, but for even the best run business disaster could be just around the corner. To look after your employees and your customers, business insurance is a must.
*As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.