Starting a business

What You Need to Know About Business Insurance

There are a lot of steps to take when opening your first small business, and getting business insurance is an important step not a lot of small business owners think about. Business insurance not only protects your clients and customers, but also you and your staff.

Small business owners can discover the most common business insurance coverage they need, including how to apply for business insurance.

What is Business Insurance?

Business insurance helps business owners protect their financial assets, physical locations and product, and intellectual property. And it can help businesses with any losses related to business activities.

There are many types of business insurance available for businesses including:

  • General liability insurance
  • Product liability insurance
  • Professional liability insurance
  • Cyber risk coverage
  • Data breach insurance
  • Equipment breakdown insurance
  • Commercial auto insurance
  • Workers compensation insurance

Small business owners have to apply for insurance through a bank or insurance broker and can choose a plan, or business owners policy, that is suitable for their industry and business. There are many factors that should be considered when choosing the right plan for your small business including:

  • If your company has a physical location
  • Amount of employees
  • The type of product or service offered
  • If your business uses work vehicles
  • If you have an online store
  • The working conditions at your company
  • If your business handles sensitive data about your customers

You can work with your insurance broker to find the right insurance claims that suit your business. A lot of the time you can get a deal on your insurance policies if you bundle the claims together.

Do I Legally Need Insurance for My Business?

Yes, it is legally required for you to have employer’s liability insurance for your small business. Other types of insurance are recommended but not required by law. Different industries have different risks, and it is important to be ready for any situation that may arise. It is cheaper to pay for monthly insurance policies than to deal with any legal processes that may arise if you are not covered properly.

In most provinces workers’ compensation insurance is mandatory depending on your industry. It is mandatory for employers to pay workers compensation insurance in all jobs under federal jurisdiction.

Check with your provincial and municipal laws to find out more information about which insurance policies will protect you, your business, and your customers.

Why Do I Need Business Insurance?

There are many important reasons to get coverage for your small business. It can help protect your company against any lawsuits, as well as protect your products and services and employees. Here are some common reasons why small business owners opt to be insured:

  • Keeps your business running smoothly: When an emergency strikes like hurricanes or ice storms, it is important that your financial statements don’t take too much of a hit. Having insurance that allows you to close for rebuilding or repairs can help you cover your costs while you’re closed.
  • Protects your employees: An important part of any business are the employees, and it’s important that you have insurance that protects them. This includes worker’s compensation that can help your employees in times of emergency.
  • Protects against lawsuits: Having insurance will also help cover any costs if customers bring a suit against your company for data breaches, faulty products, workplace injury and other liabilities. Lawsuits can be pricey, it is always cheaper to make insurance payments than pay legal fees and potential settlements.

What is a Small Business Owner’s Policy (BOP)?

A Small Business Owner’s Policy (BOP) is an all-in-one policy that includes important policies that are necessary to get your small business up and running. It combines business property and business liability insurance in one policy. It will help cover your business from claims resulting from things like fire, theft, flooding, and more. It will also help claims related to personal injury.

Common Types of Small Business Insurance

There are many different types of insurance that you can apply for and each has its own purpose and coverage. They can range from liability insurance to commercial auto insurance for your work vehicles. Learn more about the different types of business insurance below.

Commercial general liability insurance

A commercial general liability (CGL) policy covers your company from any financial loss you would be liable for, like property or personal damage. This type of general liability coverage covers any advertising injury, like libel, defamation, or slander litigation.

Workers compensation insurance

Perhaps one of the most important types of coverage for small businesses, worker’s compensation insurance will help protect your workers against work-related bodily injury and occupational disease. It will cover any medical bills and lost wages and salaries that must be paid to your employees.

Check with your provincial and municipality to find out if worker’s compensation is mandatory in your workplace.

Business interruption insurance

Business interruption insurance covers any costs of rent or lease payments associated with your business if your business can’t be open and not making money. For example, if your business was regulated to be closed during the COVID-19 pandemic, or your store is closed during renovations after a fire, having business interruption insurance will allow you to still make your rental or lease payments.

Product liability insurance

This type of insurance will help protect you against any defective merchandise and any expenses related to product lawsuits and other claims related to faulty products. If your product causes any personal or property damage due to a defect, this insurance will cover any litigation against your company.

Professional liability insurance

Professional liability insurance (PLL) protects professionals like lawyers, doctors, and accountants and negligence and other claims from clients against them. It covers negligence, malpractice, and misrepresentation. General liability insurance does not cover these professional specifics, so it is important if you are in these industries to have this particular insurance.

Data breach insurance

If you run an e-commerce business, it is a good idea to get data breach coverage. This will ensure you recover financially from any data breach that might happen at your company. A data breach is when sensitive or confidential information about your customers or clients is taken without your knowledge or authorization.

Cyber risk insurance

To piggyback data breach insurance, cyber liability insurance will also cover any legal action that could be brought against your business for the data breach. Having cyber insurance will allow you to pay for any legal fees that might occur due to civil lawsuits.

Crime insurance

Unfortunately, as a business owner, your company is exposed to crime, both from within and outside of it. It is important to have all your bases covered, to ensure you don’t lose any money if something were to happen. Crime insurance covers losses due to criminal activity including employee dishonesty, counterfeit money, deposit forgery, credit card and debit card fraud, and loss of money and securities inside and outside your premises.

Equipment breakdown insurance

Equipment breakdown insurance covers any equipment associated with your business that has stopped working and has caused damage to your business. It also covers business interruption and any spoiled inventory associated with the equipment breaking down. Note that this insurance usually covers sudden equipment breakdown, and not usual wear and tear.

Commercial property insurance

Commercial property insurance is similar to your home insurance where it protects any physical assets of a business against loss or damage. This can include equipment, inventory, furniture, and any other property associated with your business location. Causes for the damage that are covered on this property coverage are broad and can include natural disasters like earthquakes, hurricanes, and ice storms, but it also covers non-natural causes like vandalism.

Home-based business insurance

Even if you are running your business from your home your personal home insurance won’t suffice. You will need insurance that specifically covers any business-related objects or persons that are in your home. This will cover any property related to your business, product liability, and business premises liability.

Commercial auto insurance

Like property insurance, commercial auto coverage is similar to your personal car insurance plan. This will cover large commercial vehicles like delivery vans, food trucks, and box trucks. It covers any accidents, theft, or personal damage.

How to Calculate The Right Amount For Insurance Coverage

There are certain factors you and the insurance provider will need to take into consideration when calculating the amount of coverage your small business might use.

On the side of the insurers, they determine the right premium for your small business based on two factors:

  1. Claims frequency: How likely are you to make an insurance claim
  2. Claims severity: How large of an amount a claim will be should your business need it

Once the insurance company understands how likely your business will be to make a claim in a given year, they will also weigh up a few other factors to help them calculate the premium you will pay for your coverage each month.

These business insurance premium factors include:

  • What your small business does
  • The level of experience you have within your profession
  • The business’s assets, whether you own or lease the property, size and property and construction of the building, general use of the property, and the value of equipment and inventory within the property
  • Your total revenue in a year and the number of people you employ
  • The location of your business operations, including local crime rates, the likelihood of natural disasters, and proximity to police stations and fire stations
  • How much converge your business needs
  • Whether you use a business vehicle or not
  • The current insurance market

How to Apply For Business Liability Insurance

Now that you understand what type of insurance your business will need and the ways your insurance company will calculate your monthly premiums, it is time to apply for your coverage. Follow the below steps to successfully apply for the coverage you need for your small business.

1. Research quality providers

You might decide to make a list of the top five insurance companies in your area, or that provide the specific type of insurance that you need for your industry. Don’t be afraid to shop around, as there are many different insurers, so you can find the best coverage and fit for your business.

Consider making a spreadsheet with your top choices and compare the type of coverage they offer, as well as the various small business owner’s policy bundles available. Seeing these details side by side can help you make an informed decision.

2. Manage your business risks

The more you can do to protect your business and business property, the lower your insurance premiums will be. Before securing insurance, see if it’s plausible to update your business with extra security or make improvements to the vicinity, like installing security cameras in the office building or updating your sprinkle systems.

Insurers will take these updates and extra security precautions into account when calculating your premiums. Although it might be a higher cost upfront, these improvements will lower your overall cost for coverage each month.

3. Understand your business’s needs

To obtain the best commercial general liability insurance and other coverages, you should identify your business’s actual needs. Suppose you mainly operate online, then cyber insurance is a must. If you operate out of a brick-and-mortar store, then commercial property insurance should be part of your coverage.

Check to see if they offer bundle discounts if you were to pay for coverage of all of your commercial insurance needs in one place. You may even consider bundling your personal and commercial insurance together to obtain a lower premium. However, depending on the structure of your business, it might be in your best interest to separate the two.

Since all businesses are different, you will want a business owners policy that fits your needs. At the same time, make sure you are only paying for the level of coverage you actually need. For example, you won’t need to shell out for hurricane or water and flood coverage if you don’t live near water.

4. Obtain a free quote and estimate

Generally, all insurance companies can provide you with quotes and estimates on the type of business insurance coverage you need. Reach out to your top choices and ask them for an estimate for your small business.

You can also use insurance comparison sites, like RateHub , to streamline this process and easily compare business insurance quotes side by side.

5. Be prepared with the right documents

When applying for insurance, you will need to provide specific documents to your chosen insurance company. Depending on the policy type you are applying for, you will need various documents to illustrate the state of your business and coverage needs.

For example, an auto insurance policy will need copies of your driver’s license and details of the company vehicles while professional liability insurance will need to see your professional licenses and details of your office space.

Therefore, make sure you have all of the documentation you need to successfully qualify for your chosen coverage. Such documents might include:

  • Financial reports illustrating your revenue for the year
  • Claims history of past commercial or personal insurance claims
  • Inventory lists and square footage of the building
  • Vehicle identification numbers and driver license numbers of covered workers for auto insurance,
  • Number of employees and their salary sheets

6. Apply online or in-person

Not only can you research and obtain coverage comparisons online, but you can also apply for your policy and buy coverage online as well. However, if you feel more comfortable talking to an insurance broker face-to-face, you can also head into a physical location and apply in person.

During the application process, your chosen insurer will ask for your personal information and the documentation you have prepared for your commercial coverage level. If you have a business bank account , then you can attach this account to your policy to pay for your premium each month. You can also choose to pay one lump sum upfront for the full year.

Once you have successfully qualified and paid for your coverage, business insurance typically doesn’t kick in until 24 or 48 hours after you have purchased your policy. After this waiting period, your business will be completely protected with the coverage you settled on.

7. Reassess your business needs each year

It is in your best interest to reassess your policy and commercial insurance coverage each year. If any of your business details or business risks have changed at this time, this will ultimately affect your premiums. Therefore, before you hit the one-year mark of your policy renewal, you should always reevaluate the coverage you need to ensure you are paying the right premium.

Since business insurance is a necessary business expense, you will need the right tools to track these monthly and yearly costs. With QuickBooks accounting software you can easily keep track of what’s coming in and out of your business accounts each month. Start tracking for free today when you sign up for a free trial of QuickBooks Online.

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