If you’re a small business owner, you may be wondering if insurance is a necessary expense. The answer to that question depends on various factors, such as the type of business you operate and the risks associated with it.
However, in general, most businesses should have some form of insurance. This could include property insurance to protect your business assets in case of a fire or theft, liability insurance to cover any legal costs if someone is injured on your property, or product liability insurance to protect you if a customer is injured by one of your products. Here’s a short discussion about general insurance that your business should get at some point in its life cycle.
Essential general insurance policies for small businesses
It’s essential to consult with an insurance agent to determine the right type and amount of coverage for your business. The agent can help you find the right policies at the best price, and they can also advise you on specific risks to be aware of in your industry. Here are some essential insurance policies you should have and consider consulting insurance agents for them.
Business Owners Policy (BOP): A BOP is a package policy that combines property and liability insurance into one policy. It’s a good option for small businesses who want to cover their property and liability risks in one policy.
Commercial Property Insurance: This insurance covers physical damage to your business property, such as your building, furniture, and equipment, from things like fires, storms, and vandalism.
These two are a must for a small business reaching five years into its business operations. However, some specialized insurance depends on the sector you are in.
Specialized insurance policies for businesses that offer services
Commercial liability insurance is an insurance policy that covers your business if someone is injured or their property is damaged due to your operations. For example, if you operate a restaurant and someone falls and sues you, commercial liability insurance would help cover the costs of that lawsuit.
Another essential insurance policy concerns itself, dissatisfied customers. Error and omissions insurance policies cater to service providers who offer professional services, such as doctors, lawyers, and accountants. This policy can help protect you if a customer is unhappy with your work and decides to sue you.
These are essential insurance policies for those who service consumers. But they are a waste if you’re in the manufacturing sector. So consider these insurance options instead.
Specialized insurance policies for businesses that sell products
Product liability insurance is a type of insurance that protects you if a customer is injured by one of your products. For example, if you sell a product that causes an allergic reaction, the customer could sue you, and this insurance would help cover the costs. This type of insurance is also relatively cheap, only costing a few thousand dollars annually. Moreover, your company can live with this insurance alone alongside the general insurance policies we’ve indicated above.
Cost of business insurance
Business insurance can be expensive, but it’s important to remember that the cost of not having insurance is often much higher. In addition to the risks mentioned above, you also need to consider the price of a potential lawsuit if something goes wrong and you don’t have insurance. They also protect you from unforeseeable circumstances.
For example, typhoons can devastatingly impact businesses, both big and small. The cost of cyclones towards US businesses is estimated to be billions of dollars each year. However, damages from hurricanes shouldn’t be the only thing you have to worry about.
In the wake of a major storm, many companies are forced to close their doors while they assess the damage and figure out how to move forward. The days that your business isn’t functioning is lost money that you could’ve gotten back by having insurance.
Another major example of this is the pandemic. A pandemic can close businesses for weeks at a time, and if you’re not prepared, you could lose a lot of money.
Insurance can help to offset some of these losses, which is why it’s important for small business owners to weigh the pros and cons of getting insurance.
There are a few key things to keep in mind when deciding if insurance is right for your business:
- The type of business you operate
- The risks associated with your business
- The amount of coverage you need
- How much you’re willing to pay for insurance
So, is insurance a necessary expense for small businesses? The answer to that question depends on the specific situation. However, in most cases, it’s a good idea to have some form of coverage in place, especially if you’re earning millions of dollars and spending millions more. This can help protect your business from costly damages in the event of an accident or disaster.