Does Your Business Need Insurance?

Starting a business can get expensive very quickly. As you look at the growing number of bills, it can be tempting to skip purchasing business insurance.

But business insurance protects your company assets in the event of an accident, certain natural disasters and other operational interruptions. Without business insurance, you will have to pay any claims or damages out of pocket, which can easily devastate a small business.

This guide walks you through some of the considerations to keep in mind when deciding whether or not to buy business insurance.

When do you need business insurance?

You should purchase business insurance if one or more of the following apply to your company:

• You employ other people. Check the laws in your state: Some require workers’ compensation, unemployment and liability insurance for businesses with salaried employees only, while others require coverage for contractors as well.

• Your business has at least one physical location.

• You work in dangerous locations, or the work you do is dangerous.

• You have expensive equipment to protect.

• You provide a physical service or product, such as food or furniture.

• You provide work that requires a contract.

• You provide services or products for one-time events such as weddings or conferences.

• Your line of work leaves you vulnerable to legal action, such as medical procedures.

• You rent workspace from someone else.

• When sensitive information could potentially be leaked or hacked through your business.

• You want to apply for a business loan or seek similar financial action.

• Having a policy in place would ease your mind.

Essential business insurance coverage

In some cases, business insurance isn’t optional:

• The law may require that, if you have employees, you carry workers’ comp and disability insurance.

• If your business owns or operates vehicles, you will need commercial auto insurance.

Beyond these policies, there are several aspects to business insurance. Here are three core components of a good insurance plan, often summarized as a business owner's policy, or BOP:

• General liability insurance covers the greatest threats to your company: bodily injury to another person, property damage to someone else’s possessions and personal injury, such as slander or libel.

• Commercial property insurance protects buildings, equipment and other physical belongings that help you run your business.

• Business income insurance, also known as business interruption insurance. This coverage kicks in when a covered cause, such as a major disaster, prevents or impedes you from operating your business.

Additional types of coverage

Other types of business insurance your company may find essential can include:

• Professional liability insurance.

• Product liability insurance.

• Data breach insurance (also known as cyber liability insurance).

• Commercial umbrella insurance.

» MORE: Types of business insurance

When can you avoid business insurance?

The scenarios above encompass a large percentage of businesses. However, there are always exceptions.

While it’s a good idea to carry business insurance, you may not need insurance right now if your business is just starting out or you provide virtual products or services that pose minimal risk to your clients, such as ghostwriting or language tutoring. Additionally, if you’re not concerned about paying out of pocket for any issues that may arise, you may choose to wait on insurance.

Obtaining business insurance

Once you’ve determined that your business does need insurance, the next step is finding the right coverage and provider. Getting business insurance typically follows these four steps:

1. Review your areas of risk to determine which types of coverage you need.

2. Shop around for reputable providers and request quotes that fit your requirements.

3. Compare the quotes and choose the plan that’s best for your business.

4. Purchase your insurance policy and make sure it stays up to date.