Running a business comes with inherent risks: An employee could get injured on the job; a natural disaster could destroy property; or a client could file suit, alleging a contractual breach.
For those and other reasons, it is important to protect your assets, both business and personal. One of the best ways to do that is to make sure you and your business are adequately insured.
Here are ten top reasons why your business needs insurance.
1. It’s the Law
According to the SBA, the law requires businesses with employees to provide particular types of insurance: workers’ compensation, unemployment and disability, depending on the state where the business is located.
Failure to carry legally required coverage could result in fines, civil or criminal penalties, exclusion from public contracts and “cease and desist” orders — all of which could cost you far more than the price of an insurance policy.
2. You Could Get Sued
We live in a litigious society. In the event of a lawsuit or liability claim, without insurance, your business could fold. One accident. One broken contract. One disgruntled employee, and it’s over. Even if you win the suit, you could go out of business due to the cost of legal defense.
Rather than worry about what could happen, liability insurance can give you peace of mind, enabling you to concentrate on what truly matters — running a successful business.
Findlaw has a list of calamities that, should they occur, could result in a lawsuit. Some are humorous, but all are worth reviewing.
3. Keeps Your Business Up and Running
What happens to your business in the event of a natural disaster, such as an earthquake or flood? P&C insurance covers loss of property — buildings, equipment, etc. — but what about the money you lose during the time your business is closed?
That’s where Business Owners Insurance (otherwise known as BOP) plays a critical role. It can help a business survive a serious disaster by protecting against loss of income.
The way it works is that the insurer pays you the income your company would have made while it was out of action (assuming it’s due to a covered loss). BOP also compensates for normal operation expenses (e.g., rent and utilities) that you would have otherwise incurred during that time.
Some companies not only choose to insure lost income but include protection to pay employees, for up to 12 months.
4. Makes You Look Credible
Here’s a reason you may not have thought of: Having insurance makes your business look credible.
Business insurance shows your prospective clients and customers that you’re a safe bet. If anything goes wrong with the work you do for them, you have a way to compensate.
That’s the reason home services companies carry the statement “licensed, bonded and insured” on their trucks and signage. It builds trust, the currency of a modern-day economy.
5. Protects Your Employees
Your most valuable asset is not the products or services you offer, the equipment you take so much care to maintain or even the brand you struggled for years to build. No, your most valuable asset is your employees, and it pays to protect them in the event of an accident.
The law requires that you carry workers’ comp, but you should also consider offering disability coverage, even if you have to charge your employees for a portion of the cost.
By the way, protecting your employees’ interests is also a good way to protect yours — against lawsuits or liability claims.
6. Covers Acts of God
In insurance language, an “Act of God” is any accident or event not caused by human hands. Floods, tornados, hurricanes and fires caused by lightning all qualify. Two types of property and casualty insurance protect against such loss: all-risk and peril-specific.
All-risk policies cover events except for those expressly mentioned. Peril-specific policies list particular risks and cover fire, floods and other specified acts of God.
7. Guards Human Assets
As the owner, you’re tasked with keeping the business running. But what happens if you stop “running” because of a heart attack, serious accident or some other unfortunate circumstance that takes you out of the picture for weeks, months or even years?
Company-owned life and disability insurance coverage provide payments to cover the loss of income you generate. In the event of your death or disability, it provides funds for the purchase of your interest under a buy-sell agreement.
You can also buy such policies — referred to as “key man” or “key person” insurance — to cover the disability or death of a valued employee.
8. Helps to Attract and Retain Employees
Having insurance isn’t just about protecting your business in “doom and gloom” scenarios. It can have the positive benefit of attracting and retaining qualified employees.
Second to salary, job seekers look for benefits packages that include life, health, disability and long-term care insurance. If you don’t offer these perks, you may lose a good employee to a company that does.
9. Contracts May Require It
When it comes to contracts and insurance, several variables come into play:
- If you rent or lease your business facility, you may need to carry insurance, as the landlord’s policy may not cover it.
- If you borrow money to finance buildings, equipment or operations, the loan agreement will likely contain an insurance requirement.
- Client contracts may specify that you carry insurance in the event things don’t go as planned.
- Add language about freelancers who need it and don’t realize it till they get a job and then lose the job because of not having insurance.
10. Because You Cannot Predict the Future
No business owner has a crystal ball hidden in a closet that can predict what might happen in the future. It would be excellent if natural disasters, injuries on the job or lawsuits never occurred, but no one can guarantee that such things won’t occur. For that reason alone, it’s best to be insured.
With the proper business insurance, small business owners can achieve peace of mind and focus their attention on what they do best — operating a productive, profitable and personally rewarding business for years to come.
Related reading: 11 Types of Business Insurance You May Need
Insurance Image via Shutterstock
Insurance is very important because it serves as a safety net for businesses in case things go wrong. It can also help in making the business more stable.
My brother has been wanting to start a shipping business and is trying to decide what kind of services he will need. You mentioned that business insurance shows your prospective clients and customers that you’re a safe bet. Do most small businesses have specific types of insurance coverage? Getting some insurance quotes could be very beneficial.
Property and liability are normal coverages. Workmans comp is needed if there are employees. Let us know if you have more questions.
A good friend of mine was telling me about his idea to start up his own business, but he doesn’t know a lot about how to do it or what the insurance process would look like. I didn’t realize that business insurance can cover unforeseen accidents like hurricanes and fires, but this seems like something that would be really necessary to have before something like that happened. If I were to ever start a business, I would be sure to make sure my assets and employees were covered. I’ll share this information with my friend in case he decides he wants to go through with his idea!
I’m planning on becoming a small business owner, and I think your post is extremely helpful. I like how you mentioned that you need a business insurance because you cannot predict the future. This is something I would definitely consider, especially I was someone just starting out. Good read.
It was really nice how you pointed out that one of the benefits of having a business insurance is the idea that the employees are more likely to stay in a company if they know that their benefits package includes life, health, and disability insurance. I will be sure to mention that to a friend of mine because he told me a few nights ago that he plans on starting his own business in the future. I made a promise that I will help him search for the things that will help make the business successful, and this is what I found. Thank you for the info. Now I know what to tell him.
That is really interesting that having insurance isn’t just about protecting the business but could attract and retain qualified employees. That sounds like something that I would love to have if I were starting a business. It would be important for me to get insurance if I started a company.
As a fellow insurance agent, all I can say about this article is “nailed it!” If business owners don’t understand the importance and urgency of having business insurance, they are truly missing out on some serious financial repercussions if something goes awry!
David
I agree that without business insurance, you could get go out of business due to the cause of legal defense when facing any lawsuit. Thanks for discussing the benefits of having insurance. I think your article is very useful to those start-up companies who are having a second thought in getting their business insurance service. They will know how vital it is to get one.
You make a good point that business insurance will help to attract employees because you will have benefits packages that employees want to have. Not only would this help to benefit your employees but if they are always happy and healthy then they will be effective and will get lots of work done. Lots of work equals more money in the long run, so what employer wouldn’t want that?
It’s valuable that you point out that it’s important to have insurance for your business to protect you in case you get sued. I’m thinking about buying a restaurant in the near future, so I will probably want to purchase some good business insurance for it. I’m going to search for a good company that can sell me some business insurance for a restaurant.
Thanks for sharing these important reasons why do we need to get Business Insurance Las Vegas as business owner here in Nevada.
We are also a company of Business Insurance Las Vegas Nv and I agree with this post.