Insurance is mandatory for your small business if clients or other stakeholders, like landlords or suppliers, contractually require you to purchase insurance. This is common when working with large corporations because your insurance policies decrease the chance that they’re legally and financially liable for an unfortunate event.
Not all businesses have clients and partners that mandate insurance. In this case, your business should still consider purchasing business insurance. Otherwise, you might find yourself with a significant financial fallout.
The proper business policies can cover the cost of lawsuits, lost assets, and business interruptions.
This article discusses when business insurance is mandatory, what it can cover, the other benefits it provides, and how much it costs.
What are the situations where business insurance is mandatory?
Suppose you’re an IT consultant. A client might only purchase your services if they know you’re insured. The client doesn’t want to risk your company causing them a financial loss without a way to receive compensation. Insurance mitigates this risk for them.
You could accidentally cause an error in their systems, leaving the client unable to operate for three days. This amounts to thousands of dollars in losses. They’ll then likely sue you for compensation.
But your company might not even have enough assets to pay compensation. However, if you had a professional liability policy, also known as errors and omissions insurance, it could compensate your client without you having to pay out-of-pocket costs.
In another scenario, suppose you’re a fitness instructor. You rent a room at an event centre to hold yoga classes. The event centre may only agree to provide you with the space if you have the proper general liability insurance.
Someone might trip on the floor during your class and hit their head. As a result, they’ll sue the event centre if your business doesn’t have the funds to pay out a damage award. The event centre would likely have “deeper pockets” and be a better lawsuit target.
But having the right general liability insurance means you’ll have the ability to pay out damages, and the event centre is now less likely to face a lawsuit that arises from your workout class. Again, your insurance pays out the damages without the need for you to provide out-of-pocket costs.
Need Insurance for Your Small Business?
What does business insurance cover?
Business insurance isn’t a specific policy. It encompasses numerous policies that protect your company in a variety of ways.
- Professional liability insurance covers the cost of lawsuits, including legal fees, damage awards, and settlement costs, that arise due to a negligent provision of services or if services didn’t meet the advertised standard.· General liability insurance protects you from lawsuits if a client, customer, or third party sues for bodily injuries or property damage that result from your day-to-day operations. It can also cover cases related to libel or slander.· Contents coverage provides you with a replacement value if your business assets are damaged, destroyed, lost, or stolen. This could include computers, furniture, specialized equipment, and more.
- Cyber liability insurance covers lawsuits and other costs that arise from hackers or viruses attacking your systems. If you lose your client’s sensitive data due to hackers, cyber liability coverage is here to protect you.
- Business interruption insurance provides the revenue or lost income you would have earned if your business couldn’t operate due to unforeseen circumstances.
The proper combination of these policies protects you from business risks and prevents a sudden financial fallout from hitting your company.
What are the benefits of business insurance?
Insurance doesn’t only provide value when you need to make a claim. As this article previously mentioned, the right business insurance plan lets you tie down institutional clients and partners for your company. But that’s not all.
The right business insurance plan is really about peace of mind. When you mitigate your risks, you can stop worrying about whether an injury might lead to a lawsuit or if you can afford your equipment going missing.
With less worrying, you can get back to providing the services or products you’re best at. It lets you reinvest your mental capacity towards building your business.
How much does business insurance cost?
Business insurance depends on numerous factors such as:
- The number of employees you have
- The nature of your business (what services or products you provide)
- Your location
- What coverage you need (coverage amount and scope)
Find how much a tailored business insurance plan costs for your business. Our insurance advisors are ready to answer your questions.
Insurance is often mandatory for businesses. Clients and other stakeholders want you to have the proper coverage to mitigate their own risks. However, even if you don’t work with someone who mandates you have insurance, it’s an intelligent choice to buy it. Business insurance reduces your risks so you can focus on growing your company.
NEXUS Has You Covered
We can help you understand the benefits of Business Insurance, and get the kind of protection you need.