Does YOUR small business need business insurance? Let’s explore that question in these FAQs.
Q: Is there a legal requirement for business insurance?
A: It depends. Federal law requires every business with employees to have workers’ compensation, unemployment, and disability insurance. If you have business vehicles, auto coverage is required by most states. Some states also require other insurance, so check your state website.
Q: If business insurance is optional, why should I buy it?
A: Let’s face it, nobody likes buying insurance. It seems like a waste of money because you don’t see any immediate benefit … until you actually need it. Then having insurance can literally save your business from ruin. As a small business owner operating out of your home, don’t assume that your homeowner’s insurance will cover you. That is a rookie mistake! Most homeowner’s policies exclude business-related claims or have dollar limits that don’t provide adequate coverage.
Q: Doesn’t my LLC protect me?
A: Your LLC protects you from personal liability for business debts and judgments. So you won’t lose your house or the money in your personal bank account if your business is sued. But having the LLC won’t pay the clean-up and replacement costs from a fire or flood. It won’t pay your legal bills if you are sued. It won’t pay the costs associated with notification of a data breach. Business insurance protects you against these risks.
Q: So how do I know if I need business insurance and what kind?
A: Ask yourself these questions:
Do I have business property that I couldn’t afford to replace?
Do you own computers, equipment, office supplies, product inventory, etc.? If your only business equipment is a laptop and you have sufficient funds to buy a new one, you may not need property insurance. But if you have product inventory or supplies, multiple computers and office furniture, etc., then insurance may be a solid risk mitigation strategy.
What is my risk level?
Does your business operate from a brick and mortar establishment where customers/clients could fall and be injured? Do you sell products that might cause someone physical harm? Do you provide services that offer legal, financial, medical or other advice that might result in a lawsuit? If any of these scenarios is true for your business, then liability insurance is a must have!
Here’s an example.
If you create beautiful handmade greeting cards and sell them on Etsy, your risk level is minimal – you aren’t meeting customers at a physical location, you aren’t offering advice, and your product is highly unlikely to cause physical injury (beyond maybe a paper cut) to anyone. In this case, you may consider insurance to cover your supply inventory and business interruption, but liability coverage may not be necessary.
Now let’s say you open a sweet little gift shop on Main Street in your home town. Customers come in to browse and buy your gift cards, as well as the expanded line of merchandise including scented candles and bath products. Now your risk level is high – from both potential slip and fall injuries on your property and product liability for your candles and bath products which may cause an allergic reaction for some users. In this case, a general liability policy as well as business property and business interruption coverage is likely desirable.
The best way to determine whether and what type of insurance your business needs is to talk to a reputable insurance agent! Need help finding a good business insurance agent in Pennsylvania? Ask me! I know several really good ones!
