According to the U.S. Department of Commerce, it costs about $30,000 on average to start a business.
Even if that number is higher or lower than your projected startup costs, it illustrates an important point:
Business owners have a significant amount of capital invested in their companies.
While running a profitable organization is a surefire way to stay out of the red, you also need to protect your investments from unforeseen events.
In this guide, you’ll find answers to questions including:
- What is business insurance?
- What does business insurance cover?
- How much is business insurance?
- How do you buy business insurance?
- What other kinds of investment protection are available?
What is Business Insurance and What Does It Cover?
Business insurance covers financial losses stemming from a variety of events that can negatively impact a business’s operations.
There are many different types of business insurance, and they provide coverage for different types of situations. The most important and common types of insurance cover employee-related issues, legal liability, and property damage.
You can determine the types of coverage your business needs by analyzing the risks involved in your industry, the value of your investments, and your company’s legal structure.
For example, a solo entrepreneur doesn’t need to waste money on employee insurance. On the other hand, a construction company with employees working in potentially dangerous conditions should absolutely have insurance to protect them.
Why is Insurance Important for Small Businesses?
As a small business owner, you need to ask yourself, “What is business insurance supposed to do for my business?”
Some small business owners think they’re exempt from legal action, accidents, and other concerns because of the size of their operation — don’t make the same mistake.
Small to medium-sized companies are at greater monetary risk than larger corporations because they can’t absorb a financial blow as easily. Without the proper protection, solo entrepreneurs even risk leaving their personal finances exposed.
The very size of these businesses makes them more vulnerable in the event of a financial disaster. That’s why smaller companies need to invest in quality insurance coverage to ensure their investments are protected.
Is Insurance Legally Required?
Not only is insurance a good idea for small businesses, but some types of coverage are legally required for certain business operations.
Federal laws mandate that every company that hires employees have disability, unemployment, and workers’ compensation insurance.
Additional insurance requirements can vary from state to state. Make sure to investigate the laws in your area to determine what your insurance obligations are.
What Is General Liability Business Insurance?
General liability business insurance, also known as general liability insurance, protects you from issues that might occur through your typical business operations, including:
- Personal injury
- Property damage
- Bodily injury
- Vandalism
- Loss of Income
Other Types of Business Insurance
While general liability business insurance is one of the most common and protective forms of coverage, we still haven’t fully answered the question, “what is business insurance?”
There are nearly as many varieties of insurance policies as there are types of businesses. Let’s take a look at common insurance types you might want to consider for your small business.
Business Interruption Insurance
A business interruption policy is geared towards businesses that operate at a physical location.
This form of insurance is designed to compensate businesses for income lost during uncontrollable events that caused significant disruption in normal business operations.
Home-Based Business Insurance
If you’re running a small business out of the comfort of your own home, you might ask yourself: what is business insurance supposed to look like for people who don’t have an office building or brick-and-mortar storefront?
Your standard homeowner’s insurance provider can usually bundle home-based business insurance with your current policy. This includes liability coverage for potential third-party injuries and any business equipment.
Get in contact with your insurance provider to see what options they can offer.
Vehicle Insurance
If you’re using a vehicle for business purposes, it needs to be fully insured. At a minimum, you should get coverage that can protect you in case of third-party injuries. However, comprehensive vehicle insurance will also cover your company car in the event of an accident.
Things get a little trickier if your employees use their own cars to conduct business. Generally, if they’re performing services or delivering goods for your business in their personal vehicle, you’ll still want vehicle insurance.
Product Liability Insurance
The very act of selling someone a product makes your business potentially liable for damage resulting from the use of that item. Product liability insurance protects you from lawsuits and other legal actions that might result from misuse or accidents associated with your products.
How Much Is Business Insurance?
According to Insureon, 48% of small businesses pay anywhere from $300 to $600 annually for their general liability insurance policies. It’s best to work with an insurance professional to get an accurate estimation of all the insurance you might need for your business.
Business insurance cost will depend on a variety of factors, including:
- The type of insurance you’re buying
- The amount of coverage you want
- The overall value of the business or investments being covered
- The quality of the insurance provider you’re using
It’s important to factor insurance premiums into your overall budget since they are a critical part of protecting your business investments.
Tips For Finding Good Business Insurance
Examine Your Risks
You only need to get insurance to protect you from the potential risks your business might face.
Consider your business’s daily operations to shed some light on what events you would need to protect against. Determine what potential lawsuits, accidents, or other damages could hurt your business to find the appropriate insurance coverage for your company.
Work With a Reputable Agent
When searching for the best business insurance coverage, you should work with a licensed, reputable commercial insurance agent.
These professionals can help determine which areas of your business are at risk and the most effective insurance coverages to protect these soft spots.
Since insurance agents often get a commission on the policies they sell, be sure you’re working with someone who is genuinely interested in your company’s success.
Weigh Your Options
There’s no shortage of commercial providers or policies. Don’t settle on the first insurance policy that falls in your lap.
Take your time and ask questions. Compare benefits, rates, and terms to determine the best option based on both price and coverage.
Additional Methods for Protecting Business Investments
After asking, “What is business insurance and what can it offer?” it’s time to ask, “How else can I protect my business?”
While insurance offers legal and financial protection, it works retroactively. In other words, you’re only covered after something happens.
Here are a few preemptive steps you can take to protect your business:
Contracts
It might seem nice to settle business deals with a firm handshake and trust that the other person will hold up their end of the bargain — but don’t do it.
Small businesses can’t afford to leave the fate of their company up to the word of others. This is where contracts come into play.
Whether you’re working with a partner, supplier, or customer, you should formalize agreements in writing. While a contract isn’t a guarantee that everything will go to plan, it offers you legal protection if others breach the terms of the original agreement.
Site Security
Whether you’re running a physical or online store, site security can protect your investments from petty criminals.
Site security can take the form of security personnel, specialized equipment, or technology.
When it comes to security guards, smaller shops might get away with hiring one person, but larger operations might want to consider outsourcing their security detail to professionals.
Most site security can be accomplished without having to hire anyone to physically protect your store.
Thick doors, heavy-duty glass, and large locks can make it more difficult for people to get inside. An alarm system can instantly alert the authorities if someone breaks in. A high-quality safe can protect smaller, valuable assets.
The value of your products is an appropriate benchmark to use when determining how much to spend on site security.
As a small business owner, your investments are in an acutely vulnerable position. If you’re looking for a way to protect yourself, understanding the answer to “what is business insurance?” is the best place to start.
Various insurance policies can protect your business from unforeseen events, such as personal injury lawsuits or natural disasters. You can also invest in other forms of proactive protection, such as site security and contracts.
In addition to purchasing insurance, protect your business by making sure it can succeed. You’ll need a great website to connect with customers and grow your business. Take a look at Bluehost’s web hosting plans to get started.
