Can I Run a Business Without Insurance?
Can I run a business without insurance is the same as asking can I drive without a seat belt?
Yes, you can run a business without insurance, but only if you are absolutely sure that your business does not pose a threat to anybody or to yourself.
Even if you operate a small business of walking dogs, you should have dog walkers insurance to get peace of mind knowing that you are covered in case of harm caused to others as a result of your services such as if the dog goes astray and bites a third party.
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What Happens if You Run a Business Without Insurance?
One of the biggest questions small business owners ask is if they need commercial insurance or some type of insurance coverage. The reason for asking this question can be attributed to cutting start-up costs and staying within a tight budget.
But not having any type of insurance coverage for your business can rather prove to be a very costly affair, as any claims resulting from any of your services such as damage to property, injury to others, or even your own medical costs caused by injury on the job will have to be paid out of your pocket.
And these claims are far from cheap, where medical bills can cost upwards of $1000 dollars, and legal claims ranging from thousands of dollars to more than a few million dollars.
Business insurance is available in myriad different forms, which is a good thing compared to personal insurance as it gives business owners more freedom to choose the right policy for their needs, and once they can afford to pay either monthly or annually without breaking the bank.
That said, here are a few risks of running a business without any type of insurance.
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Accidental Injury or Damage to Third Parties
This is perhaps the biggest risk businesses face, because accidents can happen with any type of business.
For example, a customer walks into your furniture store, and accidentally slips on a rug or a wet floor and injures himself, you are the business owner will be liable for any medical costs or legal claims stemming from the situation.
The fact is that every day your business works with third parties, whether you are running a brick-and-mortar fashion boutique or installing shingles on a customer’s home as a roofer, for which you should think about getting a roofers insurance policy.
Property Damage and Loss
Property damage could be caused by several different things out of your control including natural disasters such as storms, floods, fires, etc. Fixing property damage can be a costly affair, and depends mostly on the size of the property and the extent of the damage.
If you are leasing commercial space for business operations, you still need commercial property damage cover, because the landlord is liable to cover costs related to the damage caused to the premises, but not for the contents inside.
So, if you have several items such as desktops, desks, and other office items that have been damaged, then you can make a claim to recover the costs of the damaged items.
Many people believe that they do not need business property insurance coverage when operating a business from home such as an e-commerce business.
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But surprisingly, along with eCommerce insurance, home-based businesses also need property insurance coverage, as in most cases home insurance will not cover costs of damage if the property is being used to run a business.
Speaking of home-based businesses, it is worth mentioning that they require a specific type of coverage such as coverage against fraud, data breaches, cyberattacks — coverage that is often included in a specialized e-commerce insurance policy.
Errors & Omissions Insurance
Consumers often believe that having business personal liability insurance covers all types of claims, but this is not exactly true.
Personal liability insurance does indeed cover losses related to bodily injury, property damage, and even advertising injury, but does not cover damage caused to third parties as a result of your services.
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For example, if you run a printing company, and you misspell a word in the address in a large order of wedding invitations, your client may sue you for being negligent.
Another great example if you were a handyman doing plumbing work, which causes a flood in the entire premises, errors & omissions insurance will cover the cost in case your client sues you for the damages resulting from your work.
You Could Get Sued
The fact is that we live in a litigious society, where even the smallest mistake could result in a costly lawsuit. Things such as disgruntled employees, a broken contract, or even a single accident could result in lawsuits and liability claims.
Even though lawsuits can also be small risks to certain businesses, and some that you may win, you probably will be in a deep financial bind paying for legal costs.
So, instead of worrying about the risks that could very well happen, it is better to have a business insurance policy for peace of mind, and focus on what truly matters – your day-to-day business operations.
Keeps Your Business Up and Running
We mentioned natural disasters earlier in the article, and how business insurance would cover you for damage of contents and property. But have you given some thought to how you will cover your daily expenses while the damaged property is being rebuilt, and the money you will lose while your business is being rebuilt?
This is where business insurance plays a critical role, as it will help you survive by offering protection against lost income.
In the event of a claim due to damage of property caused by natural disasters, an insurance agent will be assigned to determine the extent of damage, and the income your business would have made during that period if it was up and running.
And if you have employees, you may want to buy business insurance that compensates them for lost income during these unforeseen circumstances.
Protects Your Employees
Any successful business owner would agree that employees are the most valuable asset of any company. Your employees play a big role in helping you build your company to what it is today, so it is important that you protect them in the event of an accident.
In fact, some states require you to get workers compensation if you have employees, but you should step it up a few notches by providing disability coverage, even if you charge your employees a small portion of the cost.
Helps Retain Employees
Having business insurance offers twofold benefits — protects your current employees, and helps attract and retain new employees as well. Apart from salary, job seekers look for benefit packages that include health insurance, life insurance, and disability among others.
Customers/ Clients May Require It
Many clients ask that you show that you have business insurance before handing you the job. If you borrow money to finance equipment, and commercial spaces, the loan agreement will likely include an insurance requirement.
Is it a Legal Requirement to Have Business Insurance?
If you are thinking of scrimping on the cost of business insurance premiums, think again because most states mandate insurance requirements especially if you have employees.
However, depending on the state where you operate your business, and its respective laws, you may be required to buy:
- Worker’s compensation insurance if you have employees
- Liquor liability insurance if you sell alcohol
- Professional liability insurance such as pet taxi insurance
- Commercial auto insurance for a vehicle used for business operations
Worker’s Compensation Insurance
Except for the state of Texas, it is a mandatory requirement for all businesses with employees to have worker’s compensation insurance.
However, some states may make exceptions to this rule of there are just a small number of employees such as Georgia that requires worker’s comp insurance only if a business employs two or more people.
In most other states, worker’s compensation insurance is a requirement even for businesses that have full-time and part-time employees.
In terms of coverage, worker’s compensation insurance provides a plethora of benefits for your employees who are injured or fall sick due to a work-related issue.
Depending on the level of coverage you as an employer opts for, worker’s comp insurance can also offer replacement of missed wages, disability and death benefits.
Medical costs in the United States can run into the thousands, but most, if not all worker’s comp insurance companies do pay for your employee’s medical expenses caused by a work-related injury.
Liquor Liability Insurance
This type of license is required if you own a small or big bar and restaurant or any establishment that serves alcohol. Liquor liability insurance covers you if your business is held accountable for property damage or injuries caused by overserved patrons.
What are the Disadvantages of Insurance?
While buying an insurance policy should not be an option if you own or are starting a business, there are a few disadvantages you should be aware of. But it is worth mentioning that the benefits of business insurance outweigh its disadvantages.
1. Can be Expensive
The cost of business insurance depends on several factors such as type of business, the insuring company, area(s) served, etc.
Adding to this, the price you pay for your premiums each month or each year is not the same as other businesses, and may very well be higher depending on your credit score, previous claims, and other potential risks to the insurance company.
2. Rising Premiums
One of the big questions to ask your insurance provider before agreeing to an insurance policy is whether your insurance premiums are variable or fixed. Most business insurance premiums are variable, meaning they can change from time to time due to inflation.
But there are a few insurance companies that allow you to lock in your insurance rate for the term of the policy such as when you pay your policy in full annually.
3. Not All Claims are Paid Out
Paying your insurance premiums month on month or year upon year does not guarantee that all your claims or any will be paid out.
There are several cases of denied claims, which is why it is highly important that you ready your insurance policy diligently including the fine print, and understand exactly what is covered and what is not.
When you file a claim, an insurance agent will assess the situation and consider the evidence before paying out or denying the claim.
To minimize the chances of a rejected claim, you should be honest with your insurance agent from the get-go, and seek clarifications against any exclusions or limitations that could lead to denied claims.
Do I Need Business Insurance if I Work from Home?
Running your business from home offers several different perks, especially if you are on a tight budget.
As a home-based business owner, you are probably led to believe that your home insurance policy will cover your business too! But this is far from the truth, and here’s why!
Your home insurance policy will not cover the business and its contents operating from home. This is yet another reason why it is important to check with your home insurance provider if they cover your home-based business and its contents under the same policy.
Many home insurance providers will cover up to $5000 worth of office equipment, but if you are running a business such as a photographer and you have expensive equipment worth much more than that, then you will be better off buying specialized photographer insurance.
Even if your home insurance policy does provide you coverage for your contents, you will still need public liability insurance that you get with business insurance coverage.
If people visit your home for business purposes, and they slip and hurt themselves, public liability insurance will compensate you for legal fees if they sue you for injury.
Similarly, if you sell products online from your home-based business, then you should check out ecommerce insurance, as it will cover you for product liability among other things.
What Insurance do I Need to Start a Business?
From the very first day you open the doors to your business, you expose yourself to myriad different risks. Even before you hire your first employee or buy a commercial vehicle, your business is at risk.
The good news is that as a business owner, you have many types of insurance to choose from to protect your business against any risks that come their way.
1. Professional Liability Insurance
Professional liability insurance is perhaps the most basic type of insurance for your business but is also the most important.
This type of insurance covers you for any claims pertaining to injury or damage to third parties and/or their property.
With personal liability insurance, there is no one-size-fits-all policy because all businesses are not built the same.
2. Professional Indemnity Insurance
If your business provides services or advice, then professional indemnity insurance is a must-have. It coves legal costs stemming from a breach of duty during the course of providing your business services.
Personal liability insurance applies to several different professions and types of trade including chartered accountants, doctors, and architects. But if you sell your products virtually such as dropshipping, you should explore specialized Amazon-FBA insurance.
3. Property Insurance
Whether you own the business or are leasing commercial space, you absolutely need property insurance. This type of insurance not only covers your office equipment, but also your inventory, signage, and furniture in case these items are damaged due to natural disasters.
But standard business property insurance may not cover damage caused by mass destruction events such as earthquakes, so it is wise to check with your insurance provider if they do.
4. Worker’s Compensation Insurance
Worker’s compensation is not required if you do not have any employees, but you should add it to your insurance policy as soon as you hire your first employee. To reiterate, worker’s compensation insurance will cover disability and death benefits and medical treatment for employees that are injured or die while on the job.
5. Vehicles Insurance
If you use a vehicle for your business operations, they should be protected against theft and accidents under a commercial vehicle insurance policy. If you are using your personal vehicle to provide business services, you probably already have car insurance.
But your personal car insurance will not cover you if you use the car for business purposes. So, if you are a roofer carrying tools in your vehicle and they are stolen, your personal car insurance will not approve your claim.
At the very least, you should opt for third-party commercial vehicle insurance cover, as it will cover damage and injury done to third parties.
If your employees are using their own vehicle for your business, great chances are that they will be covered against any accidents by their personal vehicle insurance. But your business contents they are driving within their vehicle will not be covered in case of damage or theft.
6. Business Interruptions Insurance
If your business is interrupted due to a catastrophic event, due to which it suffers loss of income, business interruptions insurance will compensate you during these troubling times.
What is the Cost of Business Insurance?
Many consumers ask if business insurance is costly, and the short answer depends on the coverage you opt for. To give you a rough idea, small businesses typically pay a premium of $50 per month or $500 per year.
The cost of insurance for your business also depends on the type of profession, where businesses with higher risks will pay more in insurance premiums. You can easily get a quote for business insurance online and compare it with other insurance providers to determine the best business insurance deal for your company.
How to Save Money on Business Insurance?
There are many ways to save a handsome amount of cash on your business insurance, starting with shopping around. When it comes to insurance companies, there is a sea of options to choose from, and as such, prices vary across companies.
The next great tip to save on business insurance is to choose a higher deductible because you will pay less in premiums. Choosing a higher deductible is a great option for low-risk businesses or those who want to keep costs low at the start.
Most of the leading insurance companies sell several different types of insurances including personal insurance. If you choose to club your insurances, both personal and business under the roof, you may be eligible for a big discount.
Before speaking with an insurance provider, it is a good idea to determine your needs, because you do not want to pay for coverage that you will never need.
For example, some business insurance policies include commercial vehicle insurance, which you will not need if you are running a dropshipping business.
Removing insurance coverages that you do not need can save you some serious cash on your insurance premiums, and ensures you get the right amount of protection for your business.
If you have started your business on a tight budget, you probably will not be able to pay for your insurance premiums annually.
But paying for your insurance premiums annually or in full for two-year coverages can get you a good discount, and not only on your business insurance, but all the insurances you have with the same insurance company.
Just like car insurance, the more claims you make on your business insurance policy, the more you can expect your premiums to rise. Some insurance companies even offer bonuses for no claims during the term of your policy.
If you have employees, a great way to prevent claims is with proper job training, because claims made against them can also spike up your business insurance premiums.
Instead of hiring employees, you can hire handymen that have their own insurance, so that you do not have to add them to your business insurance policy.