Learning & Insights
Why buy business insurance?
Business insurance can help ensure you're fully protected from unforeseen calamities.
You may face many daily expenses as you run your business—from payroll to meeting inventory needs. But one area you may overlook is buying business insurance. Incorporating or becoming an LLC typically protects your personal property from lawsuits, but that protection is limited. Business insurance can help fill any gaps to make sure your business is protected.
Let's take a closer look at some of the reasons why your business needs insurance.
It covers you in case of legal action
If a disgruntled employee, contractor or customer decides to sue you, carrying the right type of liability insurance may mean the difference between staying open or closing your doors. Even if you win a lawsuit, the cost of defending yourself can be enough to wreak havoc on your bottom line. Business liability insurance gives you the peace of mind you need to focus on your day-to-day operation and potentially improve your bottom line.
It covers you in case of natural disaster
If your business is impacted by a natural disaster, such as a forest fire, carrying property and casualty insurance will cover any loss of property, such as buildings and equipment. And you may want to consider a Business Owner's Policy (BOP), which covers any income or normal operating expenses lost during the time your business is closed for a covered loss. The only exception to this is loss from flooding—you should look into carrying flood insurance for protection from damage or loss due to a flood (whether natural or man-made).
It shows that you're sound and reliable
When you have business insurance, it shows customers, potential customers and creditors that they're considering a safe option. They'll see that if anything goes wrong, you have a plan in place to cover your commitments. That's why many companies advertise the fact that they're "licensed, bonded and insured"—it's stated as a way to build trust.
It protects you and your employees
Business insurance protects your most valuable assets: your employees. For example, if an accident occurs, workers' compensation insurance pays for hospital, rehabilitation and medical expenses—and even provides disability payments. Protecting your employees also protects your business against lawsuits or liability claims—potentially saving your business a lot of money and its reputation. And if something happens to you (as the business owner), company-owned life and disability insurance coverage covers the loss of income you would have earned or the purchase of your interest in the company.
It's required in many contracts
If you rent or lease a facility, your landlord may require you to carry business liability insurance (at a minimum). Additionally, you may also find that some clients require you to carry insurance as part of a contract of service or agreement.
The law requires it
The federal government requires businesses with a certain number of employees to carry workers' compensation, unemployment and disability insurance. If you don't carry the required coverage, you may end up paying fines and penalties. And unfortunately, you may be excluded from bidding for public contracts.
The bottom line
No one can predict what might happen in the future. While no one expects natural disasters, injuries on the job or even the hassle of lawsuits, it's always best to be prepared by being properly insured.