What is Insurance for Businesses and Why Does Your Company Need It?
Did you know that 30.7 million small businesses call the United States home? Or that 99.9% of all U.S. businesses are small to medium enterprises? What’s more, experts say that by 2020, 27 million more people in the U.S. will opt for full-time self-employment.
That’s why if you’re thinking of launching your own business, it’s best to get started ASAP. The sooner you do, the lower the risks of another start-up offering the same exact goods or services you will.
But before you can register your business, there are necessary requirements that you must first comply with. One of these is the need to get business insurance. It may seem like an added expense on top of everything else you’ll need to pay for, but it’s one that’ll bring you great results for your business in the long run. It’s that general umbrella of protection against all the uncertainties inherent in running a business.
So, what is insurance for businesses exactly? Why do you even need it? If you’ll set up your business at home, can you just make do with your homeowner’s insurance?
This post will answer all these questions and more, so be sure to keep reading!
What is Insurance for Businesses? A 30-Word Explanation
Business insurance protects organizations from legal liabilities and losses. It comes in many forms, such as legal liability and property damage insurance. Insurance for businesses also covers business owners from the employee- and client-related risks.
Is Business Insurance a Legal Requirement?
Some types of business insurance, such as worker’s compensation, are a federal requirement. It’s mandatory in almost all states. Laws vary from state to state though, and the need for it depends on how many employees a business has. This legal requirement is one of the most important reasons why you need to have business insurance. Otherwise, you could be running an illegal business, which can result in fines, penalties, and even closures. It could also lead to fines, sanctions, and even “cease and desist” orders. In short, not having the right coverage can cost you your entire business.
For instance, in Arizona, all businesses including sole proprietors require worker’s comp. So long as the organization hires at least one employee on a regular basis, then they need this coverage. Whereas in Arkansas, worker’s comp is only required for firms with at least three workers.
If you fail to carry state-required coverage, you could face serious criminal penalties. It could also lead to fines, sanctions, and even “cease and desist” orders. In short, not having the right coverage can cost you your entire business.
The federal government also requires all businesses with employees to carry unemployment insurance. Disability coverage is also a must-have for any business with at least one employee.
What Are the Other Main Reasons You Need Business Insurance?
Aside from meeting legal requirements, what is commercial insurance coverage used for? Why exactly does your business need it?
Let’s take a look at some of the other benefits that business insurance coverage delivers to the table.
Protection Against Lawsuits and Litigations
Another purpose of insurance is to protect you from lawsuits or liability claims. All these could already result from one accident or one case of breach of contract. Even a single disgruntled employee can already lead to your business having to fold.
In fact, statistics show that 36% to 53% of small businesses face at least one litigation at any given time. What’s more, U.S. corporations spend over $20 billion a year to pay for their litigation attorneys. These are far greater costs compared to the small price you’d pay for insurance premiums.
It Helps Cover Loss of Property
Almost 7.7 million property crimes–that’s how many occurred in the U.S. in 2017. Over two-thirds of those cases were larceny-thefts, and another 18% were burglary cases. They also cost the nation a whopping $15.3 billion in losses.
All these should already tell you how big the losses you can incur are if you get targeted by criminals. The question is, would you be able to replace your business’ property in case they get stolen? Chances are, your finances can’t handle such massive losses.
That’s why you need business insurance. It can help cover your property against damages or losses caused by crime.
It Can Help Keep Your Business Up and Running
In a nutshell, business insurance can keep the doors of your organization open. It allows your firm to keep operating even if it gets hit by a crime or a natural disaster. Without it, what do you think will happen to your business? How long are you going to suffer the consequences? When these calamities or disasters happen, it’s normal for any business to suffer financial losses. But having insurance can somehow give you more protection against income loss.
Optional coverage can complete the gaps left by limited federal and state-required coverage.
It Adds To Your Level Of Credibility
This benefit has greater significance particularly if you’re a service-oriented business or if you’re in the manufacturing or in the wholesale industry. It’s important for you to keep your credibility level, particularly at this time when the competition is getting very stiff. You’ll need to prove yourself trustworthy to your clients.
Having business insurance adds to your credibility level. It shows prospective clients that it’s a safe idea to invest their money and trust in your business. With one, you can expect the interest and search traffic for your business to increase.
It Protects Your Employees
Another advantage of having business insurance is that it protects your employees. Remember that above your machinery or equipment, one of your most valuable assets are your employees as they keep your business running. Hence, the need for you to protect them from possible accidents.
Business insurance can offer this, particularly through the workers’ compensation and disability coverage. When you protect the interests of your employees, you’re able to protect your business as well.
What Are the Most Important Types of Business Insurance You Should Have?
Although helpful, the federal- and state-required insurance coverage is often limited. It’s best you know all your options to ensure you get the right coverage types for your business.
General Liability Insurance
This protects your firm against financial losses in case of bodily injury to others. It also provides coverage for medical expenses. Property damage, slander, and libel are some other areas covered by this insurance.
Professional Liability Insurance
If your business provides services to consumers, be sure you carry this coverage. It protects your organization against errors, negligence, and malpractice.
Product Liability Insurance
Manufacturers, distributors, wholesalers, and retailers should consider this coverage. It protects against financial losses that may arise from defective products. Such losses can occur if the product causes bodily harm or injuries to consumers.
Cybercrime Liability Coverage
Cybercriminals can leak your personal information and that of your customers. Sensitive data and contracts are also at risk of getting leaked and used for crime. Identity theft and fraud can all occur due to these crimes.
That’s why any business that has online operations need cybercrime liability coverage. This insurance protects businesses against liabilities caused by cybercrimes.
Commercial Property Insurance
Does your business own a considerable amount of physical assets and valuable property? Then be sure to look into commercial property insurance. It covers your company property against events like fire, smoke, vandalism, and storms.
Business Owners Insurance
Let’s say you have commercial property coverage which already protects your business property. If a fire would break out and burn many of your valuables to the ground, they’re covered. But what about the profits you lose while you complete the repairs and replacements?
Unless you have Business Owners Insurance, all that potential profit will disappear. That’s why you should also carry BOP, as it can protect your business against loss of income in such events.
Home-Based Business Insurance
Two-thirds of entrepreneurs in the U.S. started and launched their business at home. If you’ll join the at-home business bandwagon, you should have home-based business insurance.
Your standard homeowner’s insurance won’t cover losses or liabilities for your at-home business. You add this coverage to your homeowner’s insurance. With this, you can protect your business equipment and also have liability coverage.
Don’t Put Your Business at Risk: Get the Right Types of Insurance Now
There you have it, all the answers to your question, “what is insurance for businesses?” It’s paramount to running a business, not only because the law says so, but also because it protects your firm. Without insurance, you’re placing your business at a huge risk of closing down. When you’ve put in hard-earned savings for your capital or took out a loan for it, the last thing you want is for your business to flop. Don’t lose everything you’ve worked so hard for in an instant. So, as early as now, start researching your state’s legally-required insurance! Be sure to fill in the gaps they leave with optional, yet vital business insurance coverage.
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