Know the Business Insurance Basics for Your New Company

The multifaceted business insurance industry can be complex for any small business owner to understand. A small business owner must take the required steps to start a new business to ensure their company’s success. 

When it comes to insurance, not having adequate coverage can expose a small business to significant financial risk. Proper assessment of risk is tantamount to avoiding insufficient coverage – or too much for aspects of your business that don’t need high levels of coverage.

If you are just incorporating your business now, this is an excellent time to examine the types of insurance necessary for your business.

What are the basics of insurance?

A business insurance policy acts like a safety net by protecting your company from liability and significant financial losses. 

Here are some of the problems that insurance can help protect your company from:

• Natural disasters: Unpredictable disasters such as storms or earthquakes can damage your office or store. Business insurance helps pay for repairs and keeps your business running.
• Employee injuries: An employee could get hurt on the job. Workers’ compensation helps cover their medical bills and helps them recover.
• Theft: Someone could steal your equipment or inventory. Insurance helps replace stolen items.
• Legal problems: A client might sue you for a mistake or an accidental injury. Liability insurance helps pay for legal or medical fees.
• Property damage: Someone might vandalize your property. Having an insurance plan helps pay for repairs.
• Fire: Much like natural disasters, a fire could damage your business. Insurance helps pay for repairs.
• Equipment breakdown: Machines might break down over time. Insurance helps pay for repairs or replacements.
• Lost income: Disasters could cause your business to shut down, temporarily leading to a loss in income. Insurance helps cover this loss.

Does a startup need business insurance?

You don’t always need insurance to start a company, as the law does not require it. However, insurance protects personal assets if something goes wrong. 

Two of the most common asset protection strategies are limited liability companies (LLCs) and business insurance policies. 

C-corporations (C-corps) and S-corporations (S-corps) also offer asset protection by creating a separation between your personal assets and business liabilities. These methods provide businesses with various tools to safeguard themselves.

An LLC shields your assets from business debts by keeping them separate. This separation ensures that personal assets are not at risk if something happens to the business. Business liabilities such as debts can lead to financial deficiencies. 

As previously mentioned, insurance policies protect against unexpected liabilities by helping to cover costs and keep your business running. Both can be important methods for keeping your business safe.

Do I need business insurance for an LLC?

While it is not required, LLCs should still consider purchasing business insurance. Even though an LLC protects personal assets, it does not cover any business-related accidents, mistakes, or damages. Adding an insurance plan can help cover these extra risks.

Do I need business insurance for a sole proprietorship?

As a sole proprietorship, you and your business are legally the same. Without any form of insurance, you could lose everything. Business insurance protects you from liabilities affecting your business and personal assets.

Do I need business insurance for a corporation?

Business insurance is necessary for S and C corporations to have. As a more extensive operation, corporations often face more risks and liabilities. When encountering big, unexpected problems such as a lawsuit or disaster, insurance helps keep your business safe.

What are the most common types of business insurance?

There are many different types of insurance. Here are some of the most important insurances for small businesses: 

• Property insurance covers most unforeseen events, such as vandalism, fire, lighting, and other causes of damage. If the location warrants such an investment, optional insurance policies are also available for earthquakes and floods.
  
  There are two types of property insurance: named-peril policies, which specify covered risks, and all-risk policies, which cover all risks except those explicitly excluded.
  
  Thus, it is very important to pay attention to these details. After deciding on the type of protection needed, you will need to consider the items that need coverage, such as buildings, inventory, office equipment, machinery, records, and trademarks, to name a few.
• General liability insurance protects against lawsuits for something your business did or didn’t do that resulted in personal injury or property damage.
  
  Liability insurance covers the cost of any jury awards and your legal defense. It is best to compare yourself to other similar businesses to determine the proper level of coverage.
  
  Some insurance providers combine personal and liability coverage, but sometimes that may not be adequate. A restaurant, for instance, may need higher liability coverage since customer traffic is much higher than, say, a consulting firm.
• Business interruption insurance helps when your business has to close temporarily. It covers lost income during that time. Imagine a flood damages your store. This insurance enables you to pay bills until you can reopen. This insurance keeps your business from going bankrupt due to unforeseen events.
• A business owner’s policy (BOP) combines three different insurances into one package. This package includes general liability, property insurance, and business interruption insurance. Purchasing a BOP is a convenient and often cost-effective way to obtain essential coverages for small businesses.
• Worker’s compensation insurance is state-mandated and pays for job-related illness and injury, including medical, disability income, rehabilitation, and even death benefits.
  
  Each state has different rules regarding who is considered an “employee,” so it is vital to verify what your state requires before purchasing a policy.
• Professional liability insurance protects business owners against any lawsuits related to mistakes or problems with provided services. This insurance will be necessary if your small business offers professional services or advice.
• Cyber insurance protects against data breaches, cyber-attacks, and other cyber-related incidents. Ensuring your data is safe is critical for businesses that handle sensitive information or utilize digital operations.
• Product liability insurance protects businesses that manufacture or sell products that might cause harm or injury. This insurance covers any accidental injury caused by the products and applies to all physical goods.
• Employment practices liability insurance (EPLI) covers legal issues related to employees. Even with good practices, disputes can happen. This insurance protects your business from lawsuits and claims regarding wrongful termination, discrimination, harassment, and other employment-related problems.
• Commercial auto insurance covers the use of a company vehicle for business purposes. This insurance will be necessary for a small business that utilizes a company vehicle for transport, deliveries, or other commercial activities.

How much does business insurance generally cost?

The price of business insurance can vary depending on several factors. First, the type of business can influence the cost of insurance. Some industries, such as construction, have more risks than others and will require more insurance to be adequately covered.

Another factor to consider is the size of the business. Organizations with more employees often face greater potential liabilities, potentially leading to higher insurance premiums to adequately cover these risks.

Larger organizations with more employees may face higher insurance premiums due to increased potential liabilities.

The location of a property can significantly influence insurance costs. Businesses in higher-risk areas may require more insurance than those in safer areas.

The type of insurance purchased also determines the overall cost of insurance. For example, general liability insurance for a small business might cost $400 to $600 a year, while workers’ compensation can cost around $1,000 a year.

On average, small businesses pay around $500 to $3,000 annually for insurance.

If you have not yet formed a corporation or LLC to take advantage of the limited liability benefits, you can now easily incorporate online with MaxFilings.