5 Reasons Why All Business Owners Need Insurance

Starting a business takes courage. You put in your savings, your time and often your reputation. Insurance is how you make sure one bad day doesn't undo years of work.

Yet many owners put it off, or assume a home or personal policy has them covered. In most cases it doesn't. Here are five reasons every business owner, from a solo consultant to a contractor with a crew, needs proper business insurance.

1. One lawsuit can cost more than your business earns in a year

A customer trips in your shop. A pipe you installed leaks into a client's basement. Advice you gave leads to a client's financial loss. Even if you did nothing wrong, defending a claim costs money: lawyers, investigations and time away from your business.

Commercial general liability (CGL) insurance covers claims of bodily injury or property damage to others, including legal defence costs. If you give advice or professional services, errors and omissions (professional liability) insurance covers claims that your work caused a financial loss.

2. Your home insurance won't cover your business

This surprises a lot of home-based business owners. Most home policies limit or exclude business equipment, inventory and business-related liability. If a client is injured visiting your home office, or your work laptop and equipment are stolen, your home policy may pay little or nothing.

A commercial property policy, or a business endorsement where an insurer offers one, protects your equipment, inventory, tools and the building or space you lease.

3. Insurance keeps you running when you can't operate

After a fire or flood, repairing the damage is only half the problem. While you're closed, rent, loan payments and payroll keep coming.

Business interruption insurance replaces lost income and helps cover ongoing expenses while you recover. For many small businesses, it's the difference between reopening and closing for good.

4. Clients, landlords and lenders will ask for it

Most commercial leases require you to carry liability insurance and name the landlord on your policy. Larger clients and general contractors often won't sign a contract until they see a certificate of insurance. Lenders may require coverage on equipment or property they finance.

Without the right coverage, you can lose the contract or the space before you've even started.

5. It protects you, your people and your reputation

Your business depends on people, starting with you. If you or a key partner can't work because of an illness or injury, the business can stall. Key person insurance, disability insurance and group benefits protect the people your business relies on, and benefits help you attract and keep good staff.

Being properly insured also builds trust. "Licensed and insured" tells customers you're a serious, professional operation.

What insurance does a small business need?

Most small businesses start with some combination of:

• Commercial general liability
• Commercial property (contents, equipment, inventory, building)
• Business interruption
• Commercial auto, if vehicles are used for work Read: Using your car for work? You may need commercial auto coverage
• Cyber insurance, if you store customer data or take payments online
• Professional liability (errors and omissions), if you give advice or services

Many insurers bundle the core coverages into a single business package policy, which is often simpler and more affordable than buying each one separately.

Frequently asked questions

Is business insurance mandatory in Ontario?

Most business insurance isn't required by law, but some is. Any vehicle used for business must carry auto insurance, and many industries, landlords and clients require liability coverage before they'll work with you. In practice, most businesses can't operate without it.

Does my home insurance cover my home-based business?

Usually not fully. Most home policies limit or exclude business equipment, inventory and business liability. Ask your broker whether you need a business endorsement or a separate policy.

How much does small business insurance cost?

It depends on your industry, revenue, location, number of employees and claims history. A low-risk consulting business pays far less than a roofing contractor. A broker can compare quotes from several insurers to find the right price for your coverage.

What's the difference between general liability and professional liability?

General liability covers bodily injury and property damage you cause to others. Professional liability covers financial losses a client suffers because of your advice, errors or omissions.