Insurance: Does My Business Really Need It?
by Christine Jaros | October 25, 2023
Business insurance is an extra cost that seems like a non-performing safeguard when everyone is counting pennies and using those pennies for a much-needed website, tools, materials, or daily administrative supplies. It seems so much more important to cover those expenses with an immediate return versus allocating funds to cover insurance, but here are a few reasons why insurance is important and beneficial for your business.
Why Insurance is Important
Some states, industries, or the federal government require you to carry insurance for certain reasons, thus not having it can put you and your business at a great peril. It’s not about ‘if’ but ‘when’ your lack of coverage will land you in very hot water. Not only could this result in great financial hardship, but it could also be criminal. Luckily, this is an easy fix by knowing your business requirements.
It’s All About the Money
Insurance can generally cover the costs, expenses, or damages that arise out of liability occurrences. We live in a complicated world where one must navigate to protect their best intentions as a person and that of their small business. Most businesses (apart from sole proprietorships) have an inherent liability coverage in their legal structure, meaning because they are a Limited Liability Corporation (LLC), for instance, only their business assets are at risk.
Well, true but not always true. This depends on the value of your company’s assets versus the liability costs and extent of damages which means you can mitigate your personal liability gap with a business insurance policy. Thus, insurance helps to protect both your personal and business assets and finances.
Life Happens
No matter how you believe you run a well-oiled machine, some things are simply out of your control. Even when you are the only one working at your business, bad things can happen to the best of people. Especially when your company begins to grow, the more people you touch with your goods and services, the more people you purchase from, the more people you hire or deliver goods and services to, the more opportunities for mistakes, hiccups, negligence, injuries, damages, or opportunities for a seemingly devastating event. You know the blood, sweat and tears that has gone in to growing your small business and it doesn’t happen overnight. Whether a service or product-based company, insurance can provide a reasonable blanket of security that can allow you to grow and prosper with peace of mind. Remember, a small, fixed cost is always better than a large suit cost.
What Type of Insurance Do I Need?
Below is a broadly defined outline of the type of insurance your business might require based on how you operate. Ultimately this is intended to highlight a required need for coverage. For specifics, contact your insurance carrier (company). Since each carrier has policies with varying coverage, definitions, and limits, it is always best to ascertain their quote.
- You have 3* or more employees: consider workers compensation insurance.
*NOTE: This is mandatory in almost every state but varies by state with the number of employees triggering the requirement. Florida requires you to carry workers compensation insurance if you employ 4+ persons. There are also some exempt industries so check your carrier for specifics. - You see clients, vendors, suppliers face to face: consider general liability insurance. This could include all or some of the following components:
• Bodily Injury
• Property Injury
• Personal Injury
• Advertising Injury - You have business property of your own including facilities, tools, equipment, vehicles, etc.: considerbusiness owners’ liability. This is a combination of General Liability plus Business Interruption Insurance. Business Interruption Insurance helps companies cover their operating costs when they have suffered an interruption of work and subsequent revenues due to disasters or peril. In Florida, we have hurricanes which is a great reason for carrying this type of insurance.
- You give clients professional advice: consider errors and omissions insurance. This insurance covers the following:
• Negligence
• Personal Injuries
• Defense Costs (including prosecutorial cost & litigant defense cost
• Acts of Staff
• Past actions - You use computers or collect/store client’s personal data, financial data, and information: consider cyber insurance.
When should I get insurance coverage for your small business?
When you start your business, it’s important to put all the fundamentals of having that business in place. Just like bookkeeping, licenses, and permits, obtaining the correct insurance coverage can allow you to move forward in growing and developing your company. I recommend getting insurance for your small business when you do either of the following:
- You get your first check.
- You begin pitching or bidding on contracts (many will require that you have coverage).
- You hire your first employee.
It’s easy to point and say a childcare business, transportation business, or restaurant business would need insurance more than others, but that’s not true. E-commerce, healthcare, construction, and government contracting all have insurance needs as well. By identifying your North American Industry Code (NAICS), you can examine what your industry requires. Additionally, you can look at the state requirements for your business. Your trusted car insurance carrier can often provide small business coverage and while they may not be ideal, they may be a place to start your exploration based on your company details.
Christine Jaros
Consultants, Jaros, TampaSpecialties: E-commerce, Marketing & Sales, Startup Assistance, Organizational Development Christine Jaros provides business consulting in the areas of startup, business plan development, marketing and sales, e-commerce, finance, wholesaling and retailing, and business management. Before joining the Florida SBDC at USF, Jaros owned her own apparel wholesale sales and consulting business in New York City for 14 years. She has more than 35 years of experience as a professional businesswoman. Jaros built a global-focused career specializing in manufacturing, marketing and sales with organizations including Bidermann Industries, Liz Claiborne Inc, and Hartmarx Corp. Working with iconic brands such as Yves Saint Laurent, Liz Claiborne, Calvin Klein, Polo-Ralph Lauren and Austin Reed, Jaros grew her portfolio of skills to include international sourcing and distribution. She is a certified TTI DISC Certified Professional Behavioral Analyst and TTI DISC Certified Professional Driving Forces Analyst and a certified Associate Business Continuity Professional (ABCP). Jaros obtained her bachelor’s in business management and marketing from Ohio University. She went on to study fashion and apparel in Paris, France, and later received a finance-focused Executive MBA from Pace University in Manhattan.