This year I’m finally going to start my dream business. I'm excited! What insurance do I need to get started?
The most important kind of insurance for new businesses is liability insurance. It covers legal costs, including the cost of hiring a lawyer, if your business is sued.
Legal costs can be extremely expensive, hundreds of thousands or even millions of dollars. This is even more true for businesses like childcare, cosmetics and food service, because there’s the potential to really harm your customers.
You might need other types of insurance depending on your business’s niche. Commercial property insurance and commercial auto insurance are common needs for new businesses, in addition to liability insurance.
What Does Business Insurance Cover?
I’m not sure why I need business insurance, especially because my business is small and new. Can you explain what business insurance covers?
Business insurance isn’t just one kind of coverage. It’s a blend of multiple types of coverage. So there isn’t one set of things that business insurance covers—you can mix and match based on your business’s size and niche.
These are four common parts of small business insurance:
Even within those categories, there’s lots of variety in what’s covered. Your insurance needs may also change dramatically over time. That’s why it’s good to work with an independent insurance agent. They can help you pick out the coverage you need at the right price point for your business.
I’m in the middle of putting together a business plan and I’m stumped about what to budget for insurance. How much should I be planning for?
This is a more complicated question than it seems. In short, it’s all down to your business’s size and niche. Take a second to think about worst-case scenarios for your business:
The worse your worst-case scenarios could be, the more expensive your business insurance could be.
For now, expect to spend a few hundred dollars per year on insurance if your business is small. That should cover liability insurance and maybe even some property insurance. For a larger business, like a restaurant, the cost is likely to be in the thousands of dollars per year.
What Happens if I Don't Have Business Insurance?
I started a small photography business last year, mostly for family and friends. I don’t have business insurance yet and I’m not sure I need it. Do I need to worry?
Photography is a good example of a field where insurance needs vary widely. A few important factors come into play. Let’s look at a few examples that also apply to many other small businesses:
Let’s expand all those scenarios:
Whether you should worry depends on what your situation is relative to the questions and scenarios above. If it’s more of a hobby, you might be fine staying uninsured. But once it gets serious, it’s time to look into getting covered.
These principles apply to all sorts of other small businesses. There are lots of risks to not having business insurance. It’s important to know those risks and know your niche.
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