Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Business Insurance and Knowing When it is Necessary

For anyone who owns or holds a stake in a business, insurance coverage is almost always a necessity. Unless you have the financial means to bring your company back from the brink of failure in the face of an unforeseen event then you need business insurance.

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Even if the law does not require you to have insurance, you will want this type of protection from potential financial ruin. Liability in case someone is insured, product liability in case something you manufacture is defective or harmful, and disability coverage for employees are just a few of the many types of business insurance that are available.

When Focus Matters

When operating a business, efficiency can mean the difference between profits and losses. You need to be able to center all of your attention on the task at hand and not on thoughts of losing everything because of some unanticipated calamity. There are many reasons to have business insurance, including the possibility of lawsuits, monetary losses, theft, auto accidents, vandalism, injuries, damages to machinery, destruction of property or something that interrupts the business.

Fraud and theft are two concerns that can cost businesses a lot of money.

According to Audit My Books, small businesses average a 6% loss of revenue each year due to internal theft and fraud.

For tips on reducing employee theft go to the website for the Small Business Playbook here.

To determine when you need business insurance, it is a good idea to take into consideration the specific risks your business may face in its daily operations. Some things to take into account could include:

  • When Commercial Auto Business Insurance is NeededThe type of property your business will operate from
  • Typical weather events for your region
  • Natural disasters your area may be prone to
  • The type of product or service you will provide
  • Any worst case scenario
  • Whether or not you plan to hire workers
  • Product to be stored in warehouses
  • Expensive and/or crucial equipment used for your operations
  • Vehicles that may be used to conduct business

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When a Business is Large or Small

The size, shape and purpose of your organization factor into the type of coverage you require. While your company income will affect the amount of coverage your need, there are many more factors. To read an article on the correlation between company income ad insurance go here. Another factor to consider is the size of your company. You can determine the type of coverage needed by seeing which of these categories best describes your organization.

Are you operating a large company or franchise with many locations and employees?

Corporations have specific needs that small businesses do not.

If you run a small to medium business you may have storefront, small factory or shop that needs property insurance. However, you may or may not have a need for directors and operator’s coverage.

When Business Insurance is Necessary

A doctor, lawyer, insurance agent or financial service provider will have a different need for  errors and omissions coverage. However, a one man, work from home operation may not require this.

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When Your Business Has Particular Needs

There are many types of industry specific policies, and each one is designed to meet the needs of a specific kind of business. Knowing which kind will be necessary for your business and the kinds of risk you may need to be covered for can help you make a good decision about your insurance purchase.

For help in answering the question, “When do I need business insurance?” consider the following scenarios and their corresponding business insurance types:

  • General liability: A customer is injured on your property and decides to sue you for negligence. In this case, you would need general liability coverage.
  • Business property and casualty: You rent a storefront and a fire breaks out, damaging the building and contents. Similarly, you own a building out of which you conduct business. A water main breaks, causing a flood. Business property and casualty coverage would be needed.
  • Knowing when Business Insurance is Needed

    Workers compensation: You hire one or more employees and someone gets hurt on the job. As is required by law, you would need worker’s compensation insurance to cover their medical expenses.

  • Commercial auto insurance: A vehicle used for business is involved in an accident. There is damage to the vehicle and another person’s property. A commercial auto insurance policy would provide coverage. Be aware that personal auto insurance does NOT cover business vehicles, but commercial auto insurance will cover you even if you are using business vehicles for personal purposes.
  • Life and disability: A key person in the business, such as a partner or VIP dies or becomes disabled. Business is hampered or there are extra expenses as a result of the loss of this person’s contribution. In this scenario, life and disability insurance is needed.
  • Professional indemnity: A client is injured or suffers a loss as a result of a service your business provided or as a result of professional advice they were given. You or your business is being sued because of it and would need professional indemnity insurance, malpractice insurance, or an errors and omissions policy.
  • Product liability: A customer is hurt or suffers monetary losses when using a product designed, manufactured or sold by your business. This is when product liability would cover you.
  • Business interruption: A natural disaster, such as an earthquake or tornado causes serious damages that result in the cessation of business. Cash flow is interrupted and the business is at risk of permanent failure because of it. This is when business interruption insurance would provide coverage for your business.

Comparison is Key

Compare Business Insurance Needs

In many cases, insurance can come bundled together in packages. For example, there is a type of insurance called an “All Risk” policy, and there are other products with similar names. Sometimes property and casualty can be bundled with general liability.

You should carefully examine what is being offered and what is left out. Each insurance company is a little different and the best way to get the coverage you need is to look at the products several different companies have to offer and compare them. Pricing can vary as well, so in order to get the most for your money, you will want to shop wisely.

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