Starting a company is stressful enough: it costs so much!! There are so many startup costs associated with launching a venture that it’s hard not to feel compelled to avoid non-mandatory expenses. Although commercial insurance is not mandatory, with an exception for employer insurance, it is still crucial for any business to get at least general liability insurance. Even if you’ve formed your business under an LLC or C-Corp, you can still get sued and held personally liable. See the five reasons why you should insure your business.
5 Reasons to Insure Your Business
Reason #1: It Protects Your Personal Assets in Case Your Business Gets Sued
Many entrepreneurs make the mistake of assuming an incorporated or limited liability business entity will protect their assets from unforeseen liabilities related to the business. But, actually, there is no corporate entity (e.g. LLC, C-Corp) that will completely protect you from bearing the costs related to a lawsuit. Small business owners are more susceptible to being held personally liable because they are seen as the face of the business, and have a high level of involvement in the operation of the business. Unfortunately, a relative of mine lost his business because one of his customers fell at the doorsteps of his restaurant. He didn’t have insurance and the legal costs alone put him out of business.
Reason #2: It’s Not as Expensive as You Think
Find a smart and trustworthy broker or agent that can recommend a cost-effective plan that matches your business profile. There are over 10 different types of insurance you can get to cover you against different activities related to your business. For instance, if you rent a property you’ll likely need to get property insurance. If you provide advisory services to clients, you’ll likely need to get professional liability insurance protecting you from damages for failure to or improperly rendering professional services. Get in touch with an insurance expert to ensure you don’t overpay for unnecessary protections and get a plan that protects you from the largest areas of liability risk. If you don’t have anyone in mind, email us and we will be more than happy to refer you to someone.
Reason #3: Smart Investors Will Love You For It
Moreover: it can even lower your cost of capital!
The last thing an investor wants is for you to lose your shirt because you’re not covered by insurance. In particular, banks may give you a cheaper loan if they feel you can cover business debt payments even if there is a work stoppage or an unforeseen liability that puts your business assets at risk.
Reason #4: Employer Insurance is Mandatory
And you don’t want to break the law. If your small business hires employees, you are required by state law to pay for workers compensation, unemployment insurance tax, and disability insurance. You can verify your state’s requirements by visiting your state insurance website (e.g. http://www.insurance.ca.gov/) or ask your accountant.
Reason #5: The Experts (and Not You!) Will Settle the Claims
I’ll use an illustrative example to prove this last point. Going back to my relative’s unfortunate example… when the client slipped in front of his restaurant, she got back up, ordered her food and left. A week later my uncle was served by a lawyer. Afterwards, he had to hire a lawyer, go to court and cover all the costs that eventually put him out of business. He felt he was taken advantage of because he had no experience dealing with this type of situation. Imagine the outcome if he would have had insurance. Upon getting served, he would have called his insurance company and their experts would have handled most of the work and covered the costs up to the limits of the plan.