Understanding What Kind of Insurance You Need and When You Need It

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This post was written and contributed by our friends at Hiscox.

Business insurance can seem complex, but it’s important to know how to protect your growing business. Here’s a timeline of what kind of insurance you may need, and when you may need it.

Just starting out

As soon as your business is more than just a twinkle in your eye, you should consider getting professional liability insurance. This coverage, which is sometimes called errors and omissions (or E&O) insurance, protects you from claims that you did something you shouldn’t have (an error) or didn’t do something you should have (an omission).

From the moment you interact with your first customer, a lawsuit is a possibility. If you are sued, professional liability coverage can pay for your defense costs as well as any settlement or judgment (even if you haven’t made a mistake).

Professional liability insurance is important for every business, but it is doubly so for sole proprietors. If you are a sole proprietor who gets sued and you don’t have insurance, your personal property, including your home, can be at risk.

Opening an office or storefront

As soon as you open a place of business where you see customers — or if you are going to a customer’s location — it’s a good idea to get general liability insurance. General liability coverage protects you against claims other people make against you for property damage or bodily injury.

If a customer slips and falls on your shop’s wet floor, or if you break an expensive antique while you’re staging a home for sale, you can be liable. That means you would have to pay for the customer’s medical expenses related to the slip and fall, or to replace the broken antique. A general liability policy can cover these costs, protecting your business.

Buying business equipment

If you have specialized equipment you need to run your business, you should consider getting a business owner’s policy to protect it. This pays to replace your equipment if it is lost, damaged, or stolen, and gets you back in business quickly. A business owner’s policy, sometimes called BOP insurance, often includes general liability as well.

Think about how long it took you to save up for that expensive camera for your photography business, or for that high-end workstation that let you take your graphic design firm to the next level. Now think about what would happen if you had to do it again. BOP insurance keeps your business running if the unthinkable happens.

Getting a big contract

Many companies require insurance before they award you a big contract. You can purchase a policy that covers exactly what the client needs and, after the project is over, you can cancel it if you no longer need it.

Hiring employees

When your business has reached the point where you need to hire employees, you need to do two things. First, celebrate, because your business is growing. That’s something to be proud of. Then, you need to get workers’ compensation insurance.

Workers’ compensation insurance is mandated by each state, to protect employees who get sick or injured on the job. It pays a portion of the employee’s wages as well as medical costs related to the illness or injury. Check with the Department of Labor for information on workers’ compensation in your state.

As you grow

Now that you’ve gotten your business up and running and you’ve secured the right business insurance, you’re all set, right? Well, you’re all set for now. But as your business grows, your insurance needs may grow too.

It’s always a good idea to review your business insurance when:

  • Your revenues increase 20 percent or more over the previous year
  • You offer new products or services
  • You hire new employees
  • You move your location
  • You change your business entity (from a sole proprietorship to a corporation, for example)

When you consider the risks you face in business, having the right business insurance is a smart move. You’ve worked hard to build your business — isn’t it worth protecting?

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