The most important kind of insurance for a new business 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 of dollars or more. 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.
Business insurance isn't just one kind of coverage. It's a blend of multiple kinds of coverage. You can mix and match based on your type of business size and niche.
The Four Types of Insurance:
Covers legal expenses including the cost of legal representation and any damages you might owe.
Covers buildings, equipment, inventory and even your customer's stuff if you're storing it (like in a hotel or repair business).
Covers vehicles that are used for your business. You may need a commercial auto policy in addition to your regular car insurance if you plan on driving your personal car for business.
Consultant liability insurance (aka professional liability insurance):
Provides extra legal protection if you are sued for providing bad guidance to your customers, like in a consulting business.
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.
How to budget for insurance is based on your business's size and niche. Take a second to think about worst case scenarios for your business.
How expensive is your property? Are you working with flammable materials? Are you driving vehicles? Is there a risk of harming the customer including food poisoning?
For now expect to spend a few hundred dollars per year if your business is small. That should cover liability insurance and property insurance. For a larger business such as a restaurant the cost is likely to be in the thousands per year.
Business insurance is not legally required. However is may be a required step in getting financing or in attracting customers. Both banks and customers want to be sure you won't leave them hanging if things start to go wrong.
Running a business is hard, unpredictable and potentially very expensive. Think of business insurance as a backup. It takes the pressure off you, it helps you take the risks you need to take to grow your business.
Thanks to our partners at TrustedChoice for this article by Maggie Tiede.