In many ways, insurance is like a safety net. You pay for it regularly, hoping you’ll never actually need it. Still, having it can provide peace of mind knowing that you’re protected in case of an unexpected event.
A major business can afford to make many mistakes. For a small business, a single unforeseen event can have a disastrous outcome. This event can come in many forms.
- Major damage on a pivotal piece of equipment
- Unplanned two-week downtime until the damage is fixed
- An injury caused by a product that you sold or made
We’re not talking about a meteor striking down your company’s office. We’re talking about things that happen daily.
Regardless of which of these things happened, you’ll have to find a way out of that mess.
The simplest solution to this problem lies in insurance.
Why insurance is important for small business risk management (summary)
It would take less to ruin a small business than a larger enterprise. Even a smaller accident could put a young business out of work. Fortunately, there are ways around this. Small businesses can use insurance for:
- Protection against property damage
- Covering liability claims
- Attracting better talent
- Dealing with business interruption loss
- Protection against product liability claims
There are many types of insurance products for both individuals and business owners. Some popular options include Universal Life Insurance which helps grow your wealth in retirement in a way that is completely tax-free.
Here’s how this comes together to make small business planning more reliable.
How insurance helps small businesses
1. Protection against property damage
Your most valuable possessions are physical assets like your business space, equipment, and company vehicles.
They’re expensive, and their repair can significantly offset your budget. With the right insurance, this is not something that you’ll have to worry about.
Still, there are different types of property insurance you should consider.
Property owner’s/renters’ insurance
Property insurance can provide you with more than just covering damages. Now, the majority of homeowner’s insurance covers additional living expenses. This means it helps if you have to rent out a different venue while your space is out of work. Needless to say, this will seriously reduce your downtime.
Business equipment insurance
Your equipment is often an essential part of your model. Without it, your work can’t progress, which means you must halt for a while (downtime), or you might suffer from a lower quality of work. In some scenarios, using alternative equipment (since you can’t afford appropriate replacements) may cause injuries.
After all, this is not the primary equipment for which most of your team has training, and onboarding takes time.
Taking care of your fleet while handling your deliveries would be best. Here, decent commercial trucking and truckers insurance can buy you peace of mind. This doesn’t just protect the vehicles; it also covers cargo. At the end of the day, you may not have much choice. In most countries, it’s required by law before you can legally operate on the road.
2. Covering liability claims
Liability claims are incredibly expensive. It’s not just the damages but also the legal expenses you’ll have to pay. Sure, you’re trying your best never to find yourself in this situation, but it’s impossible to protect yourself from this 100% of the time.
Another important thing to remember is that your reputation might also suffer.
We’re not talking about the event that leads to this liability claim; this can happen to anyone. We’re referring to a scenario in which you can’t cover it financially, refuse to handle it immediately, or a situation in which you don’t have suitable insurance coverage.
Any of these scenarios will paint a terrible image of your business that you won’t shake off as easily.
Liability claims are sometimes so significant that they can literally bring you to the brink of financial ruin.
You wouldn’t have to look that far to find all the businesses bankrupted by liability claims. Even giants like Phillip Morris were in a serious problem in this scenario.
What do you think would happen to a smaller business under such circumstances?
Simply put, liability insurance protects you from this outcome.
3. Attracting better talent
You must understand the difference between how top-talent interacts with potential business offers. Sure, if you’re hiring people, such as digital marketing freelancers, with dubious qualifications and no experience, they’ll agree to any offer you make.
Not top talent.
These people usually have so many options that it might take a few days to weigh between your offer and your competitor’s. Here, the offers may be so competitive that they’ll let the nuances make or break your case.
They’ll check your website and company blog and even contact your former employees. One of these factors is the insurance coverage that you provide.
You see, it’s not just about the insurance. To an experienced job hunter, insurance indicates how much value you, as an enterprise, place on your employees. A lack of a valid policy indicates you never have a contingency plan. Oppositely, with the right policy, you always seem ready for things to go downhill and will never be caught unprepared.
Guess which of these two model employers they’ll be more attracted to?
Also, they must have professional standards, and decent insurance coverage is the bare minimum. Failure to provide that will immediately disqualify you.
4. Dealing with business interruption loss
Business interruption loss is one of the worst outcomes of an accident. In many ways, it’s even worse than a direct financial loss because it starts a chain of events that will be hard to stop.
First, it’s downtime, during which you won’t be able to work on your projects and expand your client list. A person looking for your services will see you’re unavailable and go somewhere else, probably never returning.
If you’re generating insurance leads but you’re unable to service these leads, you also waste the money your business spends on digital marketing.
Also, have you ever experienced a sharp productivity loss right after the holiday season? It takes people some time to get back in the game, which means you’ll lose more than just those days you’re off.
If you have the funds to cover your expenses during this period, you stand a chance of bouncing back. The problem is that some small enterprises remain in the business world by the skin of their teeth. For them, this type of setback seems like an impassable obstacle. With the right insurance, this doesn’t have to be the case.
5. Protection against product liability claims
Product liability claims happen even to enterprises with the highest level of QA/QS. For instance, in 2005, Dell recalled over 200,000 laptop batteries because of the risk of overheating. This massive laptop manufacturer could afford such a setback, but how would a smaller enterprise fare in such a scenario? It depends on their insurance policy.
Settling in court can be expensive, but it’s always better than the alternative.
Without the insurance, you would have to pay for this settlement from your budget. It goes without saying just how devastating the effects of this would be.
One more thing you need to remember is that you’re not just in danger as a manufacturer. Let’s say you’re just a reseller, and someone else is making these (potentially dangerous) products. Unfortunately, you can still be held accountable. In other words, you need protection even in retail.
The bottom line is that you need several lines of defense against liability claims. On the one hand, you need quality manufacturing procedures. You also need reliable suppliers and quality materials. Great QA and QS are a must. Still, if all else fails, you need great insurance for product liability claims to fall back to.
6. More productive employees
Another reason insurance is essential for small businesses is because it can provide employees and business owners with greater peace of mind.
Business owners are always looking for ways to gain more productivity from employees. Having employee recognition software, providing employee gifts, and yearly bonuses or incentives can contribute to greater work performance.
Having insurance for both your business and employees can, in some cases, double your employee productivity.
Not to mention, business insurance can often be a tax deductible expense. This allows your business to be more profitable as well!
Insurance can protect your business from many unexpected occurrences
In the end, insurance is an essential part of your contingency plan. If everything goes right, you’ll never use it, but if you ever find yourself in financial trouble, you’ll have an extra solution to turn to.
At the very least, it will buy you much-needed peace of mind. If, on the other hand, you do need it, the right policy may save your small business from complete financial ruin.
What types of business insurance are available?
The simplest solution to your problem would be to find general liability insurance. This covers most instances like property damage, bodily injury, and advertising injury. Other than this, you also want to consider professional liability insurance, property insurance, and worker’s compensation insurance.
What factors affect the cost of business insurance?
The type of business that you’re running will be the most important factor. Injury risk is different in an office and on a construction site. The location of your business, the size of your business, and they will also consider your credit history. Also, the insurance issuer will take a look at your claims history.
Are there any legal requirements for business insurance?
You need worker’s compensation insurance to run a business in most countries. You also need commercial auto insurance if your business has any vehicles. Other than this, professional liability insurance and general insurances are some basic requirements.
Ashley Davis (or ‘Ash’ for short) is the CEO & Founder of Skyline Social. For over 15 years, he has been helping business owners with lead generation. Ash specializes in helping businesses get high-quality leads, appointments and clients each month in an automated, scalable and profitable way. You can watch his free Masterclass training to learn more.