Entrepreneurs are risk-takers.
Risk-taking has its advantages. For starters, you’ll never get anywhere new if you’re not going to take a risk—heck, even the act of walking requires at least a minimal risk of falling.
But risk-taking has its disadvantages too. If you take too big a risk, you stand to lose everything. Anyone who’s ever been to Las Vegas can tell you that.
The secret to starting up as an entrepreneur without exposing yourself to the possibility of complete and utter failure? Minimizing the downside of risk. And there happens to be an entire worldwide industry built around that basic premise: small business and startup insurance.
Having insurance protect your small business may seem like an unnecessary expense in the early days of your new company. Heck, it might seem like an outright waste of money. But the security it provides can potentially be invaluable—if you have the right insurance.
So how do you know whether or not you need insurance, and if so, what kind of insurance you should buy? Here’s our guide to small business and startup insurance:
Different Kinds of Business Insurance Available
If you’re the worrying type, then you can rest easy knowing that there’s a different type of insurance out there that will cover just about anything you could possibly hope to encounter in your days as an entrepreneur. The trick is to give yourself the maximum amount of coverage for the smallest possible investment. Think of it as just another area in which you need to maximize your ROI.
The Small Business Association recommends a number of different types of business insurance. You’ll want to read up on these different insurance types to see which might be the best for you:
General Liability Insurance. Think of this as the biggest “umbrella” in your picnic kit. According to the SBA, general liability insurance can help you to stay protected from payments that are the result of injury, property damage, medical expenses, libel, slander, settlement bonds, and other judgments required during appeals procedure. Needless to say, this is an insurance of considerable breadth, covering you in a variety of areas—many of which you might not have even known to exist. If you provide a general service and not a specific product, this might be the best insurance for you.
Product Liability Insurance. When you create a product and sell it—as opposed to offering a service—you enter different legal territory. Product liability insurance is necessary to protect you against product defects that might injure someone. If you’re any part of the manufacturing, distributing, or retailing process, you may want to look into product liability insurance. Heck, if you handle any physical product at all, you’ll want to consider this type of insurance. (Of course, it’s important to consider context, as well. If you down comforters, you’re not going to face the types of risks of a company selling medical equipment.)
Professional Liability Insurance. Providing a service instead of a product doesn’t mean you’re exempt from risk, of course. Professional liability insurance will help protect you against malpractice and negligence—for physicians, this type of insurance is a government requirement in many states because of the tremendous risks of providing medical services.
Commercial Property Insurance. You’re a business, and you use property to conduct business. That property is just as at risk as any other property out there. If there’s a fire or some other natural disaster, you don’t want your entire business inventory to be lost without having something to show for it. Be sure to check out the SBA link provided above to see the various types of property insurance policies you can get, including all-risk policies, peril-specific polices, and business interruption insurance.
If you already have a business up and running, chances are that you know which kinds of insurance would likely work best for your individual enterprise. But how can you be sure? Let’s run down a list of different business types to diagnose and recommend a specific type of insurance for your needs.
Matching the Business Type to the Insurance You Need
Not every type of insurance is right for every business. Here’s a quick guide to ensuring that you have the right coverage for the specific niches that many of our readers often fall into:
Home crafts: If you’re the kind of business that makes major sales on Etsy.com, then you likely work with home crafts. But are these crafts covered? For some business types—such as crafting your own pillows—you won’t face a lot of risk, so general business insurance may be able to do the job. But when you deal in the type of homecrafted items that are actually consumed—like homebrewing—you’ll definitely want to make a generous investment in the kind of insurance that will keep you covered. Look for industry-specific insurances, such as the American Homebrewers Association (AHA) insurance. For soapmakers, the Handcrafted Soapmaker’s Guild has a group policy as well, and the Indie Beauty Network provides coverage in the general toiletry industry.
SaaS (Software as a Service) or Application-based businesses: Although there’s no physical property involved here, you’ll definitely want to make sure you’re covered. General liability insurance can help, as can professional liability insurance. As more and more companies across the nation gravitate toward software and application-based solutions, you may even want to start viewing software products as a service when it comes to protecting your company.
Freelancing businesses: Look for professional liability or general business insurance here. You’ll want to protect yourself in case you run into any legal troubles—for example, if you unwittingly use a trademarked product in a graphic design project. But as a freelancer, you’ll need to protect your equipment and data as well. Business Owners Insurance can be a good idea to ensure you have the comprehensive coverage to keep your enterprise protected, including the digital property that is so important to keeping you afloat.
Manufacturing or distributing a product: Product Liability Insurance, of course. You don’t have to be a major manufacturer or distributer to require this kind of insurance. If you own a retail outlet or a local store, this kind of insurance can be quite necessary to ensuring that the risks inherent in each product don’t affect your bottom line.
If you employ: Workers compensation insurance is a total necessity, as is Disability Insurance. Even small business owners aren’t always one-person operations, and you need to be able to take care of an employee if they injure themselves on the job or need to invoke a state-mandated payment. You have to have the insurance to cover these payments if you plan on conducting business as usual.
Making your first business insurance purchase can be an exciting moment—and it can be a little scary. You’re never sure if you’re throwing your money away, or whether that money will ultimately come to your rescue when it’s time to file an insurance claim. But you will have the satisfaction of knowing you did everything in your power to ensure that your company was covered in the good times as well as the bad.
What do you have for small business insurance? What do you recommend to others?