Small business insurance is not required in most cases, but it’s always a good idea to purchase insurance to cover your assets since small business owners are generally taking a lot of risk and could loose everything if they are sued by someone.
While having your small business in the form of a corporation or limited liability may save you from general liability, it does not save you from personal liability. As most small business have under five employees, an employee (or owner) of a small company is far more likely to be personally liable when things go wrong than in a big corporation.
The two most common types of small business insurance are liability insurance and property insurance:
- Property insurance – This insurance protects your small business property from damage and loss. Property insurance should cover property fixtures (e.g. lighting fixtures, special flooring, and carpeting), machinery/equipment (stoves, mixers, and standing tools), office furniture, computers and computer peripherals, supplies and inventory, and finally personal property kept on site. Things like fire, explosions, storms, smoke, riots, vandalism, and sprinkler leaks are generally covered by basic policies.
- Liability Insurance – There are various forms of liability insurance.
- Regular liability insurance – protects your business against damages that your business is ordered to pay to an individual who is injured on your property.
- Product liability insurance – protects you from lawsuits by customers who claim to be hurt by a product you provided. Auto liability insurance covers damage that you or an employee caused in a business-related accident.
If you are an employer, you will be subject to a number of additional insurance requirements. Most businesses with employees must pay for workers’ compensation insurance, unemployment insurance and state disability insurance.
It is always a practical idea to have a lawyer review all parts of your small business operation, especially when you are starting up a company. Particularly if you are going into a "service industry" you will want to have a business lawyer review potential insurance coverage. It may save you in the long run.