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By Karen Doyle, Hiscox

The following content is for general informational purposes only and is not intended to provide legal or other professional advice. Individuals should consult with their professional advisors for advice on their obligations.  

Starting a business is expensive, and costs can spring up when you least expect it. It’s tempting to try to cut costs wherever you can when you’re trying to get your business off the ground. But in some cases, the money you spend could pay off for you in the long run. Business insurance is one of those costs.  

Here’s what you need to know about whether insurance is worth the money for your business. 

What is Business Insurance? 

Business insurance can protect your business from the costs associated with claims, lawsuits, cyber incidents, employee accidents, and more. When you purchase business insurance, you are paying the insurance carrier a monthly (or annual) premium (a fixed cost). In exchange, the insurance carrier agrees to pay for claims that you have that are covered under the policy, protecting you from what could be a much larger, variable – and usually unexpected – cost.  

What Kind of Business Insurance Do I Need? 

There are several different types of business insurance. Your needs will depend on the type of business you have and the type(s) of risks you face, but here are some of the most common types of business insurance.  

General Liability (GL) Insurance  

General liability insurance, sometimes called commercial general liability insurance, is the foundational coverage that nearly every business needs. It covers the costs associated with third party (i.e., somebody else’s) claims that your business caused them bodily injury or damaged their property. It’s sometimes referred to as ‘slip and fall’ insurance because it can cover injuries sustained if, for example, someone comes into your place of business and slips and falls on the floor.  

General liability also covers claims of libel and slander, and claims of advertising injury, which can include copyright infringement.  

Professional Liability (PL or E&O) Insurance 

Professional liability insurance is sometimes called errors and omissions or E&O coverage. It covers claims that you did something you shouldn’t have done (an error) or didn’t do something you should have done (an omission) in the course of your professional services and caused financial harm to someone as a result.  

If your business provides advice or performs professional services, you should consider professional liability insurance coverage. If you are sued for negligence, or for another covered reason, professional liability insurance coverage can pay the costs of a settlement or judgment, as well as the cost for you to defend yourself and your business.  

Here’s an example. Suppose you are a consultant, hired by a company whose sales are declining. You develop recommendations to stop the slide and increase the company’s sales. Some of your recommendations have been implemented, but sales continue to decline. The client company sues you, charging that you were negligent in performing your duties. A professional liability insurance policy could pay your defense costs, plus a settlement or judgment in the case.  

Cyber Security Insurance 

Cyber security insurance, sometimes called cyber liability or cyber risk insurance, protects businesses against financial losses that are computer- or technology-related. This can include data breaches, phishing or ransomware attacks, or because a laptop containing sensitive data was lost or stolen.  

Any business that has a website, uses email to communicate, accepts digital payments, or works with customer information should consider cyber security insurance. Consider what might happen if you or an employee were to click on an email link that turned out to be fraudulent, and you received a ransomware demand. Cyber security insurance could cover the cost of getting your data back, and also cover lost income for the time your system is unusable.  

Workers’ Compensation Insurance 

If you have employees, you’re probably required to have workers’ compensation insurance – it’s mandatory in nearly every state. Workers’ compensation insurance covers medical costs and lost wages if an employee becomes ill or is injured on the job.  

How Much Does Business Insurance Cost? 

The cost of business insurance varies and is based on several factors. Some of these factors include the size of your business (revenue and number of employees), the type of industry, your location, and the amount of coverage you want, as well as the kind of coverage you need.  

Here are some examples. General liability insurance for a consultant in Texas with a $200,000 annual payroll could cost about $350 per year for a policy that would pay up to $1,000,000 for each incident and up to $2,000,000 total per policy year. An IT consultant in California with $150,000 in revenue might pay about $441 per year for a professional liability policy with a $500,000 limit and a $5,000 deductible.  

The best way to find out how much insurance will cost is to answer a few questions about your business and get a quote.  

Is Business Insurance Worth It? 

Business insurance is a wise choice, whether you are just starting out, or have been in business for a while. A business insurance premium is a fixed cost which can protect you from a potentially much larger cost in the future. Consider the general liability policy for the consultant in the example above. It costs $350 per year. If you are sued and don’t have insurance, you may have to pay an attorney to defend you – something that could cost $350 per hour. You’d also have to pay any settlement or judgment.  

To determine if business insurance is worthwhile for your business, the first step is to find out how much it will cost. Get a quote for coverage for your specific business and compare that to the potential cost of a claim or lawsuit. You’ll probably find that business insurance is well worth the investment to protect your business and give you peace of mind.  

Is it a good idea to have business insurance? 

Yes. Having business insurance is a smart way to protect yourself and your business if you are sued. Even a lawsuit that is found to be without merit can be expensive to defend, so the right business insurance can give you peace of mind.  

What insurance is most important for a business? 

The type of insurance needed by a business depends on the type of business and the specific risks faced. Most businesses need general liability insurance, sometimes called commercial general liability. Most businesses that give advice or perform professional services for third parties have errors and omissions insurance, also known as professional liability insurance. Employers need workers’ compensation insurance and those businesses that use computers should have cyber security insurance.  

Should I shop around for business insurance? 

It’s always smart to compare when making a business purchase. When shopping for insurance, be sure you’re getting the right coverage for your business, and that you’re comparing ‘apples to apples.’ Policies differ, and the lowest-priced policy may not have all the coverage you need.  

Disclaimer: This information is provided to assist you in understanding the coverage we offer and does not modify the terms and conditions of any Insurance policy, nor does it imply that any claims is covered. Coverage is subject to underwriting, terms conditions, and limits of the policy.

TurboTaxBlogTeam
TurboTaxBlogTeam

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