Is Business Insurance Necessary for Really Small Businesses?

You know that business insurance provides a lot of important protection for business owners, but you might be unsure whether your small business really needs coverage. So, if you just run a small candle company out of your own home, do you really need business insurance? Or how about if your company expands one day, would you need coverage then?

For questions like these, it’s important to hear the answers straight from the real pros, aka independent insurance agents. Ask agents anything. They have the answers. Here’s what they’d say about whether or not your small in-home candle company needed business insurance, or if you could skip it.

Is Business Insurance Really That Important for Small out-of-the-Home Businesses?

Well, that depends. On a lot of things, actually. If you run a small business out of your home that’s not too profitable, the cost of insurance coverage may not be worth it. To better assess if coverage is worth it for your small business, consider the following:

Once you answer these questions, perhaps with the help of your independent insurance agent, you’ll be much better suited to figure out whether you need business insurance coverage or not. In certain cases, it’s just not worth it, but if your business poses any serious risks that you could be sued over, you’d absolutely want to have coverage.

What Would Business Insurance Cover?

Business insurance provides coverage for your equipment, inventory, physical property, and much more. Standard business insurance policies include these core protections:

• General liability: This covers property damage or injury claims made by a third party. 
• Business auto: This covers company vehicles against perils like theft, vandalism, and natural disasters.
• Workers’ compensation: This covers financial losses if your employees become ill, get injured, or die from a work-related incident. Coverage is mandatory in most states, depending on company size and the type of work being performed.  
• Property insurance: This covers loss of/damage to your physical property, including your office’s structure. Protected mishaps include fires, storms, and more. If you run your business out of your home, however, your homeowners insurance would cover this part.

Your independent insurance agent can tell you about even more ways a business insurance policy could provide you with important protection against many unforeseen catastrophes.

What Doesn’t Business Insurance Cover?

Business insurance has two main perils that aren’t covered, which are flood damage and earthquake damage. Flood insurance and earth movement policies would be required to protect your business from damages and/or suspended operations caused by these types of disasters.

If your home-based business operates along a coast or in an area otherwise prone to flooding, you may have already been required to purchase flood insurance. You’ll really want to have it even if not, though. Flood insurance is only available through the National Flood Insurance Program, which is part of FEMA. Likewise, if your business is in an area prone to earthquakes, landslides, etc., you’ll want to consider an earth movement policy.

What Would Business Liability Insurance Cover?

If your business got sued for causing a customer a certain type of harm, your business insurance’s liability coverage would reimburse you for the legal expenses. Liability coverage pays for attorney and court fees, and also covers settlements if you lose your case. Considering your candle company, if anything about the products could cause injury or illness, such as certain dyes or perfumes, you’d want to look into liability coverage to protect you from possible lawsuits.

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How Could My Home Insurance Work with Business Coverage?

When your business is based out of your home, there are a few options of how to get it covered. Work with your independent insurance agent to review the following hybrid business and homeowners insurance choices to see which one works best for you.

• Business owners policies (BOP): These are ideal for home-based businesses that also operate in multiple locations. BOPs provide coverage for business equipment/inventory/property as well as loss of income, liability, and extra expenses. BOPs also provide much broader coverage than in-home business policies.
• In-home business policies: These allow for more comprehensive coverage of your business property than homeowners policy endorsements do. In-home business policies provide reimbursement for important losses, including documents, off-site business property, and accounts receivable. Business interruption coverage is also sometimes included.
• Homeowners policy endorsements: These endorsements help to increase the coverage limits on homeowners insurance for business property stored within the home. Typically your premium won’t increase too much, and you can bump your home policy’s limits up from $2,500 to $5,000, $10,000, or even more.

These hybrid coverage options are ideal for business owners who run their business out of their homes, at least in part. Your independent insurance agent will have more insight about which option would work well for you.

If My Inventory Got Stolen, Would a Business or Home Policy Cover It?

Really, either policy would cover it. But you’d want to determine which policy would be most worth it to file a claim through, meaning whichever policy would give you the highest reimbursement. Since both policies would provide coverage, you’d need to consider the following before filing a claim through either one:

• Coverage limits: Standard homeowners policies often come with a $2,500 limit for business property, so depending on what exactly was stolen, you may be well within this limit, or you may easily exceed it and need more coverage. In that case, you’d probably want to file a claim through your business insurance.
• Deductibles: Since both policies would cover business property getting stolen from your house, you’ll most likely want to choose the policy with the lowest deductible, so you could get reimbursed for a greater percentage of the loss.

Your independent insurance agent can help review your policies with you and help you choose which would be best to file a claim through, especially if you’re unsure of what your deductibles or coverage limits are.

What if My Company Expands out of My Home?

Say your candle company starts turning a lot of business, and you’re ready to expand. That’s great, and an independent insurance agent can help by being there every step of the way to get you equipped with all the coverage you’d need. With a bigger space, you’d need to address property insurance concerns. Your homeowners insurance policy would no longer cover your office if it moved into another building, unless it was a shed or other structure in your yard.

If you started making deliveries to customers, you’d want to get commercial auto insurance to protect your company vehicles from risks like accidents, theft, and storm damage. In order to protect lots of inventory being shipped out, you’d want an inland marine policy to cover the products while they were in transit. Finally, if your company got really big, you might want umbrella insurance to increase your liability coverage exponentially.

Other Common Business Risks Worth Considering Coverage For

Business owners need to consider all possible hazards they may come up against during the course of their routine operations. Fortunately there are many add-on coverages available that address most common concerns of business owners across the map.

Some optional add-on coverages to business insurance include:

• Boiler & machinery: Also known as "equipment insurance," this coverage applies to electric equipment in the building (e.g., AC units and boilers) that breaks down due to power surges, etc.
• Crime insurance: This covers losses due to criminal activity such as theft or fraud. Coverage even applies to employees who steal from the company.
• Business income: This covers the financial loss suffered while a business is closed due to fire damage or other disasters.
• Professional liability:  Also known as "errors and omissions insurance," this coverage protects against claims made by clients who have suffered financial loss due to the work they've hired you for. Coverage is crucial for those who offer advice or consulting services.

Your independent insurance agent will work with you to address all your specific business’s areas of concern, and make sure you have coverage from every possible angle.

Here’s How an Independent Insurance Agent Would Help

When it comes to protecting your small home-based business against lawsuits and other perils, no one’s better equipped to help than an independent insurance agent. Independent insurance agents search through multiple carriers to find providers who specialize in home and business insurance, deliver quotes from a number of different sources and help you walk through them all to find the best blend of coverage and cost.