What Is Business Insurance, And Why Do You Need It?

May 10, 2023

By: Gareth Mankoo

What Is Business Insurance, And Why Do You Need It?

Being insured gives you a sense of security, a feeling that you will be cared for in your time of need. Insurances cover different aspects of our life, from automobiles to devices to health to life itself. It is a service that prepares us for unexpected events requiring heavy finances.

Here, we will discover what is business insurance and why it is essential for you, your business, your customers, your employees, and your ecosystem.

What is business insurance?

Business insurance is also known as commercial insurance. It is a financial service specially crafted to protect businesses and their stakeholders from unpredictable events that could lead to loss.

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Business insurance can protect businesses from lawsuits against them, natural disasters, thefts and burglaries, illness and injuries to staff members, and the inability to pay wages in times of difficulty.

This proposition sounds too good to be true, but several businesses avoid taking out business insurance. This decision can prove to be an expensive mistake. Business insurance can cover a part (or the entirety) of your financial damages in the case of incidents listed within their respective policies.

Depending on the situation where you require insurance, your insurance partner can present the best-case scenario for you to salvage the most out of the situation.

For instance, Causewell Insurance is one of the best providers, offering insurance options for every business. They offer liability insurance, bonds, workers’ compensation insurance, and many more. These kinds of comprehensive services can protect your business in all its facets without rendering you financially depleted.

Good reasons to get covered:

Life in the business world is unpredictable. Choose a business insurance policy that best protects you, depending on the nature of your business and the liabilities you could face.

Now that you have the answer to what is business insurance, you can explore the benefits of getting it for your business.

1. Legal safety

Throughout history, businesses have been plagued by lawsuits that have driven brands to bankruptcy.

After a class-action lawsuit, yogurt overlord, Dannon was made to pay $45 million in damages to a consumer. The year was 2010, and the company was accused of falsely advertising the health benefits of Activia and DanActive yogurts.

Their ads stated that the products were “clinically and scientifically proven” to have the said benefits. Trish Wiener from Los Angeles filed a case stating that the yogurt consumption didn’t help her digestion. One thing led to another, and the company ended up with a massive lawsuit.

Business insurance can be a helpful ally in such cases. You can rest assured that the smaller premiums are not as hefty as the claims you must pay when they are legally contested. You may have your business's best practices and intentions in mind, but a business comprises multiple individuals and decision-makers.

The chances of a misjudged claim or a non-performing product making your business liable for legal action are high, and you must stay protected at all costs.

2. Peace of mind

The most successful proposition of the insurance industry is its ability to alleviate your anxieties about unforeseen eventualities. As a growing company, you may have to oversee all aspects of a business.

As time passes, your focus should shift to growing your brand rather than getting the basics right and micromanaging your employees. Insurance gives you the confidence to do this.

Source: P2P Protect
Source: P2P Protect

COVID-19 proved to the world how even the most watertight business plan could be undone without warning. Businesses struggled to support their employees, partners, and operations during these difficult times.

Specially curated business insurance plans began springing up, and consumers were more than willing to take them up and not leave everything to chance. After all, peace of mind is essential to making the right business decisions.

3. Practicality

As an up-and-coming business, you may focus on microgoals like customer satisfaction, recruitment, quality checking, and infrastructure investments. So, what is business insurance’s role for you now? It’s for later, when there is something worth insuring and you’re a large corporation. WRONG. Businesses of all sizes need insurance, especially smaller businesses.

Large businesses have the security of massive investments to cover lawsuits, natural calamities, and thefts. Small businesses do not. Take the example of a canoe. A small leak in a canoe is much more damaging than on a cruise ship that is equipped to deal with the situation. Business insurance is not a good-to-have for a small business. It’s a must-have.

4. Convenience

Thanks to the hyper-digitalization of the financial world, getting business insurance isn’t as difficult as it used to be. You do not need to make multiple trips to the insurance company’s office to prove your business's validity.

Online tools access your business details from federal sources to validate your enterprise and present several options of insurance benefits you can avail. These tools also educate you about what is business insurance and the benefits you can enjoy.

What does business insurance cover?

Now that we have understood what is business insurance and how it is advantageous, we will discover what kind of protection you can expect from it.

1. Property damage

The property on which you operate your business is among your most expensive and valuable assets. Fires, floods, cyclones, electrical failures, and poor construction can lead to irreversible damage to the place you once called the office. You must protect yourself financially and physically from financial shocks.

Commercial property insurance covers the premises on which your business is set up and the tools you use for your business to run. It insures your machinery, property, devices, documents, building areas, and other finer aspects that are part of your property.

Pick an insurance cover that is relevant to the kind of business you do. If you do business in an area where floods are prevalent, ensure that your business is protected from floods. If you have a blacksmith’s forge, then insure yourself against fire. Do you get the drift?

2. Lawsuits

We covered how lawsuits can be filed in all shapes and sizes. It’s an unpredictable attack on not only your business finances but also on your reputation. The sooner you protect yourself from lawsuits, the better it is.

Clients, customers, and business partners have the right to hold you accountable for product or service infringements by your business. The size of lawsuits isn’t fixed, so choose an insurance plan that comprehensively covers and protects your business.

3. Lost income

Did you know that business insurance can protect you when a source of income disappears? Take the case of a burglary at a jewelry store, for instance. You have to shut down your business temporarily because the police need to do their work and arrest the criminals.

During this period, you lose your source of income as customers stop visiting your store and footfalls decrease dramatically. Low footfalls at a store mean lower sales.

You may ask, “What is business insurance for a business owner who cannot do business?” A lot. Business income insurance is a kind of corporate insurance that helps you replace lost income at times when unpredictable situations have put a stop to your business earnings.

That’s not all – this valuable business insurance can also pay for expenses while you get your business set up to work again. Choose a business income insurance plan that suits your business need.

4. Liabilities

Businesses are run by human beings, and as a species, we tend to err quite often. When you apply for professional liability insurance, you can protect yourself and your business from basic errors that can amount to significant damages and penalties. This insurance can also cover liabilities caused by unintentional actions that cause property or physical damage or loss.

Check out this snappy tutorial on what liabilities mean:

Let’s take the example of a business that sells smartphones:

You receive a bulk order of 150 smartphones with 128 GB storage. Because of this oversight, your business sends 120 phones with 128 GB and 30 phones with 256 GB, thereby charging the customer more. The customer flags this off during an audit and sues your company for a massive sum, citing losses. Professional liability insurance covers the losses you could suffer from such clerical errors.

Another example could be unintended bodily harm caused to an individual at your workplace because of human error or faulty machinery.

5. Intellectual theft

Among the most invaluable assets of your business is its intellectual property. You base your business on it, and it gives you a differentiator in the market. Intellectual property is like a well-guarded secret recipe from your favorite burger joint.

The moment this becomes public knowledge, it can compromise the uniqueness of any business. You lose your market advantage and everything that sets it apart.

Often, intellectual property is an intangible asset. It could be a way of communicating that sets your brand identity apart or a differently styled business model that you have patented.

You can protect your business interests by getting insurance that protects you against intellectual theft. This protection can extend to protecting you from identity theft, where a perpetrator steals your identity and misrepresents you to the public.

As time goes on and digitalization takes over, there are newer forms of protection and benefits that business insurance can give you. You can use this useful instrument to ensure:

  • Entire fleets of vehicles that ply for your business
  • Employees and their personal welfare
  • Client interests and client properties
  • International business operations that cover your business and remote/traveling employees
  • Sensitive data from digital sources through a cyber liability insurance
  • Projects, with the help of surety bonds that ensure your projects are delivered on time
  • Your business from employee lawsuits - this insurance helps protect your business from an employee who sues you. This type of insurance is referred to as Employee Practices Liability (EPL).
  • Implement company-wide use of VPN services to increase overall cyber security. Find out how to choose the perfect VPN provider for your needs in this guide.

How do I choose an insurance provider?

It helps to pick a professional insurance provider who completely understands what is business insurance and what kind of insurance is best for your business. Speak with your peers and contemporaries to understand what the key aspects of your line of business are that need protection. Read up on previous cases of insurance benefits that people in your industry have benefited from.

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Once you have gathered the best resources to help you pick your insurance partner, make your move to close one. Here are some of the essential guidelines to help you pick an insurance provider:

1. Check what is covered and what isn’t

The nature of your business may require more insurance in some aspects than others. Read your offer documents carefully to check what is covered by the insurance partner and what isn’t. Some insurance companies are not clear about the coverage they offer.

Source: Fine Insurance
Source: Fine Insurance

If you need to cover a specific aspect of your business, do not hesitate to ask your consulting agent about the coverage they offer. It is better to have full-proof insurance than to pay a premium for a service that doesn’t help you in the long run.

2. Evaluate your risks

Due to the vast number of business insurance options available today, it is advisable to take stock of the possible risks that threaten your business. Your business cannot be susceptible to every risk.

Moreover, more coverage areas cost you more. You can keep your premiums down by running a thorough risk assessment exercise and identifying areas that need to be covered by your business insurance.

3. Ensure the customer support is spot-on

Having insurance isn’t a green flag to lax out in your customer service. As a product or service provider, you must ensure the highest standards of customer support for your customers. Happy customers not only tend to complain less but also act as brand advocates for you.

There have been instances where customers have defended businesses in a court of law because they have established a great relationship with the brands. Moreover, you want to build a business that has integrity and is true to its word regarding customer satisfaction.

4. Take a peek at the customer reviews

Customers today are more vocal because the internet gives them the freedom to express themselves discreetly. Every service or product available has a review. Even if the business is not online, you can find reviews of it on Google. What causes this reaction by customers? What are these reviews about? Can they help a business in any way?

Customers tend to write reviews about businesses when they are unhappy with their service. Retail websites like Amazon.com encourage users to write reviews for every product they sell. These reviews act as research and provide insights into the way customers perceive a brand.

Customer reviews can be an early sign of customer dissatisfaction, and businesses can work towards ensuring that they take appropriate steps to plug the gaps in the service they deliver. Take your customer reviews seriously and proactively seek these reviews from your customers.

Real-life examples of business insurance

So, what is business insurance and its impact in the real world? A comprehensive example that follows sheds light on how it can help a business in a challenging situation.

This incident happened at a pub in Wisconsin back in 2014. Society Insurance covered the pub. A patron left the pub and accidentally accelerated their car in reverse, causing the car to collide with the side of the building. At the same time, an employee of the pub was at work, and hot grease splashed on them, causing severe injuries.

The insurance company was contacted and prioritized the care of the injured employee. “Society Insurance paid the employee for the time he missed from work, compensation for some resulting permanent disability, and over $200,000 for necessary medical treatment,” states the website.

The employee retained a lawyer to pursue third-party liabilities. The claim was settled for $1.1 million. Imagine the pub dealing with this vast sum without insurance since it was a workplace accident.

This was not all. There was also property damage because of the car colliding with the building. The insurance company ensured it was repaired in time so the pub could be back in operation soon.

Bottom line

Business insurance may seem like a tedious addition to the responsibilities and costs of a business, especially an up-and-coming one. Time and experience have taught the business world that it is better to insure your property, people, and business dealings because of the unpredictable world we all live in.

Unexpected expenditures can cause unsettling financial strain in all aspects of a business. Even if you run a business that has thrived over the last few years with no need for insurance, it’s never too late to understand what is business insurance and how it can come in handy when you least expect it.

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