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BUSINESS INSURANCE 101|PROTECT YOUR BUSINESS

The Real Costs of Not Having Business Insurance

9-minute read

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Emily Thompson

Emily Thompson

25 May 2023

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I’ll admit it — as a freelance writer, business insurance was one of the last things I wanted to buy. I couldn’t imagine a lawsuit ever happening to me, and I didn’t realize I was at risk.

Sound familiar? If you’re in a similar mindset, you’re not alone. Roughly 40% of small businesses are uninsured. In addition, 75% of business owners in the US are underinsured, meaning they don’t have the right coverage or enough coverage. Owning a business can be expensive, and if you’re like many business owners, that last thing you may want is the added cost of lawsuit.

That’s a big reason why business insurance can make a lot of sense — for nearly all small business owners. In fact, four out of ten small business owners will experience a property or general liability claim over the next decade, and these claims can cost thousands of dollars.

If you don’t have business insurance today, get ready. I’m about to explain the true cost of not having a policy and why you want to think about getting coverage sooner rather than later.

What is Business Insurance?

There’s health insurance, life insurance, and auto insurance, but did you know businesses can be insured too? Business insurance can come in many forms and can help protect a company from financial losses due to accidents, workplace injuries, property damage, lawsuits, and more. It can even help keep a business going financially if it has to shut down for a period of time, perhaps for example, due to a fire or severe storm.

Depending on your business and its products or services, there are different types of coverage to choose from. A well-rounded policy should protect your business from all angles and provide enough coverage for the risks your business could face. Here are some of the most common types of business insurance Simply Business® offers:

  • General liability for small business: Also known as commercial general liability insurance, it typically covers costs associated with third-party accidents, property damage, and bodily injury. This cornerstone policy can be critical for businesses that do work on third-party properties, such as general contractors who remodel homes or if you rent or own a building where customers or vendors could get injured.
  • Professional liability for small business: Look, no one is perfect, and mistakes can happen no matter your trade. That’s where professional liability insurance comes into play. It’s designed to protect your business if a customer claims you were negligent in providing your services. For example, if you’re an accountant, and your customer claims you made a typo that resulted in an IRS audit, your professional liability insurance might help pay for damages and legal costs.
  • Workers’ compensation for small business: If you have employees working for you, chances are you also likely need workers’ compensation insurance. Most U.S. states require business owners to buy workers’ compensation insurance when they hire their first employee. It makes sense why: workers’ comp can protect your business if an employee gets severely sick or injured while on the job. It can cover the cost of lost wages, medical bills, rehabilitation costs, and death benefits to loved ones. In short, workers’ compensation can protect your business from paying thousands of dollars out of pocket in the event of a lawsuit from an employee for a workplace injury or illness.
  • Cyber insurance for small business: Our world is increasingly reliant on technology — and as a result, at risk for cybersecurity threats and attacks. Today’s hackers are more cunning and threatening than ever before, and their hacking can cost a business hundreds of thousands of dollars. Fortunately, cyber insurance is designed to help cover costs related to a cyberattack including the investigation, crisis management, and other related damages.

These are just a few of many different types of business insurance coverage, but they all have one thing in common — they can help protect your business financially if the unthinkable happens. An insurance policy will generally pay out if there’s a covered risk event which can take the form of an accident, injury, property damage, business interruption, lawsuit, or even a cyberattack, up to your policy’s limits.

Not only that, but business insurance also can serve other important purposes. For example, having insurance can:

  • Attract and retain top-quality employees. If you’re in an industry where accidents and workplace injuries are common, such as the construction industry, potential employees may ask about your workers’ compensation coverage before deciding to work for you.
  • Help secure new business. Third parties, such as homeowners, want to know that someone working on their property is insured. In fact, many electricians, plumbers, and general contractors promote their insurance on their website or company vehicles. For many business owners, being insured is a strong selling point.
  • Obtain a lease for a building or storefront. If you want to rent space to operate your business, your landlord will probably ask you for proof of insurance. That’s because they don’t want to be on the hook paying for damage that’s associated with your business and customers. Fortunately, it’s generally as easy as getting a policy and sharing a copy of your certificate of insurance.
  • Comply with local and state requirements. Depending on what your business does, your state may require you to carry business insurance, such as commercial liability insurance or workers’ compensation. For example, most general contractors must be insured in order to get a license to perform work. In addition, most businesses with employees are legally required to carry workers’ compensation insurance — or risk paying a fine.

Sold yet? Not only can business insurance protect you from a major financial fallout, but it can also help you comply with legal requirements, obtain new customers, and hire an all-star team. There are many benefits to being insured, but perhaps even more convincing are the drawbacks to not having insurance.

What Happens if You Don't Have Business Insurance?

Look, I don’t like to be the one to break bad news, but I have to be honest. For the most part, not carrying business insurance could put your business in a precarious situation. It’s often just not worth the risk. It could be disastrous if you experienced an accident or lawsuit and had to pay the damages for it out of your own pocket.

Without business insurance, here are some very realistic (and frightening) scenarios you could face.

You could break the law and suffer legal consequences.

Business insurance isn’t necessarily a legal requirement, but depending on your industry, your state (or local laws) may require you to have liability insurance before you get licensed to perform work. If you hire one or more employees, most states require you to carry workers’ compensation in the event one of your employees experiences an on-the-job injury. If you fail to comply with these requirements, you may face penalties or legal action. For example, if you fail to carry workers’ compensation in California, you can face anywhere from $10,000 to $100,000 in fines or even imprisonment.

You could get sued and have to pay for damages out of pocket.

More than 100 million lawsuit cases are filed in U.S. courts every year. Sadly, your chances of getting sued are real, and the damage can be devastating. If your business is sued for negligence, property damage, or physical or financial injury, you could end up paying for legal fees and damages. The median cost for a liability lawsuit starts at $54,000! Even a relatively mild injury, like a bumped head, could cost thousands of dollars in medical bills. If you don’t have business insurance and you end up having to pay for these damages out-of-pocket, your business may not be able to recover financially.

Here’s an example. Let’s say you’re a personal trainer and your client trips over the dumbbells you left on the floor. He bumps his head and is rushed to the hospital. Without general liability insurance, which could help cover the accident, you could be on the hook to pay for his ambulance bill, a CT scan, his hospital visit, and even legal fees. Trust us, the medical bills could add up quickly.

According to data from the Insurance Journal, here are some of the most common and costly liability claims:

You could suffer property damage and be unable to pay for repairs.

Unfortunately, property damage happens all too often, whether it’s from natural disasters like storms or from burglaries and theft. If your business experiences damage from an unexpected scenario, you may have to buy new materials and equipment, pay for building repairs, and replace inventory. This is why business personal property insurance exists. It can help cover these costs so you can get your business back up and running again.

Let’s look at a realistic scenario. Say you’re a professional photographer and you own quite a bit of expensive equipment to do your job. If your photography studio were to get broken into, you could lose thousands of dollars in cameras, lenses, and backdrop materials. You may even have to cancel upcoming appointments and lose clients. Fortunately, if you have business personal property insurance, a type of business insurance, you can potentially recoup some or all of the costs.

Here are some of the most common and costly property damage claims you could face:

  • Burglary and theft ($8,000)
  • Wind and hail damage ($26,000)
  • Water and freezing damage ($17,000)

You could get hacked and lose thousands of dollars.

A cyberattack is a costly event, to say the least. Just figuring out how it happened through a forensic investigation can cost between $12,000 and $100,000. Letting your customers know about the attack and offering them protection could cost another $2,000 to $5,000 or more.

Small business owners are generally at high risk for cyberattacks especially because they usually don’t have sophisticated cybersecurity professionals at the helm and on the defense. You’re particularly at risk if your business has the following information stored:

  • Customer payment information — credit and debit card numbers
  • Personal identification information — names, addresses, and Social Security numbers
  • Protected health information — patient records, prescription information, etc.

It can happen too easily. Let’s say one of your employees mistakenly replies to a phishing email allegedly sent from your credit card company. The employee’s email allows a hacker to install ransomware that locks your business’ computer system. To access your system again, the hacker demands an extortion payment. Cyber liability insurance could help you make this payment, up to your policy’s limits, so you’re able to reopen your business.

Your business could shut down unexpectedly and lose revenue.

Unexpected events, such as water damage, wind damage, or even theft can cause your business to shut down. And that can mean lost income. Business interruption insurance, which is often part of a business owner’s policy (BOP), could cover temporary relocation, payroll, and other operational costs.

Your marketing and social media activities could put you at risk.

It’s possible that while promoting your business, you could cause financial harm to another business. Consider this example: On a social media page, a food truck owner mentions another food truck may have served expired food. The competitor sees a drop in their business and claims it’s the result of the negative post. The owner who made the expired food post may find themselves liable for damages, and he also may have to pay legal expenses to defend himself in court.

Those types of claims can be expensive, with the average claim being $50,000. It can even cost as much as $75,000 to defend and settle your legal case.

A general liability policy could help cover some of those costs, up to your policy's limits.

Worst of all, your personal and business assets could be at risk.

Without business insurance, you may have to pay thousands of dollars from your own personal and business accounts. This means your business could go bankrupt, and depending on how your business is structured, your personal assets, such as your home, car, and life savings could get taken to pay off the debt from a lawsuit.

You never want to put your personal assets at risk. And chances are, if you’re a small business owner you’ve worked incredibly hard to build up your company. You don’t want to unexpectedly lose everything that you’ve worked so hard for.

But fortunately, there’s good news. It can be simple and affordable to protect your small business with one or more of the business insurance policies described in this article. One or more of these policies could give you peace of mind and protection from a worst-case scenario.

Making Insurance Easy to Get and Afford

At Simply Business, we make getting general liability, professional liability, workers’ compensation, and other key types of business insurance incredibly easy. Here are the best ways you can get a policy as soon as today:

  • Use our 24/7 online quote tool: Just fill out key details about your business, and you can get an online quote right away. To make the process even faster, be ready to answer basic questions about your industry or trade, location, number of employees, and product or service. Our online tool will let you compare quotes from reputable insurers and shop for policies.
  • Talk to a licensed agent on the phone: If you prefer to speak with a human, we’re here for you. Give a member of our team a call today at 844-654-7272, and we can walk you through the process and offer you a quote.

You can trust Simply Business to provide you with the most common types of business insurance. Our licensed insurance agents can help you build a comprehensive policy with the following types of insurance:

Unsure about the policy you need here? Talk to one of our insurance agents. We’ll talk you through the best way to insure your business.

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It’s Not Too Late to Insure Your Business

If your business isn’t insured, now’s the time to consider getting a policy — before the unexpected happens. This is when the age-old saying, “better to be safe than sorry” applies. If you’ve been putting off buying insurance, it just takes a few minutes to get a policy with us. Let’s get it done today!

Emily Thompson

Written by

Emily Thompson

I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.

Emily writes on a number of topics such as entrepreneurship, small business networking, and budgeting.

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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