Does Every Business Need Insurance?

There are dozens of types of insurance policies that business owners may consider to financially protect their businesses. You can get insurance policies that protect specific assets, like vehicle insurance, or policies designed for businesses in a certain industry, like insurance for marine businesses.

If you’re particularly concerned about a specific area, like product liability, you may already be committed to getting a policy. Otherwise, you may be unconvinced of the benefits or confused about the practical necessity of insurance.

Does every business need insurance?

Types of Insurance to Consider

First, let’s review some of the main types of business insurance that exist. While you may be able to bundle many types of insurance into a single policy, there are several distinct areas you’ll want to consider.

These include:

• General liability insurance. General liability insurance will protect your business from many types of liability issues.
• Product liability insurance. With product liability insurance, you’ll protect your business from legal issues stemming from a specific product that you manufacture or distribute.
• Workers’ comp insurance. Workers’ compensation insurance protects employees in the event that they’re hurt on the job, no matter the circumstances.
• Property insurance. Property insurance will protect your physical property—much like a homeowner’s insurance policy.
• Vehicle insurance. If you drive a vehicle for your business, you’ll need a specific policy for it; your personal vehicle insurance won’t cover it.
• Business interruption insurance. Business interruption insurance provides you with financial protection if your business is ever unable to operate for a period of time.
• Umbrella liability insurance. Umbrella insurance provides additional protection above and beyond your other policies.

Legal Requirements for Insurance

The word “need” is a bit subjective. But we can all agree that a business will need insurance if it’s a legal requirement in your specific area. For the most part, businesses aren’t legally required to have insurance, with a handful of exceptions.

For example, in most U.S. states, workers’ comp insurance is legally required for businesses with a certain number of employees. Exact requirements vary, but in most areas, you need to offer at least some coverage.

You may also be required to have certain types of insurance if you work in a specific industry, such as healthcare.

The Benefits of Insurance

Even if you aren’t legally required to have a specific type of insurance, it’s a good idea to invest in insurance policies designed to protect your business. There are many benefits to this:

• Financial protection. The obvious benefit here is financial protection. If a hurricane destroys your physical storefront, you’ll want a policy that can help you pay for the damages. If your business is unable to operate during an emergency, you’ll want a policy that provides you with a line of revenue to preserve your momentum. Nobody wants a financial catastrophe to hurt their business, but if you encounter one, an insurance policy is the only thing capable of truly protecting you.
• Legal protection. Similarly, insurance policies can afford your business some degree of legal protection. Having a policy when legally required can spare you from dealing with court battles later on. Also, if someone attempts to sue your business, you may be able to tap into a policy to cover the legal expenses associated with the battle.
• Reputation. Finally, having insurance may be good for your business’s reputation as well. People are often more willing to work with contractors if they have a solid insurance policy protecting them. They may see your business as more legitimate or professional if you’re protected with the right types of insurance. And employees may be more eager to work for your business if it’s adequately protected.

Types of Businesses With Reduced Need

That said, there are some types of businesses that have a reduced need for insurance. For example, if you’re self-employed and you don’t have any employees, you work out of your home, and you don’t have much in terms of company property, you may not have many assets or associated people to financially protect. And if this is just a side business with limited operating revenue, you may not have much of a financial structure to protect. Even so, you may find value in at least one type of insurance policy to protect you and your interests.

The Bottom Line

The bottom line here is that while there are some fringe examples of businesses that truly don’t require insurance, most businesses will at least strongly benefit from having these financial policies to protect them. If you have employees, you’ll likely be obligated to purchase workers’ comp insurance, and if you work in certain industries, some other policies may be required. Learn the requirements in your state but be willing to purchase more to ensure your business is adequately protected.

Anna Johansson is the founder and CEO of Johansson Consulting where she works with businesses to create marketing and PR campaigns.