Every entrepreneur or business owner ought to know these 5 essential reasons why your business needs insurance. The importance of insurance for businesses of all sizes cannot be overemphasized.
Why do businesses need insurance? It is essential in case of unforeseen eventualities like property loss, equipment damage, or worker injury. So, an insurance policy serves as a financial soft landing during unpredictable situations.
Who Needs Business Insurance?
Are you a business owner sitting on a very productive business that is about to go public? Or, you could be a founder hunting for stimulus investments in your startup. Irrespective of your business’s scale, age, or potential, it needs insurance coverage.
Ruling out the importance of a business insurance policy could spell doom in the long run. It’s always better to be safe than sorry. Now, the following are the five most important reasons why you should expedite applying for business insurance if you still need one.
ALSO READ: How To Get Insurance To Pay for Roof Replacement
Reasons Why Your Business Needs Insurance
Here are the five essential reasons to apply for insurance, especially for small businesses.
1. Aids Fast Recovery After a Business Disaster
Chain businesses often find rebounding easier when a disaster hits one of their outlets. Such leverage is seldom available for small businesses, which is another reason for them to get insured.
Starting over afresh or building new assets lost by a small business can be sluggish, particularly if the owner has been maxing out business liquidity to scale the business just before the unexpected event. This scenario implies that the small business may be forced to apply for an expensive loan and may even lose clients before the business goes live again.
However, you can sidestep all such complications by letting an insurance company stick on some financial band-aids. Of course, you would need to have applied for the insurance policy before the event to enjoy such benefits.
2. Makes Your Business Credible and Reliable
Stakeholders, clients, and prospective investors often consider businesses with an active insurance policy credible and reliable. Although the turnover of this sentiment may be difficult to quantify, it has obvious benefits.
For example, businesses running an active insurance policy seem professional and responsible in their dealings. This could be exploited as an added edge over competitors to win more market share.
Investors often hunt for low-risk investments. However, the risk factor for businesses without insurance coverage is likely higher than that of others. For startups, even without an insurance policy, venture capitalists usually look for risk management strategies in the business proposal before injecting money into the idea.
3. Protects the Business Against Costly Lawsuits
Businesses sometimes have to shoulder large sums of litigation expenses. For example, the US Chamber of Commerce Institute for Legal Reforms conducted a study on business lawsuits in 2021. The study found that 48% of all costs incurred through the commercial tort system came from small businesses. These are businesses that are still struggling to find financial footing and have to cough up a significant sum of their revenue.
These financial losses to lawsuits come in different forms, some of which are highlighted below:
- Product liability: when your product causes harm to a customer
- Customer injuries: claims from when customers get injured from using your business facility
- Employee-related claims: your workers may file lawsuits for unfair treatment, wrongful layoff, or discrimination
To prevent compensation rulings of such lawsuits from wiping out your business, you would have to operate product liability insurance, general liability insurance, or employment practices liability insurance. Better still, you could shop for a comprehensive business insurance policy that caters to all those financial loopholes.
4. To Safeguard Your Business Assets
Any business owner would tell you it takes a lot of sacrifice to build a business from the bottom up. Sometimes, the value of a business entity is estimated based on the assets it maintains. Such valuations indicate how important business assets can be.
So, it is always advisable for businesses to protect their assets against outright loss in the event of a natural disaster like wildfire, vandalism, or theft. To secure this insurance protection class, the business owner only needs to apply for commercial property insurance.
Commercial property insurance reduces the financial burden of asset replacement in the instance of damage or loss. This means the insurance company does not cover the entire asset replacement or repair cost. This means that the policyholder must pay a deductible when filing an insurance claim. Another term for an insurance company is the policyholder.
5. Sometimes Mandated By Law
Businesses often operate insurance policies because it is a legal requirement for incorporation. The goal of the federal government with such laws is not necessarily to protect capitalists but to protect people in their employ. Usually, such business insurance is comprehensive enough to cover employees’ commercial auto insurance. Also, some states have specific insurance regulations.
Besides the benefits in the highlights of 5 essential reasons why your business needs insurance, there are also some merits of conformity. In states and federations where companies refuse to operate by the extant business insurance laws, they often get slammed with hefty penalties and fines. As a business owner, are you prepared for eventualities?