Why Small Businesses Need Insurance

Business insurance is not exactly the most exciting topic to discuss at a cocktail party.  Almost every business has some form of insurance to protect it from fires, lawsuits, and vandalism—things that are definitely not boring.

Oddly enough, the first business insurance policies came from Lloyd’s of London, which used to be a coffee shop where sailors and merchants gathered…. basically a cocktail party.

It was a perfect storm: Lloyd’s picked up on how dangerous sailing was and that merchants wanted insurance in case their sailors were thrown overboard, goods were lost at seas, or pirates did pirate-y things. This little coffee shop starting selling marine insurance and soon enough, it became the nexus of the insurance world. Three hundred years later, it still is.

If you’re a small-business owner, chances are you don’t need pirate insurance.  For most business owners, there are four insurance types that should cover most scenarios that could threaten your business.

1. General Liability Insurance

General Liability Insurance is the meat and potatoes of insurance. Pretty much every business can benefit from it because it covers basic risks like…

  • Slip-and-fall accidents
  • Damage to another’s property
  • Libel and slander lawsuits

Or to put it more simply, if you hurt someone, break something, or say something stupid, there’s a good chance General Liability Insurance can cover your business. Because it covers the basic risks of interacting with the public, you may need this policy to sign a lease for your new storefront or to open a bank account.

General Liability in the news:

A plastic surgeon gossiped to magazines that Sharon Stone had a facelift. Stone filed a slander lawsuit against the surgeon and won.  The damages awarded in the case are unknown, but here’s hoping the surgeon had General Liability Insurance, because that was probably a scary price tag.

2. Professional Liability Insurance

We all mess up sometimes. Professional Liability Insurance is made for professionals who work in high-stakes industries where one brain fart or miscalculation could cause their clients to lose hundreds of thousands of dollars.

So who needs it? That depends, but you can probably benefit from this policy if:

  • Your professional organization requires it—for example, doctors and lawyers are required to have it
  • Clients won’t work with you unless you carry it

Pay special attention to that second reason if you’re an architect, software developer, or consultant. In these industries, clients want reassurance that if you mess something up, you can cover their losses.

Here’s the beautiful part: Professional Liability Insurance can even help even when you’re blamed for someone else’s screw-up. That’s refreshing news to anyone who has worked on a project with people they’ve never met (client, contractors, vendors, and so on).

Professional Liability in the news:

Magician David Copperfield sued his accountant for money laundering. According to Copperfield, the accountant’s errors landed him with a bill for $470,000 in unpaid taxes.  If the accountant doesn’t have Professional Liability Insurance he could be writing a very large check.

3. Workers’ Compensation Insurance

Workers’ Compensation Insurance actually started as a bargain between workers and business owners. Workers were sick of getting injured at work. Businesses owners were sick of getting sued over workplace accidents.

Workers’ Comp Insurance was the compromise: if an employee is injured at work, this policy helps cover their medical bills. The employer pays for the policy and the employee can’t sue if they accept the benefits. It’s a solid enough deal that 49 out of 50 states require businesses to have Workers’ Comp.

As long as the employer didn’t do anything seriously stupid, like ask their employee to stick their hand in a toaster to fish out a stubborn Pop-Tart, the employer is usually protected from a lawsuit, as long as they’ve fulfilled their Workers’ Comp obligations.

Workers’ Comp in the news:

A Montana man has recently paid over $12,000 in restitution in a workers’ compensation fraud case after investigators found he was competing in motocross races while saying he was unable to work.  While on worker’s comp leave, the man collected over $42K in lost wages.

4. Property Insurance

Property Insurance is a pretty easy sell: you’ve got valuables and you want them to be protected from theft, weather, vandalism and fire.

Say your run a candle business, and one test candle goes rogue and burns down your shop. All you’ve worked for is now a heap of melted wax, but if you have Property Insurance, your insurer can pay to repair or replace the damaged property. This will at least help take the financial sting away.

Property Insurance is fairly straightforward, so here’s something you may not know: most policies can be supplemented with Business Interruption Insurance, which is, in a nutshell, pennies from heaven.

Back to the previous example: In the Great Candle Fire of 2016, your building was burned to a crisp. There are no longer doors to open. But take heart, intrepid candle maker—your Business Interruption Insurance can reimburse you for the revenue you’re losing by staying closed for repairs. Even though your business can’t operate, your insurance makes sure that you still have money to make payroll, taxes, and loan payments.

Here’s another cool feature: Property Insurance usually can also offer supply chain interruption coverage. Say you’re the world’s best cranberry sauce maker. But a drought in Wisconsin affects your main supplier of cranberries, and suddenly you’re a saucier with no sauce. Supply Chain Insurance can cover lost income if your suppliers are affected by a weather event which keeps your business from functioning normally.

Property Insurance in the news:

Recently hundreds of South Floridians filed insurance claims for damage from Hurricane Dorian— even though it didn’t make landfall in the state and barely had tropical storm force winds.

Sustained winds along the coast were much lower during Dorian, but a gust is all it takes to break a tree limb over a house. Most claims submitted to insurers were for damage to residential properties, but 156 were for damage to commercial properties.

If you have questions about California Business Insurance, please do not hesitate to talk to one of our experienced agents.  Peninsula General Commercial is a leading commercial insurance agency in Los Angeles.  Call us at (310) 539-2533.