Maybe. It mostly depends on the level of risk to others that your business involves. It’s something you want to be intentional about even if you choose not to get it. Business insurance is something every entrepreneur and online business owner needs to think about. That’s because a solid legal structure (like an LLC) is not enough to protect you against all the things that could go wrong in your business. You also need business insurance to protect you if the worst happens. There are several lines of defense you need in the event something goes wrong. Insurance is a key piece of that defense.

What will business insurance do for your business?

I’m no insurance expert but I do know how it plays out when a lawsuit begins. If you end up in a legal battle covered by insurance, they’ll pay for your defense lawyer and hopefully settle it within your policy limits (meaning, you don’t have to pay for anything out of pocket other than maybe an increased premium on your insurance). Don’t get me wrong, lawsuits can be brutal, but they are much less brutal when you don’t have to pay your lawyer’s hourly fee (not to mention the settlement amount or court judgment amount). Many businesses simply don’t have the cash flow to pay the large amount it takes to defend a lawsuit to trial, which can easily reach six figures in a complicated case. For smaller businesses, one lawsuit could be the end. It happens all the time.

Other types of insurance cover damage to your business property or loss of income due to things like theft, fire, floods, etc. The things you have insurance for in your personal life can be insured in your business. (And don’t expect your personal policies to cover your business; they probably won’t.) These events can also easily bankrupt small businesses without the resources to repair the damage.

What kind of business insurance do I need?

Exactly what kind of insurance you need depends on your business, and there are many, many kinds that protect against different eventualities.

If you make products, you may need product liability insurance. If you give professional advice, you may need errors and omission insurance. Some companies offer home-based business insurance to cover things that homeowners’ insurance doesn’t cover. General business liability insurance is also something to consider. It all depends on your unique situation.

Personally, I’m a bit of a minimalist when it comes to insurance but it is important that you cover the basics to make sure you prepare for known and reasonably likely events that could harm your business. More often than not, it’s not terribly expensive.

Is business insurance worth it when I’m starting my business?  

Probably, but it depends. If you can build it into your monthly budget, you should heavily consider it on day 1. The risk is too great to ignore even if you have to start small with your insurance. Keep searching. 

There are some businesses that probably don’t need it. For example, if you work as a consultant, you may be able to get away with a good contract and an entity, but I recommend you research your options even if you plan on avoiding this expense.

Action Steps 

• Speak with insurance a broker or agent that offers business insurance and ask their advice on what kind of coverage you need. An experienced broker won’t try to sell you every policy under the sun but only those that cover likely scenarios that could severely or evenly permanently damage your business. Don’t just buy a policy straight off the internet without understanding exactly what you’re getting and why.
• Get quotes from at least 2 brokers/agents