business insurance

When Do You Need Business Insurance?

A few weeks ago, I bought a new car. It was a stressful experience because of the shortage of vehicles at dealerships across the country. Incredibly, I was able to work out a sale price my wife and I were comfortable with, but we still purchased the car in a seller’s market. Worse, unlike homes and real estate, a car depreciates considerably the moment it drives off the lot and goes down every subsequent month.

If you’ve ever purchased a new car or a new home, you know that you won’t be handed the keys until insurance is in place. It’s standard, so there’s no guesswork on timing. Buy a car? You need insurance.

That is not often the case with business owners. In fact, I am routinely asked, “When do I need to have insurance?” The simplest answer I can offer: once you have an asset that is valuable enough to protect. That may mean something different to every individual but let me provide a few examples.

Construction: Most building owners understand they must have insurance on the physical facility once completed, but it is advised to insure the ongoing construction, too. The moment you break ground on a project, you have committed resources and you’ll want to protect against loss. Laying a foundation, pouring the cement, building the walls, installing the plumbing and electricity, etc., cost money, time and labor. Protecting those efforts ensures that if there is a fire or wind or another included peril that damages the structure, you are not starting from scratch financially. This is called Builders Risk Insurance.

Outside Investment: Depending on your business, you might have sought outside capital from private investors. Even before you sign an investor, you would be wise to carry Directors & Officers Insurance. This category of insurance insures your executives (CEO, CFO, President, etc.) and your board of directors from lawsuits filed by your investors. Why would they file a lawsuit? The moment a person agrees to sink capital into a business, they almost certainly expect a return on investment, and if those returns are not meeting expectations, they may seek to recoup their financial commitment through a lawsuit, holding the decision-makers in a company responsible for the results.

We’re Hiring: Congrats, you’ve reached a position where you’re now hiring employees, either full-time or part-time. Whether it is retail or hospitality, technology, or professional services (and everything in between), employees have certain rights as to how they are to be treated. If they feel harassed, if they feel discriminated against, if they are terminated for any reason and believe it is unjust, they can pursue a complaint against their employer. Employment Practices Liability covers a business in all these examples, and you should have it in place before the first employee comes on the clock.

A Customer Walks Through The Door: This may be obvious, but you better have insurance before you open your doors to real customers, or if you’re a contractor – from washing windows to cleaning carpets, handyman services or plumbing – before you go into a customer’s residence or commercial property. General liability covers you in a variety of manners, but, arguably, most importantly if a customer were to suffer injury on your premises. That could mean slipping on floor mats, tripping over a chair, or stubbing their toe on a nail sticking out of a project at their home.

Liability covers other areas as well, but bodily injury and/or property damage to a customer/client are among the most important and will keep you out of financial ruin whether you’re one day, one year or one decade into the start of your business.

While there are many other instances in which it is wise to have insurance, we can only cover so much in one brief article. As always, my suggestion is to consult with a trusted insurance agent early on in your business’ process so they can work with you to ensure you have the proper coverage on a time line that makes the most sense for your unique needs and goals.

Contact Michael Spath with any of your insurance questions

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