Running any business comes with many risks, and whether you are a fully-fledged enterprise or a small startup, you need business insurance to protect your assets. As a new business owner, you will understandably want to be frugal and the policies you select will depend on the type of business you run.
In times of economic pressure, it is hard to convince any business of the need to take out a full portfolio of insurance, especially when they have not experienced a previous claim or do not understand the devastating effects of underinsurance.
7 reasons why your startup needs business insurance
- Some aspects of business insurance are required by law
As soon as your startup employs a staff member, you are then required to insure and provide protection to those employees. Whether in the U.K. or U.S., a business is required by law to have either employers’ liability or workers’ compensation insurance, as all employers are responsible for the health and safety of their employees. This ensures that employees are financially cared for when they suffer any accident, injury or illness related to their work. Failure to carry these types of business insurance will lead to fines and criminal penalties which could far outweigh the price of an original insurance policy.
- It protects your employees
Your employees are your greatest asset. They help you to stay in business and allow your company to offer its products or services. By protecting them in the event of accident or illness, you are protecting your interests and also fulfilling your duty of care as a business.
- It guards your human assets
Particularly in a small startup, you may have key personnel with specific skills who generate large profits within the company. It may therefore be a consideration to insure these individuals with ‘”key person” insurance. Also known as key man insurance, it is essentially a life insurance policy that will safeguard your business in the event of death or critical illness. Such insurance will help to cover disruption of development plans, increased workloads of others, loss of profit, recruitment costs, etc.
- Litigation costs could cripple your business
In the event of a potential liability claim against your business, without insurance, the cost of a claim could easily derail any business of any size. Perhaps there is an accident, or a broken contract, a disgruntled employee or a product doesn’t perform as intended. Then bingo, before you know it, you are being sued or dealing with escalating costs that are way more than your business can cope with. Liability insurance in particular can give you the peace of mind that you are covered for such unexpected events so you can continue with day-to-day business.
- It keeps your business open following disaster
Should your business suffer at the hands of a natural disaster such as flood, earthquake, fire or theft, business interruption insurance can cover any lost revenue or expenses that continue whilst you get yourself back on track. This is an additional feature of business insurance and something that is not required legally, but at the discretion of the business owner. However, it should be noted that without business interruption insurance, or if you are under-insured in this area, many businesses (up to 40 percent, in fact) are unable to re-open following disaster due to extreme costs and loss of income while waiting long periods of time in which property or assets need to be re-built or repaired.
- It provides credibility
Simply having insurance helps to make your business more credible to potential customers. It shows prospective clients that if anything was to go wrong that you have means of providing compensation and therefore builds trust and assurance.
- Some clients may even insist on it
Often if you operate within certain service industries, many clients will insist on you having professional indemnity insurance, which covers you for negligence prior to signing a contract with you. Others will insist that you have public liability or general liability insurance to ensure that any claims from third parties for any damage incurred to equipment, property or individuals during the course of work is covered.
For all businesses, even fledgling ones, business insurance is essential to survival and whether some parts are required by law or by clients, it is a prudent business move to protect your investment.