Think about your small business and why you started it. What was the reason?
I’m guessing what motivated you to strike out on your own had less to do with money and was primarily fuelled by the desire to build something from the ground up and be the boss. Kudos to you for doing so! But now that you’re calling the shots, you need to ensure you have a backup plan to protect your flourishing startup. That means purchasing liability insurance. But here’s the problem: understanding what kind of insurance you need and making sure you’re neither underinsured nor overinsured can be perplexing.
Here’s an overview of three types of liability insurance small businesses should consider as part of a customized policy:
Commercial General Liability Insurance
Commercial general liability insurance, or CGL, often forms the foundation of a comprehensive policy for many small businesses. As a business owner or independent professional, you will encounter clients, business partners, vendors, suppliers, and others. Call these folks’ third parties’. If one of them gets injured on your premises, is injured elsewhere because of your activities, is hurt by way of an accident or their property is damaged due to your operations, they could sue you for third-party bodily injury or property damage.
For example, suppose you own and run a retail store and a customer visiting your store slips and loses their balance after stepping on a recently mopped floor. The fall causes them to fracture a wrist, requiring medical attention. CGL coverage is designed to pay for their medical expenses, and if they decide to sue you, it provides financial support for your legal defense and compensation awarded by the court.
Professional Liability Insurance
You may know it by another name, such as errors and omissions (E&O) insurance, but professional liability insurance safeguards you from client claims alleging a financial loss because of a service you provided, failed to provide, negligence, or misconduct. So, if you provide advice or services and get paid for them or develop a product for a client, you should have professional liability coverage. It’s designed to cover your professional services, product failures, and media and advertising-related services if your client is sued for defamation, libel, or slander.
Here’s an example: let’s say you’re an accountant (it is tax season), and you file a client’s return, but you make a mistake, resulting in the client being audited by the Canada Revenue Agency and are subsequently told they owe the government thousands of dollars. Your client could sue you for negligence, and the monetary judgment against you could be significant. Professional liability can shield you by providing funds for your legal fees and the court-ordered settlement.
Cyber Liability Insurance
The pandemic was undoubtedly a motivating factor for many small businesses to get online or up their digital offerings. For others, it was the momentum they needed to launch an online business (it’s estimated almost 2 million Canadians started a business after COVID-19 struck).
But the online world has its share of risks for entrepreneurs, home-based businesses, and small business owners, including the threat of a cyber-attack or data breach. As a business owner, it’s your responsibility to protect your clients’ private and financial data. And small companies are more likely to be targeted by a hacker since they don’t tend to have the cybersecurity resources to defend themselves as large corporations do. That’s why cyber liability insurance is essential. It covers costs associated with cybercrime that involve your computing systems, software, and customer data.
Imagine if your business is a victim of a ransomware attack, a type of malware that limits access to or locks you out of your computing systems and software unless you pay a ransom. Ransomware is one of the costliest forms of a cyber-attack, and it happens all too frequently. One report finds the average cost of a ransomware attack in Canada is almost $2 million(!). If it happens to you, cyber liability protection provides funds to repair and restore your software and systems, covers any losses due to a systems outage caused by the attack, and legal, forensic, and breach management costs.
Things to Consider Before Buying Commercial Insurance
Purchasing a commercial or business insurance policy doesn’t need to be a prolonged, drawn-out and confusing or frustrating exercise. Like any challenge you face as a business owner, you need to think it through and draft a plan to deal with it efficiently. Here are a few tips to help guide you:
- Evaluate your business’s risks: One of Murphy’s laws states, “anything that can go wrong will go wrong.” Humour aside, there’s a hint of truth in that statement, and as a business owner or self-employed professional, you need to prepare for all possibilities.
That means zeroing in on what risks you likely face, whether the impact on your commercial space from severe weather or fire or if you’re sued for third-party bodily injury. Knowing your liabilities can help determine what coverages you need.
- Partner with a licensed small business insurance broker: Unless you have in-depth knowledge of business insurance, know precisely what you need, and can decipher the terminologies and jargon in a policy, you ought to partner with a licensed broker who can serve as your trusted advisor. There are a couple of reasons why you should.
Firstly, a broker works for you, not an insurance company. They take the time to learn about your business and find a policy that suits your needs by shopping multiple insurers on your behalf. Then, they recommend the coverages you should have and the limits of those coverages and will explain the deductibles and exclusions. In other words, they ensure you understand your policy, that there are no gaps in it, and that you’re not paying for coverage you don’t need.
Secondly, think of a broker as your representative who goes to bat for you when dealing with an insurance company, whether you need to buy, customize, update a policy or file an insurance claim. They take the hassle and frustration out of the insurance buying and management process.
- Basing your insurance purchasing decision on price may not be the best option: Money’s too tight to mention in the best of times, and given the current economic environment, all businesses are being extra cautious with their budgets. That’s sensible. And though there are always some items you can cut back on in lean times, there are others that you still need to invest in, and insurance is one of them.
While a broker should strive to find you the coverage you need at the lowest price, don’t choose to underinsure yourself by forgoing recommended coverages. Think of it this way: if saving more than you spend is a priority (and it usually is), skimping on insurance could prove disastrous. One lawsuit or damage claim you aren’t covered for can upend your business quickly and possibly push you into declaring bankruptcy.
How Small Business BC Can Help
No matter what stage of your business journey you’re at, Small Business BC has the resources you need to succeed. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our selection of business articles.