For many entrepreneurs, buying insurance for their business may feel more like gambling. For the price of a monthly premium, they can help protect their business from liability in the case of a lawsuit or cover the cost of property damage in the event of a natural disaster. Unless those events happen, though, it can seem like wasted money.
As the head of your business, it's your job to make tough decisions about where, when and how to spend your company's limited resources every day. Although it's easy to push insurance farther down on your list of priorities, out of sight does not necessarily mean out of mind when it comes to protecting your business.
While regularly shelling out funds for something you may never see a concrete return on may feel foolish or even painful, being prepared for anything may be worth the cost. To help you decide what's right for you and your business, 18 associates of YEC discuss the most crucial factors business owners should consider when deciding whether or not to get business insurance.
1. Your levels of liability
"This is a question of considering your liability. Are there chances people can get injured where you work? What about your price point? Is it high enough to go beyond small claims court? Worst-case scenarios don't always happen, but when they do, you'll be glad to have decent coverage." – Richard Fong, Ready Green
2. A possible loss of focus later
"The key consideration for me is whether business insurance can prevent a big loss of focus later. As the leader of a fast-growing company, you need to be able to continue focusing on that growth and not get distracted by the million things that are always coming your way. A legal issue will often take up the CEO's time. If this can be prevented for a reasonable cost, you know you’ll be able to keep sprinting forward, uninterrupted." – Cody Candee, Bounce
3. Contracts with clients
"Do you have contracts with clients? If you do, then you should consider getting business insurance. Although you may both dive in with the best of intentions, sometimes lawsuits are inevitable, and it is good to have that layer of protection, no matter how ironclad you think your contracts are." – Zach Binder, Bell + Ivy
4. Your location
"Your location plays a crucial role in your business insurance. Take factors such as weather into consideration when deciding on your insurance plan, even if your business is digital. If you face server outages or data loss, you're going to want to have an insurance team to help you recover from some of the losses." – John Turner, SeedProd LLC
5. How much is at stake?
"Can you afford the downside if you go uninsured? It doesn't make sense to buy insurance for something you can afford to replace, but if there are millions of dollars at stake, then you'll want to buy insurance. If you are just starting out, you may want to preserve capital, but if you are at risk of losing your business due to a liability issue, then you should consider getting business insurance." – Matt Wilson, Under30Experiences
6. Size of coverage
"Always consider the size of coverage. At the end of the day, you need to think about the real expense of something bad happening, and there's a lot that can happen. Start from the main cost, and you'll be able to figure out the rest." – Nicole Munoz, Nicole Munoz Consulting Inc.
7. Your risk map
"Making a risk map is the best way to know what events can happen in the company that would affect its continuity. This will help define the importance of commercial insurance and which policy is the most convenient. Insurance is an elemental aspect because, in a business, the owner places great investments of time, money and expectations; therefore, protecting them becomes indispensable." – Kevin Leyes, Leyes Media
8. Every area of potential liability
"You need to consider every possible area in which you could be liable. This is something you should thoroughly research and get expert help with if you need it. There may be scenarios of which you're not even aware. Insurance seems like an unnecessary expense until the moment you find out that you really need it." – Kalin Kassabov, ProTexting
9. Your business legitimacy
"Business insurance is a must have in order to instill confidence in the individuals and organizations you work with. The legitimacy that comes with this insurance is important to maintaining these relationships, but it can be difficult to justify the cost if you have thin margins or lean sales months. I recommend taking advantage of SBA loans if you need to; that's what they're for!" – Bryce Welker, Beat The CPA
10. The numbers
"This might be an unpleasant answer, but it's simple math. It's a matter of crunching the numbers. Simple as that. Calculate the risks, low and highball them, sum up costs of premiums versus coverage, and if your percentage breaks even, get insurance. Don't forget to look at beneficial factors such as deductible taxes or package deals for other types of insurance you might need." – Joey Bertschler, Content Marketer
11. Your stability
"Consider stability. Insurance is best for those who have stable small businesses. If you're still unsure about everything, with tons of debt here and there, insurance is the least of your needs. Invest more in marketing, a good team, and awesome products and service. Once you're stable enough, get that insurance." – Daisy Jing, Banish
12. Your budget
"You have to take your budget into consideration when deciding on business insurance. There's no doubt that insurance is necessary in some areas, but you need to weigh your options. You don't want to get involved in a plan with extremely high costs every month and insane deductibles. Go with a reasonable insurance company that offers individual plans that meet your needs." – John Brackett, Smash Balloon LLC
13. Whether or not you have assets
"If you have assets, you need business insurance. If you don't, then it might not be necessary. For example, someone running a successful blog from their home with no employees may potentially not need business insurance. But if you have any assets at all, you'd be hard-pressed to make the argument that it isn't needed." – Andrew Schrage, Money Crashers Personal Finance
14. Claim settlement rates
"One of the important aspects to consider when deciding to get business insurance is the claim settlement rate that the insuring company has. Lower settlement rates should be a warning signal that you could be missing important points in the policy. Look for another one or try to figure out the details of the policy so that you're sure it fits you." – Syed Balkhi, WPBeginner
15. Potential damages to your clients
"Ask yourself, does your business have the capacity to cost your clients significant business or damages, and can they prove it? If so, there's no doubt that you need, at least, an ironclad liability clause in your contracts. However, to cover yourself, you should take out a good insurance policy. This way, you're protected in case a client or customer takes legal action." – Tyler Gallagher, Regal Assets
16. What the policy covers
"When choosing business insurance, it's important to figure out exactly what it covers and under what circumstances. Does the policy cover your employees? Does it extend to contractors and temporary staff? It's crucial to understand exactly what it covers so that you know you have nothing to worry about, no matter who you hire for projects." – Stephanie Wells, Formidable Forms
17. Working with a trusted broker
"The key is to work with an insurance broker who will take the time to get to know your business and make sure you will be adequately protected, but who will also not overinsure your business. You should ask questions about what you are most worried about. For example, would this policy cover you if X were to happen? If not, what type of policy would cover such an incident, and what would the cost be?" – Doug Bend, Bend Law Group PC
18. Where you see your company heading
"Keep the future in mind. Don't decide if you should have insurance based on where your business stands today. Make the decision rooted in where you see the company heading. One way to keep your insurance costs down is to find a plan and stick with it. If you have to expand your coverage based on your business's growth, you'll be paying more in the long run." – Matthew Podolsky, Florida Law Advisers PA