What Business Insurance Do You Need?

Business Insurance

Are you thinking about starting your own business, either full or part-time?  If so, one important factor you’ll want to consider is what kind of business insurance you’ll need. The answer, of course, all depends on what kind of business you are starting!

Eight or nine years ago, I thought it would be a great idea to make extra money by selling kettle corn at art fairs, craft shows, festivals, and other events.  So I bought a kettle corn popping machine, a pop-up tent, tables, other related equipment, and a trailer to haul it all.

I quickly learned that before you move too far into planning or launching your business, you really need to talk with your auto and homeowners insurance agent, describe the kind of business you are starting, explore the potential risks, and ask them what types of business insurance you may need to protect you, your business, and your customers.

Here’s what I learned about the kinds of business insurance you may need:

Liability Insurance

When I began contacting event organizers to request applications to be a food vendor at their events, one of the first things they asked me was, “Do you have liability insurance?”  Liability insurance?  Hadn’t thought of that!

So, I called my insurance agent, explained that I was starting a kettle corn business, and asked how much it would cost to get some liability insurance.  Oh, and what it would cover, too.

I learned that business liability insurance protects you and your business from claims involving bodily injury or property damage.

It turned out that it was pretty easy and inexpensive to get a liability insurance policy that would protect me in case someone was accidentally harmed by any boiling hot oil splatters or stray corn kernels that might pop out of the machine, or if someone somehow became ill because of my slightly sweet and slightly salty kettle corn goodness.

Auto Insurance

Then my agent asked me another question: “Do you plan on using your personal vehicle to haul your kettle corn equipment to the events?”  Of course I was.  “Then we’ll need to add a business use insurance rider to your existing auto policy to cover your business use.”

I didn’t realize I’d need to get any type of business auto insurance coverage for this business, but she said that it would cover my trailer and provide protection in case there is any accident, loss, or damage to my vehicle while I’m engaged in any business activity.

“If you’re in an accident on the way to an event or to the store to get supplies, your existing personal auto policy won’t cover you, and your claim will be denied, if you don’t have the business auto rider.”  Happens all the time, she explained, to pizza or newspaper delivery people, lawncare providers, real estate agents, door-to-door salesmen, and even people who do in-home parties that sell jewelry, kitchenware, candles.  Because they didn’t think they needed any business auto insurance coverage.

People who do maintenance or home repairs, have ladders or toolboxes mounted on vehicles, have more than one vehicle used in their business will probably need a separate commercial auto policy instead of a business use rider added to their personal vehicle insurance.

Equipment Insurance

“And what about your equipment? Do you want to insure your kettle corn popper in case it is stolen or damaged?”

My equipment was worth a few thousand dollars, but I decided to pass on getting coverage for it. If your businesses will be investing in a lot of equipment, you will want to get it insured against damage or theft.

Don’t assume that your existing homeowners policy will cover your equipment that is stored in your home, garage, or in a storage unit, or that your personal auto policy will cover business equipment that is stolen out of your vehicle. Chances are, they won’t.

Errors and Omissions Insurance

My insurance agent mentioned errors and omissions insurance as another important insurance that some businesses need.  I had never heard of “E & O” before, so she explained that it provides protection for you in the event that you fail to perform the duties you promised, are negligent in your work, or if you make an error or omit something in a contract or other business dealing that causes a financial loss for your customer or client.

We realized that I really didn’t need this type of insurance, because I didn’t have any major contracts or obligations to worry about. And if, for some reason, I didn’t attend an event I had signed up to be a vendor at, no one would be harmed or sue me – the event planner would just get to keep my registration fee.

Doctors, chiropractors and dentists need errors and omissions insurance, but they call it malpractice insurance.  Lawyers, accountants, and other professions need it too, but they often call it professional liability insurance. Others who might need errors and omissions insurance include wedding or event planners, caterers, photographers, and real estate agents.

Property Insurance

Business property insurance protects the physical assets of a business when disaster strikes from sources such as fire, storms and burst water pipes.  The definition of “property” is pretty broad, and includes lost income, business interruption, buildings, computers, company documents and data, and even money.

We decided that I didn’t need to have property insurance coverage for my business. But if you keep important documents or data for your clients or customers, use computers in your business, and own or lease office and work space or work out of your home, you will likely need to purchase business property insurance.

Worker’s Compensation Insurance

Workers compensation insurance protects employees who are injured while doing work for your company. Workers compensation coverage can pay for an injured employee’s medical treatment, replace part of lost wages if a job-related injury requires time off work, and protects business and assets. We determined that this one didn’t apply to me because I didn’t have any employees.  But because I did hire a friend to help me from time to time, we felt that my liability insurance would cover them in case they were injured.

Business Umbrella Insurance

The last type of business insurance that my agent mentioned was umbrella insurance.  Before you start thinking about rain, let me explain that business umbrella insurance picks up where your business auto liability, general liability or other liability coverage stops. I learned that umbrella insurance is an inexpensive way to provide a lot of extra coverage against bodily injury and/or property damage when serious situations arise that exceed the limits of your other policies. I was amazed at how cheap it was to get $1 million in umbrella insurance coverage, but I decided against it.

Business Owner’s Insurance

For my small business situation, I just needed the liability insurance and the business use rider to my personal auto policy.  Other business that are more complex and involve more money and people may need all of these types of insurance coverage that I’ve mentioned.

Chances are good that the insurance companies represented by your local agent will offer a complete business owner’s insurance package that combines several types of insurance coverage together at a competitive price.  Of course, you can also shop online to find the best deals for business owner’s insurance.

Two other great resources that I’d recommend, for business insurance at a competitive price, are business owner associations like NFIB (National Federation of Independent Business) and your local Chamber of Commerce.  You have to pay to join, but these groups provide their members with advice, discounts, and package deals on insurance and other resources and services that your new business may need.

Dumb Idea Insurance

So what happened to my aspiring kettle corn business?  You had to ask, eh?  Well, let’s just say that my wife wishes I had purchased “dumb idea insurance” which, ideally, would refund the money I had “invested” into a business idea that wasn’t going anywhere.

Not because being a kettle corn vendor was a bad business.  A lot of people do it and make decent money. It just wasn’t the right type of business for me.  It didn’t line up well with the lifestyle I wanted or my passions, interests or strengths. And that, my friend, is a topic for another blog post!

Are you planning to launch your own business soon?  If so, what products or services will you provide?  Will you need business insurance?  Leave a comment below!

Ready to Quit Living Paycheck-to-Paycheck?

Just click to join 225,000+ others and take our FREE email course to better manage your money, pay off debt, and save! And get FREE access to our money-saving workshop ($29 value)!

Related Articles:

  1. Alan

    Great article! I believe that a lot of new businees make the cardinal sin of under-insuring their business but it appears to be equally possible to over-insure as well. Good thing your agent was looking after your better interests because I would guess there are many who would have tried to sell you all of those policies.

  2. DesertRat

    Wouldn’t businesss insurance be carried a separate policy? Your article doesn’t make this clear. Or does it matter if the riders are added to current policies? Not sure I understand.

    • Rich Avery

      Hi DesertRat, thanks for reading, and thanks for your comment! Some of the insurance products that I mentioned can be added as riders to existing policies. Others may be purchased as separate business insurance policies. It varies by state/province and by insurance carrier. I recommend you connect with your homeowners insurance agent first to find out what kind of insurance you’d need, and what they can provide for you. Hope this helps! 🙂

  3. JP Adams

    Thanks for the post Rich! Very helpful basic information for anything beginning to think about launching their own business.

    A couple questions:
    – Where can I find more independent information on the different insurance products you mention?
    – Would you recommend going to an insurance agent (who has an incentive to have you buy as much as possible) or a lawyer or financial planner to discuss high-level options?
    – What are some high-level numbers? What should a new business owner expect to pay in insurance their first couple years (maybe just your numbers would be helpful)?


  4. Rich Avery

    Hi JP, thanks for your question. In addition to the NFIB and local Chamber of Commerce, which I mentioned in the article, you could also contact your local government to see if there are any business development agencies in your area that offer business start-up advice. Some colleges also have business development programs, and small business incubators are popping up all over the place these days. All of these could provide general guidance to help you determine what kinds of business insurance you may need. And yes, you could talk with an attorney, like you suggested.

    The bottom line is that you need to make an accurate assessment of the risks involved in your business, and then identify the types of insurance products that will give you adequate coverage against those risks.

    I was happy with the info I received from my local insurance agent, who is an independent insurance broker representing dozens of insurance products and providers. They took the time to understand my business and asked me a lot of questions to help me identify the potential risks.

    I can’t give you any cost estimates, since rates vary depending on the business type, risks, location, etc. I’d suggest you give several brokers a call, tell them what kind of business you’re thinking of, ask them what types of insurance they’d recommend, and ask them for a quote. Once you know the types of insurance you need, you can also shop online to compare rates.

    Hope this helps. Thanks for reading, and thanks for your question!

  5. JP Adams

    Rich. Thanks for your thorough response and for pointing out a couple additional sources of good information.

    “The bottom line is that you need to make an accurate assessment of the risks involved in your business, and then identify the types of insurance products that will give you adequate coverage against those risks.” This is a very good point. I feel like many people miss this critical step and the costs can sometimes be large.

    I was looking at your site and found several points that you made quiet interesting. In particular from your about page:

    “Third, I think a lot of pastors have struggled, like me, with the question of whether God had called them to be a pastor or an entrepreneur.”

    What an interesting insight! I myself am not a pastor but your point makes a lot of sense to me. I’ll bounce over to your site for more conversation but just wanted to briefly follow up here.

    • Rich Avery

      JP, thanks for your comments, and thanks for checking out my site. I welcome your comments and suggestions there.

      One of my growing passion areas is kingdom/missional entrepreneurship. I hope to write more about it…and even better…live it out more and more.