Business insurance isn't mandatory in Canada. However, you may work with clients, customers, landlords, and other stakeholders who require you to have the proper business insurance for a deal to follow through.
Nonetheless, the right business insurance plan protects you and your large or small business from events that could cause significant financial disasters. It's an essential part of managing risks as a small business owner.
This article explains business insurance and provides situations for which business insurance may be mandatory.
What is business insurance?
Business insurance is an umbrella term that includes numerous policies designed to mitigate the risks of small business owners. A policy generally covers costs or pays compensation if an unfortunate situation arises.
Many business owners wonder what liability insurance their business should purchase. Generally speaking, professional, general, and cyber liability insurance are vital to a business insurance plan.
Below is an outline of four common policies in a standard business insurance plan:
- Professional liability insurance covers the cost of legal fees, damage awards, and out-of-court settlements if you're sued for negligent or misrepresented services. Suppose your graphic design business misses a deadline. This delays your client's product launch and causes them a financial loss. Professional liability coverage protects you from legal fees and other costs in this situation.
- General liability insurance also covers the cost of legal fees, damage awards, and out-of-court settlements. However, this coverage is for lawsuits related to bodily injury or property damage that arise on your premises. So suppose a client visits your accounting office. If they slip on a wet floor, they might injure themselves and sue you. General liability insurance also covers issues related to libel or slander.
- Contents insurance is coverage for your business' belongings. If your tools and/or furniture are lost, stolen, damaged, or destroyed, contents insurance provides compensation so that you can purchase a replacement or pay for a repair. As a result, you're not suddenly left paying out of pocket when a flood ruins your store's furniture and fixtures.
- Cybersecurity insurance protects your business from lawsuits that occur due to a cyber threat, like hackers or viruses. Suppose a hacker accesses your customer database and steals sensitive information like credit card numbers. As a form of technology insurance, cybersecurity insurance manages resultant legal issues and pays compensation to injured parties.
Some people also have coverage for business interruptions, inventory, or their building. It ultimately depends on your company's situation and what risks you want to limit.
Is business insurance required by law?
Canadian laws don't mandate business insurance unless it's for a company vehicle. But, insurance remains an intelligent choice for small business owners. Additionally, many situations require you to have the proper coverage.
Suppose you're a fitness instructor. You rent small venues to host kickboxing classes and teach sessions at a local gym. Both these business sources usually require you to be insured.
Venues usually only rent to people with the right insurance because it reduces the venue's risks. If someone falls and hits their head during your kickboxing class, they may sue you for the injuries.
And if you're uninsured, you may not have the money to pay damages. As a result, that student might sue the venue centre instead because they have more capital. To prevent a lawsuit from landing in their lap, the venue may require you to have a general liability policy to pay out damages if someone is injured.
A local gym faces similar risks in hiring an uninsured fitness instructor as an independent contractor. If a class leads a student to overextend and injure themself, the gym doesn't want to be responsible. A gym's insurance policy may additionally exclude coverage to independent contractors. As a result, your own fitness insurance coverage is vital.
So although business insurance isn't required by law, you may still need specific policies to run your business.
