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What is small business insurance? 

Small business insurance does not refer to a specific type of insurance coverage. Instead, it’s an umbrella term for the range of insurance policies that are applicable to small businesses. These policies offer coverage for different perils that small businesses potentially face, including but not limited to bodily injury, property damage, and third-party claims that allege issues with the services provided by your business.

To determine whether your business is “small,” insurer will use criteria such as your total sales, net profit, market share and capitalization as well as the total amount of capital your business relies on to gain profit.

No matter the size, all businesses stand to benefit from the financial protection offered by these types of coverage. Accidents can happen in an instance, but their financial repercussions could persist for months or even years – and even threaten the survival of your business.

By offering financial protection for emergencies, the right combination of insurance policies can give you peace of mind and save you money in the long run.

Who needs small business insurance?

While small business insurance is not mandatory in Canada, it is highly recommended for all small business owners.

Small businesses can be particularly vulnerable when they’re hit with unexpected costs, lacking the infrastructure and resources of medium and large companies. Robust coverage offered by the right combination of insurance policies can help small businesses weather the storm.

What’s covered and not covered by small business insurance?

Small business insurance refers to a range of policies that provide different types of coverage. These policies could include:

Commercial general liability insurance
This type of insurance provides financial protection when third parties file lawsuits alleging your business is responsible for bodily injury or property damage. In addition to covering the costs of defending a lawsuit or claim, commercial general liability insurance will pay for any damages a court awards to the claimant.

Professional liability insurance
As with commercial general liability insurance, this type of coverage offers financial protection when your business is hit with a third-party claim. The difference is that it specifically provides protection for claims alleging that your business failed to deliver a service, or that your business engaged in negligence or misconduct.

This type of coverage is also known as errors and omissions insurance. Like commercial general liability insurance, it covers the costs of defending claims as well as any damages that a court awards to the claimant.

Product liability insurance
This is another type of coverage for third-party claims, specifically those that allege a product you sell or manufacture is responsible for bodily injury or property damage.

Cyber liability insurance
This coverage offers businesses financial protection when they are hit with cybercrimes that result in compromised data.

Types of insurance claims that are common in small business insurance

Here are some scenarios of how small business insurance could protect a small business from financial loss.

1) It can cover the cost of legal fees if you’re hit with a lawsuit
Maria owns a store that sells specialty food and cookware. During a cooking demonstration, an employee spills liquid on the floor and forgets to clean it up. A customer later steps in the spill and slips, injuring his leg. The customer files a lawsuit against Maria’s store, alleging it caused him bodily injury and left him unable to work for weeks.

Because Maria had the right small business insurance coverage, the costs of defending the lawsuit in court were covered. Without this coverage, Maria would have had to pay the high legal fees out of pocket.

2) It can pay for damages awarded by a court
Rick, the owner of a small construction company, is hired by a homeowner looking to expand their house by building another room. Rick’s company builds the room, but in the process, damages parts of the house due to negligence. The homeowner sues Rick’s company for damages due to requiring additional repair work done as well as having to lodge elsewhere during the repairs.

The court agrees with the homeowner and awards them damages. Rick’s small business insurance pays the legal fees associated with defending the lawsuit, as well as the damages awarded to the couple.

3) It can help pay for settlements
John owns an accounting firm. During tax season, one of his accountants makes an error on a client’s taxes, and the client is hit with a substantial tax bill. The client sues John’s firm for negligence.

Instead of fighting it out in court, John agrees to settle the matter. His small business insurance helps cover the cost of hiring a lawyer as well as the settlement itself. Without the right coverage, John would have had to pay these costs out of pocket.

How much does small business insurance cost? 

The exact cost of your small business insurance coverage will depend on several factors. These include:

• The annual and projected revenue of your small business
• The industry you’re in
• The number of employees you have
• The number of years your small business has been in operation
• The kind of building(s) you operate in
• Past insurance claims

In general, however, a low-risk small business can expect to spend about $650 annually on a commercial general liability insurance policy – one of the policies that fall under the “small business insurance” umbrella – with a $2 million limit.