Small business insurance: What do you need from day one?
When you’re starting a new business, every penny counts. That might leave you wondering if small business insurance is worth it. But every business owner faces risks, from theft and property damage to lawsuits and burst pipes, even before the business is fully up and running.
In this article, we’ll cover why it’s important to have an insurance policy and what coverage you may need to protect your business while it’s in startup mode, depending on your sector.
Do new small businesses really need insurance?
While small Canadian businesses aren’t generally required to carry insurance, it’s definitely recommended. Just because you’re in the early days of your business operations doesn’t mean there’s no risk. Imagine you’ve invested a big chunk of your startup budget in materials and equipment and then a fire breaks out at your storage location. If you’re uninsured, those losses could bring your new business to a standstill.
It’s pretty common for new businesses to have tight margins. That means major losses are a serious matter. Business insurance is a safety net that can help cover losses due to business interruption, stolen or damaged equipment, and even legal costs related to a lawsuit.
On top of all this, being insured gives your business greater credibility: it shows you’re a professional who takes things seriously. Think of it as an investment in your business. Small business insurance is a best practice for risk management, empowering businesses to focus on their growth phase without worrying about the unexpected.
When does a new business need to be insured?
From day one! When just starting out, your business may need insurance to secure funding, as financial institutions see it as providing security and may ask for proof of insurance before signing any loan agreements.
There’s also a good chance you could be asked for proof of insurance when signing your initial contracts. Your obligations kick in as soon as the ink dries, even if your business experiences a fire or online attacks. Small business insurance will also come in handy if you purchase any inventory or equipment, which are major business investments worth protecting.
You may also have to provide proof of insurance when signing a lease. Insurance can offer you and your landlord commercial property coverage for property damage due to fires, break-ins and more. It can also cover liability risks, like a client falling by accident and injuring themselves on the premises.
Major risks facing new business owners
Businesses in different sectors face different risks. If you provide a professional service or beauty care, such as accounting or hairstyling, you don’t face the same risks you would in construction or retail. That’s why you need to work with an insurance provider that understands your line of work and can offer insurance solutions that meet your needs as a new business.
Here are some examples of risks by sector to give you an idea of what your business might face:
| Sector | Risk examples |
|---|---|
| Professional services | A fire breaks out at your small accounting business and a significant amount of information is lost. Your company isn’t able to honour its commitments, so a client takes your business to court, damaging your reputation. |
| Beauty care | A client has a bad reaction to a hair dye and seeks compensation for bodily injury. |
| Retail | Your store’s floors are wet, and a client falls and is injured. You could be held liable. |
| Construction | A burst pipe at a construction site damages power tools that you stored there, which now need to be replaced. |
| Wholesale | You have to clean up and repair the damage from a fire in your warehouse, resulting in an interruption to your business income. |
| Real estate and rental property | You’re a landlord, and one of your tenants sues you because a visitor accidentally tripped and fell on their stairs, causing an injury. Now you have to pay major legal costs. |
| Artisanal manufacturing | A contaminated product is recalled after causing health issues. Your business faces a liability lawsuit and potentially tarnished brand image, plus the cost of a product recall. |
Which coverage should you prioritize for your business in startup mode?
Commercial property coverage and commercial general liability coverage are both highly recommended for businesses starting out. You might consider starting with these two and building from there.
Commercial property insurance can help cover your losses if something happens to your property, such as your merchandise, equipment or inventory. It often includes business income interruption insurance, which can help cover loss of income if your small business has to put operations on hold due to a covered loss. Commercial general liability insurance can help protect you if a third party claims property damage or bodily injury. For example, if a house painter accidentally gets paint on a client’s hardwood floors and the client decides to sue for the cost of repairs.
Some other add-ons to explore include cyber insurance, which helps businesses limit their financial losses from cyber incidents like cyber extortion, cyber attacks or data breaches, and may help cover costs related to covered losses such as investigation, data recovery and loss of funds.
Finally, optional coverages may be added to provide protection against risks such as roof water infiltration, sewer backup flood, and earthquake.
Here’s a recap of the most common coverage options by business risk:
| Examples of risk | Matching coverage | Priority level |
|---|---|---|
| Client lawsuit | Commercial general liability | Highly recommended |
| Fire, theft or equipment damage | Commercial property | Highly recommended |
| Business stoppage after a loss | Business income interruption | Recommended |
| Professional error | Errors and omissions (professional liability) | Recommended depending on your sector |
| Cyber attack or data breach | Cyber insurance | Supplemental |
| Roof water infiltration, sewer backup, and earthquake | Add-on coverages | Supplemental |
Check out our article on the main types of business insurance coverage to see what’s right for you.
Checklist for finding the right small business insurance partner
If you’re looking to insure your new business, it’s a good idea to take some time to think through what your business needs. Use the checklist below to help you find the right insurer.
| Question | Answer |
|---|---|
| Does the provider insure businesses in startup phase? | ☐ Yes ☐ No |
| Can you make multiple payments without any fees or interest? | ☐ Yes ☐ No |
| Can your coverage grow over time with your business? | ☐ Yes ☐ No |
| Does the provider understand your specific line of work? | ☐ Yes ☐ No |
| Will the provider help you identify which coverage is right for your situation? | ☐ Yes ☐ No |
| Does the provider let you bundle your insurance solutions? | ☐ Yes ☐ No |
If the answer to any of these questions is no, you might want to keep looking for a provider. Your new business is important to you and should get the insurance coverage it deserves.
Key takeaways
Even though it’s not usually mandatory to insure new businesses in the Canadian market, it’s highly recommended. Small business insurance can help protect your company, secure funding, close contracts and boost your credibility as a business. Curious to find out how our insurance policies can work for you? Visit our website or call 1-866 472-8848 to get a personalized business insurance quote today.
Small business insurance FAQ
It’s usually best to insure your business from day one. Plus, businesses in the startup phase often need to secure funding early on, which may mean lenders asking for proof of insurance. Your business partners and clients may also expect you to be insured before they agree to sign any deals with you.
If you’re starting a business, there are two main types of coverage to focus on. Commercial general liability can protect against common liability risks, like third-party bodily injury and property damage claims. Commercial property insurance can cover repairs and the replacement of equipment, materials and merchandise damaged or destroyed by a covered loss. You may need other types of coverage as well, but these two are a good place to start.
It’s possible in theory, but it all depends on your financial institution’s funding requirements. Your lender may be more comfortable granting you a loan if your business is insured, as they’ll have greater confidence in your ability to repay it if anything happens. Insurance is also a sign of professionalism and good risk management. This can reassure your business and financial partners and improve your business’s credibility.
There’s no single price, since your premium depends on a number of factors, including your sector and business income, the value of your property (equipment, merchandise, inventory, building), the coverage you choose and where your business is located. To learn more, check out our article on how much small business insurance costs.
Getting commercial insurance is highly recommended for freelancers. It is a common and sound business practice, though it is not mandatory in Canada. To learn more, check out our article on insurance for self-employed workers.
Learn more
These tips are provided for information and prevention purposes only. They are general in nature, and Desjardins Insurance cannot be held liable for them. We recommend using caution and consulting a certified insurance agent for comprehensive, tailored advice.
Certain conditions, exclusions and limitations may apply.
The terms and conditions of the coverages described are set out in the insurance policy, which always prevails.
Desjardins Insurance refers to Desjardins General Insurance Inc. in Quebec and Certas Direct Insurance Company or Certas Home and Auto Insurance Company, underwriter of automobile and property insurance in other provinces and territories.