The Pros and Cons of Business Insurance for Solo Entrepreneurs

This is a guest post from Carol Wilson who writes for business insurance reviews. She contributes articles about a variety of marketing, business, stock market, and small business topics. She can be contacted at: wilson.carol24@gmail.com.

Define Insurance

Credit: Alan Cleaver (CC)

For spirited indi­vid­uals who are just beginning their venture into self employ­ment and small business ownership, one of the last things we take into consid­er­a­tion is small business insurance. Caught up in the excite­ment of new employees, devel­oping a brand, creating a website, finding a customer base, devel­oping a marketing strategy, and so much more, boring things like insurance are typically the last thing on our minds. However, things like lawsuits, thefts, injuries, and any other kind of damage have to be a high priority for new business owners. Small business insurance is designed to protect busi­nesses against oper­a­tional loss. Many business owners question whether business insurance is really a worth­while venture for young, small online busi­nesses. Because online busi­nesses typically have a very low start-up capital, it is reason­able for small online business owners to be skeptical of (sometimes) expensive insurance policies. However, there are plenty of reasons that small business insurance is an important venture in your new small business.

Basics of Business Insurance

There are several different types of business insurance available that cover virtually any risk that a business could possibly face. For small busi­nesses, however, there are generally four basic cate­gories that cover most of the risk faced by small business owners: profes­sional liability insurance, product liability insurance, general liability insurance, and commer­cial property insurance. These four cate­gories protect different aspects of small businesses.

  • Commer­cial property insurance is very similar to tradi­tional homeowner’s insurance, covering buildings, struc­tures, and the contents within the property.
  • General liability insurance covers small busi­nesses against legal claims for injuries, accidents, libel, or slander.
  • Product liability insurance is for busi­nesses that are focused on manu­fac­turing, distri­b­u­tion, or retail. This insurance protects the assets of a small business, defending a company against claims of defective or malfunc­tioning products.

Cons of Purchasing Business Insurance

The most obvious con to purchasing small business insurance is obviously going to be the price of the insurance policy. The cost of small business insurance depends on several factors. Some of the most basic factors include, how large your business is, how many employees you have, the nature of your business, and much more. While the cost of business insurance can be extreme at times, often it is necessary or even required by law. The question for small business owners, espe­cially those operating online, is whether insurance is worth the cost or not.

Pros of Purchasing Business Insurance

The biggest pro of business insurance is protec­tion. Small business insurance provides a company with thorough protec­tion from issues that are out of their control. Sadly, when things go bad in the business world, it is often because of issues that business owners cannot control, such as lawsuits or financial losses. For this reason, business insurance is likely a worth­while invest­ment if you want your company to withstand the unex­pected. There is so much risk that already exists in the business world (espe­cially with small online busi­nesses), that the cost of business insurance is probably worth the reas­sur­ance that you are covered.

5 Responses to “The Pros and Cons of Business Insurance for Solo Entrepreneurs”

  1. Moe August 18, 2011 at 1:40 PM #

    Even though there are lots of chal­lenges in going the entre­pre­neur route, the biggest is perhaps protecting your dream. You have to protect your business from legal and financial threats. I always recommend getting an attorney and a finance person as the first two hires to an entre­pre­neur. We live in a very trigger happy lawsuit society that even if there is no ground for lawsuits, you have to shell out thousands in just fighting bogus litigation.

    Thank you for showing the impor­tance of business insurance. Well done.

    • Alex August 19, 2011 at 10:41 AM #

      Great point, Moe.

      Texas is putting through a “loser pays” law. If it goes through, I’ll feel a lot better about living here as an entre­pre­neur. lol

  2. Loren Pinilis August 18, 2011 at 9:12 PM #

    My choice has been to skip any business insurance. I work from home, no one ever comes to my house on business, I provide a service (public relations, design, etc.) that won’t really get me sued for liability on anything — so it doesn’t really seem like a good idea for me.
    But who knows? I’ve wondered if I ever put out an infor­ma­tion product if it’s worth­while getting insurance.

    The main thing I’m curious about is health insurance. Right now, mine is ridicu­lously expensive.

    • Alex August 19, 2011 at 10:43 AM #

      Yeah, that is where I am as well. Nothing I’m doing is sue worthy (and I don’t have enough money to be worth suing anyway).

      As for health insurance, I don’t think there is a great answer for entre­pre­neurs unless you’ve got a lot of employees.

      I know there are co-op groups that signing up with can make insurance cheaper, but some people work part-time somewhere else (like Starbucks or something) just to get insurance.

      Wish I had a better answer for you, but It’s something I’m looking into as well.

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