Does Your Business Really Need Business Insurance?

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It’s universally recommended, especially by insurance agents, that anyone who owns a business should purchase business insurance. However, what if your business consists of affiliate marketing products that you never even see, much less touch? What if you’re a “solopreneur” kind of freelancer whose products consist of articles and blog posts? Do you really need business insurance?

There are two very distinct and opinionated camps on this issue: “pro-insurance” individuals who recommend obtaining (often costly) insurance for any kind of money-making activity, and the “anti-insurance” individuals who recommend a CYA approach that involves a mixture of contracts, disclosures, service agreements and just plain “being careful.”

Which approach is better?

The Pro-Insurance Camp

Business insurance proponents say that, when it comes to getting insured, it’s not always about protecting your business products from loss and theft but rather protecting yourself from getting sued by victims of unforeseen accidents and other snafus. For example, let’s say you write a report that portrays a certain business in a bad light, hurting its sales. That business could sue you for defamation even if everything you wrote is true. This occurred in 2009 when ORIX Capital Markets sued several individuals for creating the domain name “Predatorix” and using this site to publish comments that were deemed libelous. The plaintiff was eventually awarded $12.5M in damages.

Alternately, let’s say that, as an affiliate marketer, you accidentally forget to delete old email subscribers who unsubscribed from your blog. You email these contacts and get slapped with a spam suit (and no, it’s not as tasty in real life).

Such legal hurdles can hurt your business and even result in bankruptcy. And as you progress in your freelance/affiliate marketing career, moving from smaller to bigger and better clients, advertisers and merchants, the likelihood of a lawsuit increases proportionally. Also, if you plan to work with government agencies, having business insurance will be expected.

The Anti-Insurance Camp

At the other end of the spectrum are those who say that business insurance isn’t a requirement if you take steps to protect yourself from legal liability. For example, in order to protect yourself from lawsuits filed by folks reading your blog, you could publish a terms of service (TOS) page that defines what your site is and is not responsible for. Adding a disclaimer to the end of those TOS could also prevent you being slapped with a $20M lawsuit, as experienced by Leslie Richards of the blog Oko Box.

A privacy statement can inform readers that your blog uses cookies to track user activities. Full disclosure can go a long way towards protecting you from frivolous lawsuits.

Another way to prevent a lawsuit from draining all your assets, including those that are personal, is to incorporate your business as an LLC. Creating an LLC for even something as “inconsequential” as your website is rather easy and protects you from being personally sued. Sure, you might have to close up shop on your business if you lose a case, but at least you won’t end up completely destitute.

Can there be a middle ground?

Yeah, why not? Actually, you can purchase levels of insurance that will cover your business and won’t cost you and arm and a leg. Here are these levels, moving from cheapest to moderately priced:

Insurance endorsement/rider

If you own a home or even rent, you can ask your current insurance provider about adding a rider to your homeowner’s/renter’s policy that will cover your business equipment on the actual premises of your home. This rider runs about $100 and typically covers up to $2,500. Larger riders may be available and cover up to $5,000 or even $10,000 in business equipment.

However, these riders don’t cover injury to individuals visiting your home on business. They also don’t offer any coverage if, let’s say, you lose out on a month of affiliate sales or freelance work because all your data is corrupted during a basement flood. If you travel a lot and your laptop is damaged or stolen at a client’s place of business, you won’t get reimbursed either.

In-home business policy

If you have offsite equipment or up to three employees, the in-home business policy typically covers up to $10,000 in business losses resulting from employee theft or offsite equipment loss/theft. It can also cover lost income and business expenses such as payroll. This policy does cover injuries sustained by clients/visitors as a result of doing business with you.

The in-home business policy is typically bundled with homeowner’s insurance, although some insurers do offer this policy as a stand-alone. Because of the $10,000 coverage ceiling, this policy is intended for businesses that are not generating too much revenue just yet or may just be a part-time venture.

Business owners policy

Thanks to the rise of in-home businesses, many insurance companies now offer business owners policies or BOPs that are just as comprehensive as large-scale commercial insurance policies. The BOP covers a wide range of business catastrophes including onsite and offsite business equipment damage/loss/theft, injury to clients/visitors as a result of them doing business with you at your place of business, and personal injury/property damage that results while you are offsite and conducting business. The BOP also covers loss of personal income and employee income as well as libel and slander cases.

How much money do you want to invest in your business?

When making the decision to insure or not insure your business, consider that insurance as an investment in your business. Much like when you go out and buy a computer or printer for your business, considering that equipment to be a business investment, insurance is another business investment that you will eventually need to consider.

To this end, it helps to talk with folks running businesses out of their homes about what they consider to be adequate insurance- or perhaps the ways they get around having to purchase such coverage. But the bottom line is that you just don’t want to be caught short by some odd claim and have to close up shop over an issue that a simple insurance plan would’ve covered.

Photo credit by Leo Reynolds

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