Do I need insurance for my business?

The same applies to service-based companies. Thankfully, business insurance protects entrepreneurs from the legal risk associated with these issues. While it may seem like a needless cost at first, having good coverage can be a lifesaver as you navigate the operations of your own shop, studio, firm or practice.

What is business insurance?

Business insurance protects entrepreneurs against any risks associated with their work. Broadly speaking, it consists of a handful of different types of coverage. General liability insurance covers bodily injuries or property damage caused by your products or services, while commercial property insurance covers damage to your business’ actual premises. Professional liability insurance (also known as errors and omissions insurance) covers your legal fees in the event of any lawsuits that arise from your work, including claims of error or negligence.

In addition to these common types of insurance, Rob de Pruis, national director of consumer and industry relations at the Insurance Bureau of Canada (IBC), says there are many other options to choose from.

One is business interruption coverage to compensate a business owner in the event they are unable to operate. Crime coverage, offering compensation in the even of hold-ups or cyberattacks, is also available. So, too, is management liability insurance to cover damages for any errors by your company’s directors and officers. This can include anything from directors making misleading statements to acting in a way that is considered misconduct. 

Every business is unique, de Pruis says, and the exact type of coverage needed by an entrepreneur varies widely. “Really, it depends on where you are geographically, what type of a business operation you have, and what your potential exposures or liabilities would be in the event something happened,” he says.

When do you need insurance for your business?

There is no law requiring Canadian businesses to purchase insurance once they reach a certain size (such as a revenue threshold) or have a certain number of employees. But insurance experts say anyone running their own enterprise should seriously consider it, especially as it grows. 

“As your company gets bigger, it is more recommended to have an insurance policy, because you’re more liable for some sort of claim or damage to happen to a third party,” says Aharshan Thangarasa, team lead for contractors at Zensurance. 

Chisholm agrees. The more customers you sell to, he says, the higher the risk of errors or lawsuits. “If I sell to one person—they’re probably not going to sue me,” he says. “If I sell to 10 million—a couple might.” 

Thangarasa says businesses in some industries, particularly construction and engineering, may effectively require professional liability insurance. A contractor hired by a municipality, for example, may need insurance just to bid on a job in case they accidentally hit a pipeline while digging or cause other damage. 

Even independent contractors, freelancers or business owners who run a firm out of their own home should seriously consider buying business liability insurance. That includes business owners in relatively low-risk industries, like graphic design, adds Chisholm. If your work involves using a suite of expensive equipment (high-end cameras or a high-powered computer, for example), you may need additional coverage, he says. “There’s a very good chance that your homeowner’s policy might not cover any of the equipment related to your business.” 

How much does small business insurance cost?

As always with insurance, the answer is: it depends.

Thangarasa says insurance for a residential flooring contractor could start around $500 for the year to cover roughly $2 million in commercial general liability. (More precise quotes would depend on the contractor’s experience and the company’s revenue and number of employees, among other factors.) Chisholm put basic liability and property coverage at between $800 to $1,200 annually. 

There are many variables at play when it comes to cost, so you’ll need to gather and compare multiple business insurance quotes to get a better idea. De Pruis says any potential hazards that could impact one’s business are important to consider when looking around for business insurance. Your enterprise’s financial health is also important. “If something did happen to your business, how much capital do you have available now and into the future to address some of the ongoing expenses and costs that would be incurred in course-correcting?” he says. 

Another consideration is the actual operations of your business. If a supplier critical to your business was unable to deliver to you, could that impact your ability to survive? This is where business interruption insurance might come in handy.

All in all, de Pruis says, these factors will vary from business to business—and even owner to owner. “Really, the bottom line question is: What impact would your business have if there were a major event?” he says. “And what strategies do you have in place to ensure that your business is able to continue in the future?”

Find the best business insurance for your needs

Finding quotes for small business insurance in Canada is fairly straightforward. There are insurance comparison websites, helpful how-to blogs and information available through IBC.

Chisholm says getting in touch with a broker can be helpful for entrepreneurs not used to the complexity of buying business insurance compared to, say, a standard home insurance policy. This is because small businesses can be quite varied in their insurability. “The same underwriter might underwrite a dry cleaner, maybe an engineering firm, a contracting company, and a car dealership,” Chisholm says. “All of these things have different exposures.” 

As such, he says, it can take brokers a while longer (ideally, it can be done within a 60-day window) to process all of your information and see how much coverage you need—and what your monthly premiums may be.

“When you want competing commercial quotes, there’s a process, and it can take multiple business days, if not weeks,” Chisholm says. “So get in front of things and allow yourself time to receive the quotes. Allow your broker to review them and analyze them.”

By investing the time needed to get the right insurance (at a good cost), you won’t have to worry, and you can keep your focus on where it truly belongs: building your business.

More on insurance:

• The best life insurance in Canada
• The best car insurance in Canada
• What happens when you need additional contents insurance?
• Is your credit card’s travel insurance enough?

About Brennan Doherty

Brennan Doherty is a Toronto-based writer. His work regularly appears in the Toronto Star, Globe and Mail, BBC Worklife, The Local, and elsewhere.

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