Does Your Business Really Need Insurance?

One piece of advice Sir Richard Branson offers entrepreneurs is to protect their downside. In an article in Entrepreneur he said,


Insurance certainly qualifies as one way to protect your downside. If something goes wrong in your business – it burns down or is struck by a hurricane – you may face overwhelming costs. If you don’t have any insurance, you could even go out of business. Although the likelihood of something going wrong is small, the cost of something going wrong could be large. Without insurance, you face the risks alone; with insurance, the insurance company covers the costs.

Basics of Insurance

Insurance can sometimes appears to be a complex subject – because there are many types of insurance, exhaustive lists about what is and what is not covered by each form of insurance, and many choices when it comes to payment options and coverage. However, the basics of insurance are simple. As a business owner, you pay a premium, an agreed upon sum of money to an insurance company. Should something adverse happen, an accident that is covered by your insurance policy, the insurance company will either pay you for the cost of repairs or replace the damaged item.

For instance, if you had a small business in the construction industry, liability insurance would cover your business if one of your workers damaged a client’s property and your business was sued, or if one of your trucks broke down. The insurance company would take care of the costs. Without it, you might not have been able to pay for the unexpected disasters.

Choosing Insurance

As a business owner, you probably need some insurance, but you have to be clear about what you need. Different businesses need different kinds of insurance. Unless you are clear about why you need insurance, you will either buy too much or too little.

Ultimately, you have to decide between one of two things: the cost of paying for an accident vs. the cost of buying insurance.

Three Questions to Ask

What is it that you need to insure and what are the chances of it happening?

If your business burned down, your company’s machines or equipment broke down, or you were sued by a customer, could you afford to pay for it out of your own pocket? While the chances of these happening are slim, is it worth taking the risk of having no coverage?

What are the worst case scenarios in your business and could some of the downside be covered by insurance?

Although it may seem needlessly pessimistic to think about the worst that could happen, it is better to lean on the side of realism rather than hold on to a nae optimism that nothing bad could possibly happen to your business.

How much money do you have right now to cover a disaster should it occur?

If your business has considerable capital and is making a nice, steady profit, you may not need insurance. However, If your company might go out of business if you could not afford to pay for an accident, then you may seriously have to consider getting insurance.


While you may have to get insurance to comply with federal or state laws, this may not be enough to cover your business’s worst case scenarios. While getting sufficient insurance is a cost, you have to decide whether the cost of getting insurance is less than the cost of paying for a lawsuit or an accident.

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