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What is Business Insurance? Do Canadian Entrepreneurs Need It?

You may be wondering what business insurance is, whether it applies to your specific industry, and what type of coverage you should get as an entrepeneur or small business owner…

In this post, I’ll break it all down for you, as our small business insurance policy has been quite handy to cover us during an unexpected event that happened earlier this year. I’ll get to that later in this article, but first let’s cover basic definitions to make sure we’re on the same page about what it is, why you need it and the different types of insurance you can get as an entrepreneur or small business owner…

What is Business Insurance in Canada?

Business insurance in Canada is like a safety net for your company. It helps protect the financial health of your business by covering unexpected costs that can pop up from accidents, natural disasters, lawsuits, and other unforeseen events.

Just like how you’d have insurance for your car or home to protect against big, unpredictable expenses, business insurance does the same for your company, whether you are a solopreneur, owner of a small business or run a large corporation.

Why Do You Need It?

  1. Legal Requirements: In Canada, some forms of business insurance are mandatory. For example, if you have employees, you’re required to have workers’ compensation insurance.
  2. Protection from Lawsuits: No matter how careful you are, there’s always a risk that your business could be sued, either by an employee, contractor, competitor or customer. For instance, if a customer slips and falls at your place of work, liability insurance can help cover the legal fees and any settlement costs. One of our ex-employees sued us for “wrongful termination”, and business insurance was able to kick in and cover our legal fees.
  3. Property and Asset Protection: Whether it’s a fire, theft, or flood, physical assets of your business like your building, equipment, and inventory could be damaged. Property insurance can help you cover the costs of repairs or replacements.
  4. Business Continuity: If something major happens (god forbid!) like a flood that shuts down your operations for weeks, business interruption insurance can cover lost income and help keep your business afloat during closures.

Basically, having business insurance means you’re not alone in handling big shocks. It keeps unexpected events from being catastrophic to your business’s financial future, letting you focus more on running your business and less on what could go wrong.

Types of Business Insurance

  1. General Liability Insurance: This is the go-to insurance for most small businesses. It covers legal hassles due to accident, injuries, lawsuits and/or claims of negligence. This insurance helps with anything from a customer slipping on your floor, an employee suing you, or damages caused by your advertisements.
  2. Professional Liability Insurance (Errors and Omissions Insurance): Essential for businesses that provide services or advice. This covers you against malpractice, errors, and negligence in provision of services to your patients, clients or customers.
  3. Property Insurance: Whether you own or lease your space, property insurance is an absolute must. It covers equipment, signage, inventory, and furniture in the event of a fire, storm, or theft. However, mass-destruction events like floods and earthquakes are typically not covered under standard policies, so ask your insurer about adding them if you are based in an area that is prone to those natural disasters. .
  4. Product Liability Insurance: If your business manufactures and sells products to the mass market, product liability insurance is critical. It protects against financial loss as a result of a product defect that can cause injury.
  5. Commercial Auto Insurance: This covers vehicles owned by your business. It provides financial protection against accidents in company vehicles or injuries to employees driving while on the job.
  6. Workers’ Compensation Insurance: As we stressed earlier in this article, workers’ compensation is mandatory if you have employees, regardless of which province you’re operating out of. It covers medical treatment, disability, and death benefits if an employee is injured or dies as a result of their work.
  7. Business Interruption Insurance: If a disaster or catastrophic event does occur, this insurance covers the loss of income that a business suffers after a disaster while its facility is either closed because of the disaster or in the process of being rebuilt.
  8. Cyber Liability Insurance: Very important in this digital age, it protects your business against cyber threats or breaches that happen through digital means. This can include data breaches, hacks, cyber-attacks, and other similar risks.
  9. Directors and Officers Insurance: This protects the owners, directors and officers of a company against their actions that affect the profitability or operations of the company. If a director or officer of your company, as a direct result of their actions on the job, finds themselves in a legal mess, this type of insurance can cover costs or damages lost as a result.
  10. Employment Practices Liability Insurance (EPLI): This policy covers you against claims from employees alleging discrimination (based on sex, race, age, or disability, for example), wrongful termination, harassment, and other employment-related issues.
  11. Key Person Insurance: Also known as keyman insurance, this is life insurance on the key person in a business. If this person unexpectedly dies, the insurance payout helps the company survive the blow of losing this person who makes the business work.
  12. Surety Bonds: This may not apply to you, but essentially it is a promise by a surety or guarantor to pay one party a certain amount if a second party fails to meet some obligation, such as fulfilling the terms of a contract. This is often used in the construction industry.
  13. Business Owners Policy (BOP): This packages all required coverage a business owner would need. Typically, BOPs include property insurance, vehicle coverage, liability insurance, and business interruption insurance. Depending on your company’s specific needs, you can alter what’s included in a BOP.
  14. Fidelity Bonds: Also known as fidelity insurance, this type of insurance protects a business against purposely wrongful acts such as theft or embezzlement by employees. It is particularly important if your business handles cash or sensitive financial information.
  15. Umbrella Insurance: This extends coverage beyond existing limits and coverages of other policies. It can provide additional protection for liability claims.

Business Insurance Rules by Province

You need to keep in mind that each Canadian province and territory has their own rules that may affect your business insurance policy and its coverage. Here are some points to keep in mind based on each province:

Business Insurance in British Columbia (BC):

  • Workers’ Compensation: Mandatory through WorkSafeBC.
  • Auto Insurance: Must be obtained through the Insurance Corporation of British Columbia (ICBC) for business vehicles.

Business Insurance in Alberta:

Business Insurance in Saskatchewan:

Business Insurance in Manitoba:

Business Insurance in Ontario:

Business Insurance in Quebec:

  • Workers’ Compensation: Administered by the Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST).
  • Auto Insurance: Civil liability insurance for vehicles is required and provided by private insurers, with the Société de l’assurance automobile du Québec (SAAQ) covering personal injuries.

Business Insurance in New Brunswick:

  • Workers’ Compensation: Required for most businesses and provided through WorkSafeNB.
  • Auto Insurance: Available from private sector insurers.

Business Insurance in Nova Scotia:

Business Insurance in Prince Edward Island (PEI):

  • Workers’ Compensation: Coverage through the Workers Compensation Board of PEI is required for most employers.
  • Auto Insurance: Commercial auto insurance is provided by private insurers.

Business Insurance in Newfoundland and Labrador:

  • Workers’ Compensation: Coverage is mandatory and provided by WorkplaceNL.
  • Auto Insurance: Commercial auto insurance is provided by private insurers only.

Business Insurance in Yukon:

Business Insurance in Northwest Territories and Nunavut:

  • Workers’ Compensation: Both territories are covered under the Workers’ Safety and Compensation Commission (WSCC).
  • Auto Insurance: Available from private insurers only.

Other Provincial Differences to Keep In Mind

  1. Property Insurance: While the basics of property insurance are similar across provinces, the risk profiles of different locations can lead to differences in coverage terms and costs. For example, areas prone to specific natural disasters (like flooding in Manitoba or earthquakes in British Columbia) may have different coverage details or additional riders necessary for local business protection.
  2. Health and Benefits Insurance: The differences in provincial health care coverages can lead businesses to offer varying health and benefits packages. Insurance packages may need to be more comprehensive in provinces where public healthcare covers less, or where there are longer wait times for certain treatments.
  3. Directors and Officers (D&O) Insurance: The legal environment in each province can affect the risk exposure of directors and officers. Provinces may have different laws regarding corporate governance and the liabilities of corporate officers, which can influence the level and type of D&O insurance needed.
  4. Cyber Liability Insurance: While the basic coverages are similar across provinces, the legal obligations regarding data protection and breach notifications can vary, influencing the specific protections businesses might seek from cyber insurance.
  5. Environmental Insurance: Provincial environmental regulations can differ significantly, impacting businesses that might be subject to environmental liabilities. This can necessitate different levels or types of environmental insurance.

FAQ

Q: What types of business insurance should I consider?

A: If you are unsure where to start, I would look into several key types (although it’s better to contact an insurance company and ask them for advice based on your industry and needs):

  • General Liability Insurance: This one covers you if someone gets hurt or their property gets damaged because of your company or one of your employees.
  • Professional Liability Insurance: if you make a mistake in the professional services you provide, whether you are providing marketing services or legal advice, you can be liable. This type of insurance will cover you.
  • Property Insurance: This protects the physical assets of your business like your physical office or equipment.
  • Workers’ Compensation: This is essential if an employee gets injured while working. If they sue you and you are unprotected, you can end up owing a lot of money.
  • Product Liability Insurance: If youI sell products, this protects you from damages those products might cause to your customers.

Q: How much is this business insurance going to cost me?

A: The prices can really vary. It depends on what your business does, how large it is, the kind of risks you face, and how much coverage you need. Prices can range from a few hundred to several thousand dollars per year.

Here’s a rough idea of what you might expect for various types of business insurance:

  1. General Liability Insurance: This is one of the most common types of business insurance. For small to medium-sized businesses, annual premiums can range from $400 to $1,000 on average, but could be higher depending on your business activities and risk levels.
  2. Professional Liability Insurance (Errors & Omissions): Costs for this type of insurance typically start around $600 per year and can go up to several thousand dollars. Professions with higher liability risks, such as consulting or accounting, might see higher premiums.
  3. Commercial Property Insurance: The cost depends largely on the value of your property and the risks associated with your location (like weather hazards). Premiums can range from $1,000 to over $3,000 annually.
  4. Workers’ Compensation: This varies by province in Canada and depends on your industry, payroll, and claims history. Rates can be calculated per $100 of payroll and might range from $0.30 to $7.00 or more.
  5. Product Liability Insurance: Depending on your product risk, costs can start as low as a few hundred dollars and go up significantly if your products have higher risks associated with them.
  6. Cyber Liability Insurance: As businesses increasingly rely on digital operations, this insurance has become crucial. Premiums can start around $1,000 per year but can be much higher depending on your level of risk exposure and the amount of sensitive data handled.
  7. Business Interruption Insurance: This is often added to another policy like property insurance, and the cost will depend on the size of your business and the scope of coverage. It can increase your overall premiums by 10% to 20%.
  8. Directors and Officers Insurance: This can be costly due to the high risk involved. Premiums typically start around $1,000 and can go up to tens of thousands for large corporations.

Please note that these costs are very approximate and can fluctuate based on your area, specific business situation and market conditions. To get an accurate estimate, it’s best to get quotes from several insurers who can assess your particular business risks and coverage needs. This will help ensure you’re not overpaying but also not underinsured.

Is business insurance tax-deductible?

Yes, speak to your accountant though. I personally can generally deduct my business insurance premiums when I do my taxes, which helps reduce the overall cost.

Can I get a package deal on business insurance?

Yes, many insurers, such as Zensurance which we reviewed recently on our blog, offer business insurance packages like a Business Owner’s Policy (BOP), which can bundle things like liability, property, and business interruption insurance at a cheaper rate than buying them separately.

What factors affect my insurance premiums?

The main things are the nature of your business, the size of your operation, the types of coverage you choose, past insurance claims, and where your business is located. Note that if you’re in a high-risk industry or area, you will most likely pay more.

What doesn’t business insurance cover?

Typically, your policy won’t cover things like intentional damage I cause, wear and tear over time, or damage from wars or “black swan events” like a meteor strike or an alien invasion. 🙂

How often should I review my insurance policy?

I try to check my coverage at least once a year (upon renewal time) or any time I make big changes to my products or services, like expanding operations or moving to a new location. This way, I make sure my coverage still fits my company’s needs.

That’s it folks! I hope this article convinced you to get a small business insurance policy for your company. No one can predict the future and unfortunately the more successful your business becomes, the more likely you will experience some of kind of financial or legal issue that can cause big financial issues if you don’t have a business insurance policy. Start preparing now. As the old adage goes: better safe than sorry.

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