Business Insurance in Canada: What Coverage Do You Actually Need?

One of the most important parts of running a responsible business is protecting what you’ve built. Usually, the best way to protect what you’ve poured your blood, sweat, and tears into is by securing business insurance in Canada. With insurance, you’ll not only prepare for the worst-case scenarios but also create a sense of stability where you know that one unexpected event cannot derail years of hard work.

In today’s blog, our team at Bizfund has gone into detail surrounding what you need to know about business insurance in Canada. We understand the importance of insurance, whether you’re only officially opening your doors or you’ve been operating for years. We want you to know why, with the right coverage, you’ll have room to focus on business growth instead of risk.

Types of Business Insurance

The Insurance Bureau of Canada states that insurance exists to protect businesses from financial losses. These losses that it protects against include property damage, business interruption, liability claims, and more.

When you carefully select your insurance, it becomes a part of your overall financial strategy. This is because it protects your assets, supports cash flow, and maintains your company’s credibility in the eyes of your customers, lenders, and partners.

If you want to get insurance but are unsure which best suits your needs, have a look below at the different types of coverage protection available in Canada:

General Liability Insurance

According to MoneySense, general liability insurance is usually the first policy companies buy because it applies to nearly every industry in the country. Liability insurance covers any claims related to personal injury, property damage to others’ belongings, and bodily injury that may occur because of your business’s activities.

A prime example of how this insurance can come in handy is when a customer theoretically slips and falls in your shop. If they get hurt and claim your store caused their financial harm, your liability coverage could protect your business from the costs of legal defence and potential settlements. So you see why it’s so important?

Commercial Property Insurance

Commercial property insurance is one of the most common types of business insurance in Canada. This type of company insurance protects your physical assets, like your business’s inventory, equipment, building, and furniture. Usually, the types of damages covered are fire, theft, vandalism, and some types of weather damage. And even if you operate a business from home, it’s important to have this type of coverage.

Business Interruption Insurance

Often, companies will overlook business interruption insurance, but it’s incredibly important to have. The Insurance Bureau of Canada states that this insurance is incredibly important for those who depend on consistent daily operations. This insurance will protect your income if operations are temporarily halted because of a covered event, such as a flood or fire.

Professional Liability Insurance

If you operate a service-based business, it’s important to consider professional liability insurance. This insurance is sometimes known as errors and omissions insurance. With this type of insurance, your business will have protection against claims where past clients blame your advice or services for their financial loss. Most of the time, this insurance works best for accountants, consultants, and technology firms.

Cyber Insurance

As the world moves more into the digital space, it’s become more common for companies to consider cyber insurance. With this insurance, you’ll have coverage for costs related to system failures, data breaches, and cyber attacks. If you store much of your customer data online or rely on digital systems, it’s important to have.

What’s Required vs Recommended

When it comes to small business insurance requirements, you need to know that they vary by province and industry. In certain instances, coverage is legally required, while in others it’s only strongly recommended based on risk exposure. So let’s break it down:

• If your company has employees, it’s mandatory in most provinces for you to have workers’ compensation coverage. This will protect your employees if they incur injuries on the job and you from direct liability.
• If you’re using vehicles for your business operations, you will need commercial auto insurance.
• Although not legally required, you’ll find most clients, landlords, and suppliers want to work with a business that has general liability insurance. In fact, many contracts will have a minimum liability coverage level that is conditional on doing business with you.

What Lenders Require

You might not know this, but when you apply for financing, it’s highly likely a lender is going to look closely at your business’s insurance coverage. You can imagine why. They want to ensure that their investment in your company is protected and that your business can continue operating if anything goes wrong down the line.

In most situations, a lender will ask you for proof of general liability insurance and property insurance if you have physical assets. Also, if the loan you hope to secure is tied to inventory or equipment coverage for these assets, coverage is often mandatory.

How Much Coverage Do You Need?

How much coverage you need for business insurance in Canada depends on the types of insurance. However, for most small businesses in Canada:

• General liability coverage starts at around $1 million, but most companies choose $2 million because that’s a common requirement for commercial leases and client contracts.
• Businesses in higher-risk industries, such as personal services, construction, and manufacturing, often carry greater liability coverage. For them, the usual range is between $2 million and $5 million.
• Commercial property insurance coverage is usually based on the full replacement value of your assets. This will include furniture, inventory, equipment, and improvements.
• With business interruption insurance, you’ll usually have a coverage amount that covers three to twelve months of operating expenses and any lost revenue.
• You can expect professional liability insurance to range between $250,000 and $2 million. However, the amount will vary depending on the financial risk of your services and the size of your contracts.

How to Get Business Insurance

Getting business insurance isn’t as difficult as you may expect. Here are the simple steps you’ll want to try to ensure protection for your business:

1. The first thing you’ll want to do is outline what your company does and where you’re planning or are operating from in Canada. You’ll also want to note the assets you own so your coverage is based on accurate risk exposure. You don’t want estimates.
2. Afterwards, you’ll want to put together basic financial information. This includes details about your equipment, annual revenue, number of employees, inventory, and property. With this information, insurers can properly price your coverage.
3. It may seem like a good idea to find an insurance carrier on your own and get the process done quickly, but this can create problems. That’s why, after you gather all your information, you should contact a licensed insurance broker. A broker works with business clients and can help you compare policies across multiple insurers. This ensures you have more than one option and get the best deal.
4. When you are presented with your coverage options, carefully evaluate them. Look at the limits, deductibles, and exclusions. These need to match how your business actually operates in Canada.
5. Review coverage options carefully and often to ensure limits, deductibles, and exclusions align with how your business actually operates.

Common Business Insurance Mistakes

You need business insurance in Canada to protect your company, but that doesn’t mean you should be too hasty in securing protection.

Unfortunately, many businesses rush into securing insurance, making mistakes, and making wrong decisions. If you don’t want to fall victim to this, you should have a look at the three mistakes below that you don’t want to make:

• Mistake #1: Many businesses choose the lowest premium before they understand how limited coverage works and that it often doesn’t provide much protection. If you choose the lowest coverage amount because it has the cheapest monthly premium, you risk major financial issues later on.
• Mistake #2: Believing that your personal insurance policies will protect your business. Unfortunately, this isn’t the case. It is very rare for personal insurance policies to cover any aspect of your business, which is why you need business insurance.
• Mistake #3: Failing to read the policy fine print. Many businesses don’t read the exclusions and limitations. In many instances, this failure leads to surprises when you file a claim, and coverage doesn’t apply.

Key Takeaways for Business Insurance in Canada

With so many types of business insurance available in Canada, it can be challenging to ensure you’re choosing the right one. Hopefully, the information you learned today gives you a better understanding of which type you need. We also hope you have a better idea now of how to get business insurance, what is and isn’t required, and how much coverage is often needed.

Once you secure business insurance, you’ll have peace of mind, so try to choose the right type soon. And once you have insurance, and if you need funds, why not consider alternative financing? Insured businesses in Canada could qualify for a merchant cash advance with us at Bizfund. With a merchant cash advance, you could have access to up to $300,000 for growth, expansion, or cash flow balancing. Contact us here to apply.