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Is small business insurance mandatory in Canada?

It’s highly recommended to have small business insurance, even if owners aren’t usually required to buy it (with some exceptions, which we’ll get into shortly).

By forgoing small business insurance, you could be exposing yourself to big risks that can lead to serious financial consequences. For example, you could end up paying medical bills or legal fees if a customer gets seriously hurt at your place of business or from using your products or services.

Insurance premiums are a relatively small price to pay to avoid serious long-term financial problems.

When commercial insurance is mandatory

Business insurance isn’t technically mandatory, but there are exceptions to the rule. Here’s when you’re legally obligated to purchase commercial insurance.

You use a vehicle to carry out business

In Canada, you can’t operate a vehicle without the proper insurance. That means, if you use one to fulfill business activities (such as deliveries, transporting employees or clients), you need a commercial auto insurance policy. Personal auto insurance policies do not cover commercial use, so a separate commercial auto insurance policy is required. If your business uses more than five vehicles, you need to purchase commercial fleet insurance. Failure to purchase the commercial insurance will lead to any claims being denied and will make it much harder to acquire it in the future.

You work in an industry that’s obligated to provide workers’ compensation insurance.

Workers’ compensation insurance is generally mandatory in Canada. Employers are required to register with their provincial Workers’ Compensation Board (WCB) and provide this insurance to their employees. However, there are some exceptions based on the industry.

These include certain professional services (like private health care practices), personal services (such as barber shops and hair salons), and financial services (like banks and insurance companies). Employers in these fields can offer private health and life insurance instead.

Who needs small business insurance?

Insurance is important for nearly every type of small business, even if your business is home-based. A wide range of businesses, from retail stores and restaurants to professionals and tech entrepreneurs, benefit from the protection offered by small business insurance.

Here are some other signs your business is ready for insurance coverage.

Employee count: If you have employees, even just one, you likely need insurance to cover potential liabilities like workers’ compensation.

Revenue: Businesses that report moderate revenues, typically under $5 million annually, should consider insurance to protect against financial losses.

Client contracts: If clients require you to have insurance as part of your contracts, it’s a clear sign you need coverage.

Physical location: Owning or renting a physical space for your business increases the need for property and liability insurance.

An insurance professional with experience in commercial policies can provide guidance about what types of coverage would benefit your business’s unique needs and what kind of coverage limits provide the right amount of protection.

Some types of businesses that benefit from insurance include, but are not limited to, are:

• Retail stores
• Restaurants, cafes, and bars
• Contractors
• Consultants
• Lawyers
• Financial planners
• Holistic professionals
• Home inspectors
• IT specialists
• Medical professionals
• Paralegals
• Recruitment agencies
• Therapy professionals
• Web developers

What is not covered by small business insurance?

A small business owner’s policy is not equipped to cover every risk a business may potentially face. That’s why it’s always a good idea to look into adding coverage or extending your current coverage’s limits.

Below are some risks that a general small business insurance policy excludes from coverage.

Certain types of criminal activity

Intentional criminal acts (theft or fraud committed by an owner or an employee, for example) are not covered by a general liability policy. Coverage for some criminal acts is available through commercial crime insurance, which can be purchased separately.

Commercial crime insurance includes coverage for employee dishonestly, which offers reimbursement for direct financial losses caused by financial forgeries, embezzlement, unauthorized money transfers, and theft of business property committed by an employee.

Indirect losses, like the loss of revenue while a business recovers from a criminal act, are generally not covered by commercial crime insurance or business interruption insurance.

Flood and water damage

Overland water damage (from a storm, for example) and sewage backup are not covered by the commercial property portion of a basic business owner’s policy. You may be able to purchase extended water coverage separately.

Inaccurate cost estimates

Providing inaccurate information to a client is not covered under a basic business owner’s policy. Professional liability, however, does provide coverage if a client demands compensation.

How much does small business insurance cost?

The cost for insurance will vary based on risk factors, such as business type, industry, size, earnings, and location. Underwriters can calculate the likelihood of an insurance claim based on these factors.

Depending on your business’s risk profile, insurance could land anywhere from a few hundred dollars upwards to a few​ ​thousand dollars annually.

The more employees or more physical space you occupy, the greater your insurance will likely be because there’s more risk to workers and property.

Factors that affect your small business insurance rates

Insurance rates depend entirely on what type of business operations you own. The more high-risk your operations, the more money you’ll likely pay.  Risk factors include:

• Location: Businesses with a physical location will pay higher rates if they’re located in a high-crime area or one with frequent natural disasters.
  
• Building age and size: Older or larger buildings may have higher rates due to increased maintenance and repair costs.
  
• Available fire protection: Better fire protection systems can lower rates by reducing the risk of fire damage.
  
• Cost of equipment: Expensive equipment increases rates because it costs more to replace or repair.
  
• Other present dangers: Increased risks like natural disasters or employee theft can lead to higher rates due to the greater likelihood of claims.
  
• Policy details: Comprehensive coverage and/or lower deductibles usually result in higher premiums.
  
• Revenue: Higher revenue can lead to higher rates since the potential financial loss is greater.
  
• Property value: Higher property values increase rates because the cost of repairs and/or replacements is higher.
  
• Industry: Certain industries, like construction, have higher rates due to increased risk of accidents or damage.
  
• Claims history: A history of frequent claims can raise rates as it indicates a higher likelihood of future claims.
  
• Employee job duties: Jobs with higher risk, like manual labor, can increase rates due to the potential for workplace injuries.
  
• Payroll size: Larger payrolls can lead to higher rates as they often indicate more employees and greater risk exposure.

The type of small business you have will influence what risk factors are considered and what type of small business insurance you’ll need.

How to get the cheapest small business insurance quotes

Finding the cheapest small business insurance quote is going to take some research, but it will be worth the time and effort.

Here’s what you’ll need to do:

• Compare quotes: Each insurance provider uses their own mathematical formulation to determine how much small businesses should pay. Shop around to see where you get the best offer.
• Bundle products: Just like wireless service companies can get you a better deal if you buy cable and internet together, insurance companies make attractive offers if small businesses combine different commercial insurance products. You might also be able to bundle personal insurance with small business insurance.
• Reduce business risks: Take some accountability of your own for reducing threats to your business. For instance, try to make your physical location as theft proof and fireproof as possible. Insurance companies may want to see what actions you’ve taken to prevent potential problems that might arise.
• Consider your payment schedule: You may secure a lower rate if you pay your annual premium in full instead of splitting it into monthly payments. This reduces overhead costs for your insurance provider and eliminates the possibility you’ll be delinquent on any payments during the coverage term.