The Ultimate Guide to Small Business Insurance in Ontario

By Trevor O'Hagan | Published on 05 Jun 2023

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    Running a small business in Ontario comes with its own set of risks and challenges. One of the essential aspects of protecting your business and ensuring its long-term success is having the right insurance coverage in place. Small business insurance in Ontario provides financial protection against unforeseen events, liabilities, and losses that can have a significant impact on your business operations. 

    The price of small business insurance in Ontario can fluctuate based on various aspects of your business. Typically, small business owners can expect to spend anywhere from $500 to $5000 annually for a general liability insurance policy that provides coverage up to $2 million. In this article, we will explore the importance of small business insurance for Ontario businesses and provide valuable insights to help you navigate the insurance landscape effectively. 

    Infographic explaining the three why's of small business insurance ontario by Hardbacon

    Understanding Small Business Insurance

    Small business insurance, sometimes called commercial insurance, is designed to safeguard small businesses from the risks that they may encounter when operating. When comparing small business insurance, keep in mind that all types of insurance will include a range of coverage options that protect businesses from property damage, liability claims, legal costs, and other potential financial burdens. 

    Beyond the types of coverage that are available, there are three other components of small business insurance in Ontario that you need to know about. The first is the monthly premium, which is the cost of getting insurance coverage. Most small business owners choose to pay this monthly, but certain companies will allow it to be billed quarterly or annually, depending on the needs of the business. As mentioned above, an average small business can expect to pay $500 to $5,000 per year for their premiums.

    Secondly, there is the deductible. This is the amount of money that a small business must pay out of pocket before the insurance company issues a reimbursement. It is usually a fixed amount or a percentage of the claim value and helps determine the cost-sharing between the business and the insurance provider. If your deductible is $500, and you have a fire that inflicts $10,000 of property damage, your insurance provider would provide you with $9,500. Finally, there is the coverage limit, which represents the maximum amount an insurance policy will pay out for a specific type of claim or occurrence. Think of it as the cap on the financial protection provided by the insurance.

    Key Coverage Areas for Small Business Insurance

    Small business insurance coverage can extend beyond the basic policies mentioned earlier. Depending on your business’s nature and specific risks, additional coverage options may be necessary. In Ontario, there are eight key types of small business insurance that a savvy small business owner should be aware of: 

    NameWhat it isWhy you would use it 
    Commercial General Liability InsuranceThis insurance protects your small business from liability claims, covering bodily injury and property damage caused to third parties. It is essential for all types of businesses to safeguard against potential lawsuits and financial losses.Imagine a customer slips and falls in your retail shop, resulting in an injury. Commercial general liability insurance would cover the medical expenses, legal fees, and any potential damages awarded to the customer.
    Business Interruption InsuranceThis coverage helps businesses recover from major losses by providing financial support to cover ongoing expenses during a period of interruption or downtime. It is particularly valuable in situations such as natural disasters or other incidents that disrupt normal operations.Suppose your restaurant suffers a fire, forcing you to temporarily close down for repairs. Business interruption insurance would provide financial assistance to cover ongoing expenses like rent, employee salaries, and utilities during the closure period.
    Product Liability InsuranceIf your business sells products, product liability insurance is crucial. It protects you from claims arising from faulty products that cause bodily injury or property damage to customers. This insurance covers legal and medical costs associated with such claims.If you manufacture and sell a faulty electronic device that causes property damage when it malfunctions, product liability insurance would protect your business by covering the legal costs and potential compensation claims from affected customers.
    Professional Liability InsuranceAlso known as errors and omissions insurance, this coverage is essential for service-based businesses. It protects against claims of financial loss resulting from errors, mistakes, or negligence in the services provided. Professionals like consultants, accountants, or IT technicians should consider having this insurance.Let’s say you’re an accountant who makes an error on a client’s tax return, resulting in financial losses for the client. Professional liability insurance would cover legal expenses and potential damages arising from the client’s claim against your services.
    Cyber Risk CoverageIn the digital age, cyber threats and data breaches pose significant risks to businesses. Business cyber insurance helps mitigate the financial impact of a cyber attack by covering expenses related to data breaches, network damage, and legal liabilities.Suppose your small online retail business experiences a data breach, compromising customers’ personal information. Cyber risk coverage would assist in covering the costs associated with investigating the breach, notifying affected individuals, and managing potential legal claims.
    Equipment Breakdown InsuranceMany businesses rely on equipment for their operations. Equipment breakdown insurance covers the costs of repairing or replacing equipment that breaks down suddenly due to covered perils, ensuring business continuity and minimizing financial losses.Imagine you’re a contractor relying on a specialized piece of machinery, and it suddenly breaks down, halting your construction project. Equipment breakdown insurance would cover the repair or replacement costs of the machinery, minimizing the impact on your business operations.
    Commercial Property InsuranceThis insurance protects the physical assets of your business, including buildings, inventory, equipment, and furniture, against perils like fire, theft, or natural disasters. It helps cover repair or replacement costs and ensures the continuity of your business operations.Suppose your office building is damaged due to a severe storm, resulting in the destruction of equipment, furniture, and inventory. Commercial property insurance would cover the repair or replacement costs, ensuring business continuity and protecting your assets.
    Commercial Auto InsuranceIf your business uses vehicles for operations, commercial auto insurance is necessary. It provides coverage for accidents, property damage, and liability claims related to business vehicles. It is essential for businesses involved in deliveries, transportation, or other services that require vehicle usage.If you use a company-owned vehicle for business purposes and get into an accident while making deliveries, commercial auto insurance would cover the damages to the vehicle, liability for injuries to others, and potential losses related to the transported goods.

    The Importance of Small Business Insurance in Ontario

    Having small business insurance is crucial to the success of a credible small business. It provides financial protection against unexpected events like natural disasters, accidents, and lawsuits that can lead to significant financial losses. With insurance coverage, businesses can recover smoothly and continue their operations without suffering from substantial financial setbacks, allowing them to focus on growth and sustainability. You can pay for your small business insurance through a bank EFT, a cheque, and sometimes, a business credit card

    Small business insurance instills confidence in clients and customers, demonstrating that the business is prepared to handle unforeseen circumstances. This confidence is vital in attracting and retaining customers, especially for businesses providing professional services or dealing with valuable assets. Insurance acts as a guarantee that the business is accountable for its actions and can fulfill its obligations, which enhances credibility and fosters strong relationships with clients and customers. 

    A generative image of the Canadian government

    The official guide on how to start a small business in Ontario explicitly mentions that considering small business insurance is a crucial part of the startup process. While Ontario laws don’t mandate business insurance (except for company vehicles), it remains a wise choice for small business owners due to various situations that require proper coverage. Let’s consider the example of a fitness instructor who rents venues and teaches classes at a local gym. In both cases, having insurance is typically necessary.

    When renting venues, insurance is often a requirement because it reduces the risks for the venue owners. For instance, if a participant gets injured during a kickboxing class and decides to sue, having the appropriate insurance coverage protects both the instructor and the venue. Without insurance, the instructor may not have the financial means to cover the damages, leading the participant to sue the venue instead. By having general liability insurance, the instructor can fulfill the venue’s requirement and ensure that damages are covered if an accident occurs. 

    Similarly, when working as an independent contractor for a local gym, being uninsured can pose risks for both the instructor and the gym. If a student injures themselves during a class and holds the gym responsible, the gym wants to avoid liability. The gym’s insurance policy might exclude coverage for independent contractors. In such cases, having personal fitness insurance is crucial for the instructor to protect themselves and ensure they have coverage for any potential accidents or injuries that occur during their sessions.

    While business insurance is not legally mandated, specific policies become necessary to operate certain businesses effectively. It is essential to consider the risks and liabilities associated with your industry and ensure you have the appropriate insurance coverage to protect your business, clients, and yourself from potential financial hardships and legal disputes. Even when operating regularly, a business may want to consider errors and omissions insurance to protect them from any poor decisions that are made by their leadership team. 

    Small business insurance ontario major providers by hardbacon

    Choosing the Right Small Business Insurance Provider

    Selecting the right insurance provider is crucial to ensure you receive adequate coverage and reliable service. When you are looking for a great small business insurance provider, use the framework below to help guide your decision-making process: 

    Reputation and Financial StabilityResearch the provider’s reputation, check reviews, and ensure they have a strong financial standing to fulfill their commitments.
    Industry ExpertiseLook for insurance providers with experience in your industry. They understand the specific risks and coverage needs of businesses like yours.
    Customization OptionsOpt for providers that offer flexible policies and allow you to customize coverage based on your business requirements.
    Claims HandlingEvaluate the provider’s claims process and reputation for efficient claims handling. A smooth claims experience is vital during challenging times.

    Steps to Obtain Small Business Insurance in Ontario

    To obtain small business insurance in Ontario, follow these steps:

    • Assess Your Business Risks: Identify the specific risks your business faces. Consider your industry, operations, and potential liabilities to determine the coverage you need.
    • Seek Professional Advice: Consult with an insurance broker or agent specializing in small business insurance. They can help assess your needs, recommend appropriate coverage, and guide you through the process.
    • Compare Quotes: Obtain quotes from multiple insurance providers to compare business insurance coverage options and premiums. Ensure you understand the policy terms, limits, and exclusions. A good rule of thumb is to get three quotes from different providers, then make a decision. 
    • Provide Accurate Information: Throughout the process, it is critical to provide accurate and complete information about your business to the insurance provider. Inaccurate information could lead to coverage gaps or policy cancellation.
    • Review the Policy: Carefully review the policy documents before making a final decision. Ensure it aligns with your coverage requirements and addresses your business risks.

    Common Mistakes to Avoid with Small Business Insurance

    Purchasing small business insurance in Ontario can be a complex task, but if you avoid these three rookie mistakes, your business will thrive. The first piece of advice – avoid under-insuring or over-insuring. Assess your business risks accurately to avoid underinsuring (not having enough coverage) or overinsuring (paying for unnecessary coverage). Secondly, do not ignore policy exclusions. Read and understand the policy exclusions to know what is not covered. Seek clarification from the provider if any terms are unclear. Finally, never forget to update your coverage. Regularly review your coverage needs as your business evolves. Update your policy to ensure it adequately protects your changing risks.

    The best tips and tricks for managing small business insurance by hardbacon

    Small Business Insurance Tips and Best Practices

    There are five key practices that you can adopt to minimize your premium costs, maximize your coverage, and have a good relationship with your insurance broker. The first is to conduct regular risk assessments. By consistently identifying and assessing potential risks, you can stay proactive in updating your insurance coverage as needed and implementing strategies to mitigate emerging risks. This helps safeguard your business from unexpected financial losses and disruptions. Regular risk assessments allow you to stay ahead of potential threats and make informed decisions to protect your business.

    Secondly, always maintain excellent business documentation. It’s important to keep accurate records of your business operations, safety protocols, employee training, and any incidents or claims that occur. This documentation serves multiple purposes. Firstly, it helps streamline the claims process by providing necessary information and evidence. It can be invaluable in case of disputes, as it offers a clear record of events and actions taken. Good documentation ensures that you have the necessary information to support your insurance claims and protect your business’s interests.

    Regularly reviewing and updating your insurance coverage is vital as your business evolves and changes. As your operations grow, it’s important to evaluate if your current policy adequately reflects your changing needs. Consulting with your insurance provider allows you to assess your coverage, identify any gaps, and make necessary adjustments. This ensures that you have appropriate insurance protection to mitigate potential risks and protect your business and its assets.

    Implementing risk management strategies is a proactive approach to protecting your business. By taking proactive measures to minimize risks, such as implementing safety protocols, training employees on best practices, and investing in security measures, you create a safer business environment. These strategies help reduce the likelihood of incidents and potential insurance claims, promoting the overall resilience of your business.

    Maintaining open and ongoing communication with your insurance provider is essential. It’s crucial to keep them informed about any changes in your business operations, such as new locations, products, or services. Regular communication ensures that your insurance coverage remains up-to-date and aligned with your business’s current needs. It allows your insurance provider to offer guidance and support, helping you make informed decisions to protect your business effectively. By staying in touch with your provider, you can address any concerns or questions promptly and maintain a strong working relationship.

    Small Business Insurance in Ontario: The Bottom Line

    Small business insurance is a critical investment for Ontario businesses, providing financial protection against unforeseen events, liabilities, and losses. By understanding the types of coverage available, legal requirements, and key factors influencing premiums, businesses can make informed decisions to secure comprehensive insurance. 

    Remember to choose a reputable insurance provider, regularly assess risks, and update coverage to ensure ongoing protection. Safeguard your business’s future and ensure its resilience with the right small business insurance coverage.

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    Fun-loving and adventurous, with a passion for sales and technology, Trevor grew up in Ontario and received an Honours Bachelor of Business Administration (Economics) from Wilfrid Laurier University. He works for a Fortune 500 company and is addicted to personal finance, SEO, and self improvement. His most recent work is centred around personal credit, small-business finance, and international trade.