Business Insurance: An Overview for Newcomers to Canada

Small business owner

Starting a business of any size in Canada may be an exciting venture for newcomers, like yourself, looking to establish a foundation within a new country.

Along with the excitement, however, comes the responsibility of protecting your investment. If you are a newcomer who is also a business owner, one important step you may wish to take is securing the right business insurance coverage for your needs.

This article is designed to help you understand what business insurance is, why it’s important, and what to consider before purchasing it. We will also look at the types of coverage that may be beneficial for business owners in Canada.^[1]

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What is Business Insurance?

Business insurance is a type of protection to help ensure you are able to maintain continuity in your business should an unforeseen event occur. This could include events such as damage to your property, getting sued, or a natural disaster. One of the goals of business insurance is to provide financial protection so your business can keep running, even with unexpected challenges that may come your way.

In Canada, business insurance may not be one-size-fits-all. The type of coverage you may require depends on the unique needs of your business, its size, and the risks it faces. For example, a small retail shop will have different insurance needs compared to an electrician or a consulting firm. Understanding the specific risks associated with your business and industry is one step in selecting the coverage for your business.

Why is Business Insurance Important?

Starting a business may involve a significant investment of time, money, and resources. Business insurance may be one of the solutions that can help financially protect that investment. Without having the right insurance coverage, unexpected events may lead to unplanned financial pressure, which may cause challenges in running your day-to-day business.

For instance, imagine if a fire were to damage your store or a customer were to take legal action against you over a service dispute. Without business insurance, you would be responsible for covering the costs out of pocket. With the right coverage in place, however, insurance can help mitigate the impact of these unexpected costs, allowing you to focus on your business rather than worrying about potential liabilities.

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Things to Consider Before Purchasing Business Insurance

Before purchasing business insurance, there are several factors to consider when choosing the right coverage for your needs:

Understand Your Risks: Every business may face different risks. For example, a restaurant might be more concerned with food safety and fire hazards, while a consultant might worry more about making errors in their work. Assess the specific risks associated with your business to determine what types of coverage you need.
Legal Requirements: In Canada, certain types of insurance may be legally required depending on the industry your business operates in. For example, if you have employees, you may be required to have workers’ compensation insurance. It’s important to understand the legal requirements for your business to help avoid penalties and ensure legal compliance.
Budget: Insurance premiums can vary widely depending on the type of coverage and the level of risk associated with your business. Determine how much you can afford to spend on insurance while ensuring you get adequate coverage.
Shop Around: Not all insurance policies are the same. It’s a good idea to compare quotes from different insurance providers and understand what is covered and what is not. Working with a licensed insurance provider may also help you find the best coverage for your needs.
Policy Limits and Deductibles: You may want to take time to understand the limits of your insurance policy and the deductibles you’ll be responsible for in the event of a claim. A higher deductible may lower your premium, but it also may mean you’ll pay more out of pocket if you need to make a claim.

Types of Business Insurance Coverage

When it comes to business insurance, there are several types of coverage to consider. For business owners in Canada, here are some types of coverage you may consider:

A) Commercial Property Insurance:

Commercial property insurance provides coverage for your business's physical assets, including your building, equipment, inventory, or other contents. In the event of damage or loss due to fire, theft, vandalism, or certain natural disasters, commercial property insurance can help cover the costs of repairs or replacement. This may enable your business to quickly recover and resume operations without significant financial strain.

Business Interruption Insurance – also known as Business Income Insurance – is an optional but critical coverage that can be added to your commercial property policy. It compensates for lost income and extra expenses incurred if your business is temporarily shut down due to a covered event. For example, if you're a retail store owner and your store has suffered damages due to a fire caused by a sudden electrical malfunction, a commercial property policy can cover the costs of repairs and replacement of damaged stock, mitigating significant financial strain. While your retail store is closed for repair, business interruption coverage can protect your income stream to help ensure you and your business can continue to meet financial obligations and emerge resilient.

B) Commercial Auto Insurance:

If your business owns or operates vehicles, you may need commercial auto insurance. Using a vehicle for commercial activities implies facing different types of risks compared to personal commuting such as going to work or running personal errands.

A commercial auto policy may help to address these unique risks and provide coverage for your vehicle’s damages, or liability and medical expenses for you and the employees that drive your vehicle, if an accident were to occur. This way you can focus on running your business rather than worrying about potential accidents or damages.

C) Commercial General Liability Insurance:

Commercial General Liability (CGL) is a fundamental policy that safeguards your business against claims arising from injuries or damages that you, your employees, your product or services may cause to other people or their property. It also covers non-physical injuries like slander or false advertising. This coverage is crucial for virtually all small businesses that interact directly with customers or clients. Many business owners underestimate the potential costs of lawsuits, which can be financially crippling. A classic case would involve a small café where a customer slipped and sustained an injury. A CGL policy may cover any related legal fees and medical expenses incurred by the customer if the business is found liable, protecting the café owner's finances.

Similarly, an apparel manufacturer sued over a product-related injury – for example, a severe rash caused by a dress fabric – would find relief in their CGL policy covering legal fees and compensation expenses. Even in cases such as mail-out flyers claiming your scone is the “best in town” and another local business taking actions against you for false advertising, CGL may step in to cover the cost of settling the claim.

D) Professional Liability Insurance:

Professional liability insurance, more commonly known as errors & omissions (E&O) insurance, is often confused with CGL insurance, however, is slightly different. This insurance provides financial protection to businesses and their employees against claims of inadequate work or negligent actions.

For example, A person is a tile installer and has completed their work on a new house being constructed. However, when the wood flooring was to be installed it's discovered that the height of the wood floor and tiles don't match, and this was due to the tile installer making a measurement error. The tile installer hasn't physically injured anyone or caused property damages, but the third party has still suffered a financial loss which would not be covered under a standard CGL. This is the type of scenario where E&O insurance may kick in.

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Starting a business in Canada may come with the responsibility of protecting it. Business insurance may be the answer if you want to keep your business safeguarded through unexpected events. By learning about the different types of coverage and choosing the right business insurance products for your needs, you can help financially protect your business from unforeseen challenges.

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150 years helping Canadians:

TD has a proud history of delivering financial solutions to Canadians for more than 150 years. TD also brings a century of experience helping newcomers navigate the unique challenges of the Canadian banking system.

With over a thousand branches, a reputation for excellence in financial services, and the ability to also serve you in more than 80 different languages, TD has become one of the largest and most trusted banks in Canada, now serving 16 million Canadians.

TD offers online support and resources of interest to newcomers on topics such as banking basics, moving to Canada, credit score essentials, and more. TD is open longer hours for your convenience and has thousands of ATMs across Canada to help you take care of your everyday banking needs quickly and easily.

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[1] https://www.ibc.ca/insurance-basics/business