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In a couple of weeks, Fiona Hill will go from employee to entrepreneur. The Burlington, Ont.-based resident is launching Fiona Hill Downsizing, a company that aims to  help customers – mostly older Canadians – move out of their bigger homes and into smaller spaces.

Ms. Hill has everything she needs to start running her new venture – except insurance, which she is still researching and discussing with her broker.

"I couldn't even think of starting this business without the proper insurance in place," says Ms. Hill, whose company will do everything from sorting through basement storerooms and packing fine china to helping clients sell their vintage furniture and stamp collections. "There are just too many things I could be held liable for."

Ms. Hill's foresight may put her in the minority among small-business owners.

Business and insurance experts say that, even though running a company is fraught with risks, entrepreneurs often don't take the time to figure out what they need to adequately protect themselves, their employees and their business.

"Very few business owners of any size give much attention to insurance," says Peter McCann, owner of McCann Corporate Consulting Associates, a business-consulting firm based in Burlington.

"That's just the nature of entrepreneurs, who tend to do their business plans assuming only good things will happen."

Whatever their size, every business needs to look at its risks and map out the areas where it needs insurance, Mr. McCann says.

And while many small business owners may think they don't have the time or money to go through this process, failing to do so puts their company – and possibly their own personal assets – at risk, he warns.

Adverse events in a business – from equipment failure to an on-site accident to the death of a business partner – can result in significant financial losses or even closure of a company, Mr. McCann says. Owners of unincorporated businesses can also face claims against their personal assets.

Insurance is critical for companies that do business beyond Canada's borders, Mr. McCann says.

"Anybody that operates and exports to a foreign jurisdiction without the appropriate insurance is risking the entire company," he says.

"Before you go there, be sure to talk to an insurance broker who has specialized knowledge about your industry, as well as the foreign country you're looking to export or operate in."

Failure to have the appropriate insurance in place can also translate into lost opportunities; a number of companies and government agencies want proof of certain types of insurance – such as liability or errors and omissions insurance – before they'll even consider working with a business.

"When a business owner doesn't have the proper insurance to anticipate risk, it can destroy the business," says Brian Burlacoff, a Toronto-based financial adviser for  Sun Life Financial. "What insurance does is preserve the value of the business."

For small business owners with a tight budget, the experts offer the following tips for mapping out their insurance needs:

Know the dangers

Judi Smith, a senior broker with Hub International, an insurance broker in Burlington, says that knowing what types of insurance to purchase starts with deconstructing what the business does, identifying its assets and then pinpointing where things could possibly go wrong.

This will help to create an insurance map that shows where coverage is needed.

A hair salon, for instance, should have premises liability, which would cover incidents such as a customer slipping on the floor or falling down the stairs. Product liability would also be a good idea, in case a product or service provided damages a client's hair.

Companies that transport their products should get transportation exposure insurance, Ms. Smith says.

"Many business owners assume that the carrier will bear responsibility for any loss or damage to their product, but the fact is that carriers are only responsible for a limited amount," she says. "The rule in insurance is: If you own it and you're shipping it, you should insure it."

Check out package deals

Choosing which coverage to take and which to forego can be a stress-inducing process for small businesses that face plenty of risks, but don't have a lot of money to spend on insurance.

A bundled product might be the way to go, Ms. Smith says. It typically includes commercial property insurance for buildings, equipment and inventory; general liability to cover property damage or personal injury; crime insurance to cover loss from theft or fraud; and business-interruption insurance to cover rent and other fixed costs should the business need to shut down temporarily because of property damage.

"These packages are quite inexpensive," Ms. Smith says. "For about $1,000 a small business owner can get a good amount of coverage."

Customize for special needs

Many businesses face particular risks. A gym, for example, could be held liable if a member injured another member accidentally during a kick-boxing class. In Ms. Hill's business, unique risks include damage to family heirlooms and art collections or even claims of staff mistreating clients.

"In my type of business, there's the risk that someone could complain that we have been abusive or have not treated a senior with respect," Ms. Hill says. "So I would be looking at insurance that would be similar to the ones in use by companies that serve vulnerable populations."

Because of the risks inherent in her business, Ms. Hill says she has decided against going with an all-in-one policy that would likely include coverage she doesn't need. Instead, she is working with Ms. Smith to get a general policy customized to her needs.

"It's really tempting to get those prepackaged offers because all the work's been done for you, but then you end up paying for things you don't really need," Ms. Hill says.

Don't forget your human assets

Small businesses with employees or business partners should not overlook their people-related risks, Mr. Burlacoff says.

He points to two types of people insurance: group insurance that provides health benefits and protects employees who become injured or disabled, and insurance for owners, partners and key employees.

Offering group insurance gives businesses an edge over other employers and helps them attract talent, Mr. Burlacoff says. Business owners with a limited budget limited don't have to get all the works, Mr. Burlacoff says. Instead, they can prioritize their coverage by looking at what presents the most risk to their employees. For example, covering a serious illness would be a higher priority than covering a tooth cavity.

"We would recommend concentrating on the medical plan and long-term disability first because those are the biggest risks," he says.

Many businesses rely on the expertise of one person or a small group of key employees. They should protect themselves from the risk of losing these VIPs, Mr. Burlacoff says. "Key man" insurance gives a payout that allows businesses to cover their expenses when sales go down because the marketing and sales manager quit, or a business partner died.

"When this happens, a bank could potentially call in a loan, so the insurance benefit gives you money to pay the debt," Mr. Burlacoff says. "You can also use part of that money to take care of a sick employee or their family."


Insurance policies for business run the gamut. Here's a snapshot of some policies that might be suitable for your small business:

Accounts receivable insurance

Protects against bad debts – when clients don't pay their bill – and could make it easier for a business to borrow money.

Employment practices liability

Provides coverage to pay legal or settlement costs in the case of wrongful dismissal and other claims related to employment practices.

Umbrella liability

Steps in to fill any gaps not covered by other types of insurance. This would be ideal for businesses with complex or unique coverage needs.

Kidnap and ransom insurance

Needing no description, it might be s a good idea for companies that do business in unstable or dangerous locations.