If you’re like most Canadian small business owners, liability insurance probably isn’t your first priority. You’re busy getting your first customer, building a website, landing contracts, and growing your revenue.
Liability insurance often seems like something to handle later, maybe when your business is bigger or making more money.
But the best time to get business insurance is usually sooner than most owners expect. Many liability risks start as soon as you offer advice, sign contracts, sell products, or launch a website.
You don’t need to be a large company to face a lawsuit or have an unexpected accident affect your finances and reputation.
All it takes is someone claiming your business caused them harm or damaged their property, and legal bills can add up fast. Theft or a hacker’s ransomware attack can also put you in a tough spot. How much profit you make doesn’t matter.
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Insurance only helps if you have it before a claim happens. You can’t buy coverage after something goes wrong and expect it to cover past events.
Let’s look at when business liability insurance becomes essential, and why waiting could end up costing you more.
When Is the Right Time to Buy Liability Insurance in Canada?
There are five key milestones when your business’s liability risks really start. These are:
1. Before You Sign Up Your First Customer
If you’re signing agreements with customers, you should already have insurance. As soon as you start giving advice or providing services, you’re taking on risk.
If a customer says your work cost them money, you might have to pay to defend yourself in court. Many customer contracts also require you to show a certificate of insurance (COI) before starting a project.
2. Before You Sell Your First Product
If you sell physical products, whether online or in person, you can be held responsible if a product causes injury or property damage.
This is true even if you didn’t make the product yourself or only sell part-time. Product liability claims can come up months after you make a sale.
3. Before Opening a Physical Store or Location
If your business needs a physical store, office, or warehouse, you’ll need general liability insurance before renting or leasing. Most landlords require proof of insurance before giving you the keys.
That’s because whenever a customer or delivery person comes onto your property, there’s a risk of slip-and-fall injuries that could lead to claims against your business, and that claim could impact the property owner if you’re uninsured.
To protect your business contents and inventory in that rented or leased space, it’s advised to include business contents insurance in your policy.
4. Before Launching Your Business Website
Don’t assume an online business with no physical location is risk-free or safer.
Online businesses can also face a broad range of liability risks, including:
- Allegations of professional negligence
- Product liability claims
- Faulty advertising claims
- Data breaches and cyberattacks
- Copyright-related disputes
If you use a website to make money or collect customer information, you’re at risk. That includes using third-party marketplaces like Etsy and Amazon.
5. Before Hiring Employees
If you’re a new business owner, you might not be thinking about hiring employees yet. But as your business grows, you may need to.
Hiring employees increases your business’s risk. For example, if an employee makes a mistake that causes a customer financial loss or physical harm.
Even if your business is small, your risk increases the moment someone represents your company.
What Happens If I Start My Business Without Insurance?
Here’s something many people overlook: Anyone can file a claim or lawsuit against a business owner, even if it isn’t justified.
And unexpected events like theft of tools, equipment, or inventory, or fire and water damage to your business property, can happen at any time.
Without insurance, you’re left to handle these situations on your own, including:
- Legal defence costs, out-of-court settlements, or court-awarded damages if sued
- Paying to replace or repair stolen or damaged business contents and inventory
- Paying to repair fire- or water-related damages to your commercial property
You can’t backdate liability insurance. Once a problem happens, it’s too late to shift the risk to an insurer.
How Much Liability Insurance Does a New Business Need?
Every business is unique. Most customized liability insurance policies are built around a few main types of coverage, including:
- General Liability Insurance to cover third-party bodily injury and property damage claims.
- Professional Liability Insurance (also called errors and omissions insurance) covers claims related to a business’s professional services.
- Product Liability Insurance covers claims involving the products you sell. It’s often included along with general liability insurance.
It doesn’t have to be complicated. Your business just needs coverage for what it actually does. A licensed insurance broker can help you figure out what your policy should include to protect your finances.
Frequently Asked Questions About When to Buy Liability Insurance in Canada
How much does small business liability insurance cost in Canada?
The cost depends on your business type, industry, revenue, location, coverage limits, and claims history. For many small businesses, liability insurance costs a few hundred dollars per year. Getting a free quote is the best way to find out what you’ll pay.
Do I need liability insurance before I get my first customer?
Yes. Liability risk starts as soon as you offer services, advice, or products to the public. Insurance only covers incidents that happen after your policy begins, so waiting until after you get a customer can leave you unprotected.
Can I buy liability insurance after a claim happens?
No. Business insurance doesn’t cover incidents that happened before your policy started. If a claim comes up before you have coverage, you’ll have to pay for damages and losses yourself.
Get a Free Small Business Liability Insurance Quote Online and Consider Your Options
If you’re not sure if now is the right time, that’s okay. You don’t have to worry or guess.
Getting a free business liability insurance quote doesn’t commit you to anything. It helps you make informed decisions, so you can:
- Review what coverage options may fit your business
- Compare quotes from multiple Canadian insurers
- Ask a broker questions about what you actually need and what you don’t
Fill out our online application for a free quote in under five minutes.
The best time to protect your business is before something happens, not after.
– Reviewed by Brandon Bowie, Senior Broker and Team Lead, Professional Lines, Zensurance.
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