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A guide to small business insurance

Small business insurance is about more than just protection—it's important to mitigate business risk. Your business’ industry and size will affect your insurance needs. Talk with a lawyer and insurance advisor to discover the coverage that suits your business.

Get familiar with your options—let’s explore the different types of small business insurance. 


Directors and officers liability insurance

Directors and officers (D&O) liability insurance protects any individual from personal loss if a business is sued (with the exception of fraud or criminal charges) while they’re performing their duty as a director or officer.

These people are required to act in the best interest of the business, while exercising due diligence and a duty of care. Directors and officers make important decisions which can affect employees, shareholders and clients.

D&O liability insurance can also cover the legal fees and other costs to the organization as a result of a lawsuit. This policy is taken out and paid for by the business, but the beneficiaries are both the business and the directors/officers.

Errors and omissions insurance

Errors and omissions (E&O) insurance protects a business or their employees from being held liable if an error or omission was committed while on the job.

E&O insurance focuses on claims of negligence and can cover many events, including oversights incurred during work, failure to deliver as promised under the terms of a contract, breach of contract, professional negligence or failure to meet professional standards. 

This insurance is taken out by the business and is recommended for any business or sole proprietors who work in services-driven industries, like freelance contractors or event planners.

Key person insurance 

Is there someone your business couldn’t operate without? This coverage is common with small- and medium-sized businesses where key people whose death, disability or injury would seriously harm the financial health of the company.

A key person is anyone with very specific knowledge about the company or someone whose relationships bring business in the door—a key person isn’t always the owner.

Businesses with a need for key person insurance usually buy coverage for five to 10 times the compensation earned by this person. This policy is taken out by the business and the business is the beneficiary. 

Life insurance

Life insurance policies protect shareholders, the corporation, key persons in the business and shareholder family members. It manages business risk and potential tax costs in the event of a business owner or key shareholder’s death.

Policies are taken out by the business, who’s also the beneficiary. Because shareholder capital gains taxes will come due either at death or at the death of the beneficiary of the original shareholder’s shares, life insurance can provide availability of financial assets (also known as “liquidity”) to fund those taxes.

Advantages of life insurance

By holding life insurance, small businesses get access to small business deductions and a lower tax rate. This applies to the first $500,000 of business income that isn’t investment income.

Having life insurance can also be an advantage when you need a loan. Banks and other lenders may ask you to provide life insurance or key person insurance as a condition of lending. Talk with an accountant and insurance professional to see if this could be a good option for you.

As your business grows, it's important to evaluate your company to see if your insurance policy reflects your current needs. 

Commercial vehicle and property insurance

Commercial vehicle and property insurance covers events out of your control to protect both your people and property. External threats like theft, fire or flood significantly can impact your business operations. Property insurance can protect you (your bottom line) from the resulting loss of inventory, equipment or sales caused by external circumstances.

Likewise for vehicle insurance, the right coverage will provide peace of mind. Whether you have one shared vehicle used for delivering products, or multiple vehicles used regularly by employees, an insurance advisor can identify your coverage options. 

Loan protection

Business loans and lines of credit can be insured with loan protection to cover the balance of your payments or balance-owing in the event of death or disability. You can add this on to other insurance options, including key person or life insurance.

Policies are generally taken out by the business when the loan is approved, and may be included in the cost of borrowing. Talk with a business advisor about loan protection options.

Workers’ Compensation Board Insurance

The Workers’ Compensation Board (WCB) is mandated by the Government of Alberta and the Ministry of Labour. If you hire workers or have multiple contractors/subcontractors, WCB insurance coverage can help mitigate the impact from workplace injuries.

For both workers and employers, WCB provides a variety of resources to support an understanding of workplace rights and responsibilities, and collective liability. WCB supports return to work plans through fitness for work assessments and modified duty guidance. 

Industry-specific insurance

Industry-specific insurance options are growing, each offering their own level of support. For example, agribusiness insurance can cover equipment and machinery, crop damage, buildings and other farm-related assets.

Transportation and logistical insurance exists for businesses operating within the supply-chain space. In the tech sector, data and IT infrastructure can be insured to help confront cybersecurity threats and data breaches. If you’re interested in your coverage options, chat with your insurance advisor.

As you review your business insurance options, explore how permits and licensing could play a role in your decision—some may require insurance before being approved. Finding the right legal advisor will also help you assess your options, and understand how they could affect your business in the short and long term.