Business Insurance - Do You Need It? | Chris Malta's EBiz Insider Podcast

Chris Malta's EBiz Insider Podcast

I often get this question in my EBiz Insider Workshops: Do I need business insurance for my ECommerce business?

Well, if you ask an insurance salesperson, the answer will always be a resounding YES!...because you're talking to an insurance salesperson. In reality, things are a bit different.

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EPISODE TRANSCRIPT

People sometimes ask me if they need business insurance for their ECommerce business.

Well, if you ask an insurance salesperson, the answer will always be a resounding yes. Because you're talking to an insurance salesperson.

In the real world, things are a bit different.

Keep in mind that I'm not a legal professional. So this isn't meant to be legal advice. If you want legal advice, talk to an attorney.

My advice in this area comes from nearly 50 years of actually owning and running businesses, and it's my personal opinion.

There are times when I've had business insurance, and times when I haven't. It depends on the circumstances. The most common type of business insurance is liability insurance.

An insurance salesperson will tell you that you need this in case somebody gets sick or is injured by something you sell, or somebody's injured on your business premises.

In my businesses, I've had offices where my employees work, and where potential customers and other people come to meet with us. I've always had liability insurance for any office space I've ever had, where other people work or visit.

On the other hand, if you own a home based business, in my opinion, you can rule out liability insurance for your business premises. You won't have your internet based customers traipsing in and out of your home.

They'll be buying from you online and won't even know where you live. So the chances of one of your customers being injured on your business premises by tripping over your cat or slipping on a patch of ice on your front porch is nil. It won't happen.

Another potential liability is one of your customers getting sick or being injured by something you sell. When it comes to that scenario, follow these simple rules.

One, never sell anything that people eat, drink, put on their skin, or feed to their pets.

Two, never sell anything that explodes.

I've never carried liability insurance on any of the sites I've had where I've sold physical products online, because I've always followed those rules.

Is it possible that someone could hurt themselves with other products you sell? Sure, there's always that chance.

If you sell clothing irons, and some guy tries to flatten his arm hair using a hot iron, that's going to hurt.

If somebody has a knot in their shoelace that they can't untie, and tries to cut through it with a skill saw you just sold them, that's gonna hurt.

So you really can't protect yourself all the time against every possible stupid human trick that the species can conceive of, and there are a lot of them.

However, it's also very unlikely that anybody would try to sue over something like that or ever be successful if they tried.

Let's look at more likely scenarios. A lot of the products that are sold in the US these days are made in China. With such lax regulation in Chinese manufacturing, there's always the possibility of lead paint, cheap and brittle plastic that breaks easily and can hurt somebody, or any number of other product problems that relate to largely unregulated manufacturing processes.

This is yet another reason (in a long list of reasons) not to buy products directly from China. Forget importing directly from China; it's far too expensive anyway.

Don't waste your time and money on AliExpress or anything like it. Check out my other episodes to learn why those are such bad ideas on o many levels.

If you're going to sell products online you want to deliver safe, quality products to your customers and greatly minimize any need for liability insurance.

That means you always buy from reputable US based wholesale suppliers that are licensed by the product manufacturers.

Generally speaking, even if the products are made in China, reputable US-based wholesale suppliers do not import the cheap, dangerous stuff. They don't want that liability either.

Also, if somebody does get hurt using a product you sold them, and you bought it from a reputable US source, any legal action is more likely to go after that source instead of your home based business.

Liability lawsuit attorneys look for people with the mega deep pockets, like the manufacturers and suppliers.

In the more than 30 years I've been in the ECommerce business, I've never known or heard of a home based business owner who was sued over a product liability issue.

The only exception I'd caution you about, is if a product you sell is suddenly subject to a product safety recall. If you know that and you keep selling it anyway, that could be a problem.

Your supplier will notify you if any of their products that you sell are ever hit by a safety recall. If that ever happens, remove the product from your site immediately.

When it comes to wondering if you need liability insurance, the question you're asking is related to risk. If you pay attention to what I've told you here, you'll have a much lower level of risk than the insurance salespeople want you to think you have.

This is obviously a decision you have to make for yourself. I'm not telling you to ignore risk factors in your business, or to ignore legal or insurance professionals.

I'm just warning you to be careful about falling victim to hysterical sales practices that are designed to make you think that you need something more than you actually do.

Again, just my humble opinion after nearly 50 years in business overall.

I also mentioned that there are other reasons to carry business insurance. Specifically, there are two other types of insurance that businesses do use regularly.

The first is property insurance. Let's say that you're selling on eBay or Amazon, and you have $20,000 worth of wholesale products sitting in your garage. Suddenly, there's an electrical fire or a flood or some other disaster that destroys that property.

First, allow me to mention that you should not be in this situation in the first place, because you should not be selling on eBay or Amazon. Both those platforms have miserable profit margins. They're extremely difficult to work with, etcetera.

There's more on that in other episodes.

Second, if you are in that situation, your homeowners insurance will cover your home and your personal property, but may not cover your business property. So that is a reason to consider business property insurance.

Or you could just get away from eBay and Amazon and build your own website like you really should be doing.

The other type of insurance is transit insurance. This again relates to handling bulk wholesale products yourself. If you're buying loads of wholesale products locally and shipping them to a fulfillment center, for example, insurance companies offer transit insurance in case those products get lost or damaged in transit.

Of course, UPS FedEx and USPS offer insurance for exactly the same thing. In my opinion, I would take advantage of that, instead of buying blanket transit insurance coverage.

Just remember that a business insurance salesperson is always going to try to scare you into buying as much coverage as they can, whether you need it or not. You might opt for some type of insurance for your business if you really feel the need to. But you can't bubble wrap your whole life. So don't go overboard.

Learn a whole lot more of the truth about ECommerce. Check out my Free EBiz Insider Video Series at Chris Malta.com

Thanks for listening, and I'll catch you next time.