Insurance for Online Business: Do I Really Need It?

Last updated: 21 November 2024

Do you need insurance for your online business? It’s a good question. The short answer is “No”. But you do need legal protection.

If you had a physical ‘bricks and mortar’ shop, you would have insurance to protect the goods you are selling against theft, fire and damage, among other things. You would also have insurance for ‘slip fall’ claims if a customer entered your shop and fell or was injured.

These insurances are a requirement for physical shop fronts but what about your online shop? What might you be liable for?

If you sell goods or services online through your ecommerce business, your customers may claim damages or injuries caused by your products. They may try to sue you for several things, such as allergies to your food or beauty products, injuries caused by clothing or electrical products you sell, financial loss for advice you gave, etc. And you may be liable even if you have not manufactured the products or are importing the goods from manufacturers overseas.

Is insurance worth it?

It’s difficult to find specialist insurance policies that properly cover ecommerce website businesses. Many insurance companies refuse to insure online businesses and do not have suitable policies available.

More general business continuation insurance policies may protect against some instances of business interruption. Still, they usually require a minimum number of days of interruption before you can claim and would not cover you for any liability claim issues.

Insurance policies can be expensive too. Especially if they are very difficult to claim against and you rarely qualify to be paid for any claim.

If you decide to obtain an insurance policy of any type, ensure you read the policy terms carefully. Do not rely solely on what the insurance salesperson or broker tells you. And ask a lot of “what if” questions.

How can I best protect my website business?

Rather than trying to insure your website business, here is what we recommend:

Have robust Terms & Conditions on your website. Well-drafted Terms with a limitation of liability clause will go a long way to protecting you, your assets and your business.

Have strong relationships and agreements with your suppliers. You should have End User License Agreements (EULA) or Service Level Agreements with your suppliers that protect you. If your suppliers don’t support you adequately, they can’t be reached easily or aren’t responsive; it will cost you financially and impact your reputation.

Consider setting up a Pty Ltd company. The benefits are not just to protect your personal assets. You can also claim tax deductions for a home office and business running expenses and have more flexibility to structure your personal and business income. The corporate tax rate is attractive and makes capital raising easier since you can issue shares and structure your business with investors more easily.

Protect your intellectual property. Register your business name, logo and website domain name. This will prevent someone from coming along, trademarking your business or company, and taking your business out from under you. Imagine having to fight that battle or starting over from scratch!

Don’t risk your personal assets and your business. You spent a lot of time and money setting up your business, so ensure you protect it and yourself.

About the Author: Vanessa Emilio

Vanessa Emilio (BA Hons, LLB, ACIS, AGIA) is the Founder and CEO of Legal123.com.au and Practice Director of Legal123 Pty Ltd. Vanessa is a qualified Australian lawyer with 20+ years experience in corporate, banking and trust law. Click for full bio of Vanessa Emilio or follow on LinkedIn.

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