According to the U.S. Small Business Administration (www.sba.gov), insurance coverage is available for every conceivable risk your business might face. Businessowners must weigh the costs and amounts of coverage needed and should discuss specific business risks and the types of insurance available with an independent insurance agent. An independent insurance agent can advise business owners about the exact types of insurance to consider purchasing.
General Liability Insurance
Businessowners purchase general liability insurance to cover legal hassles due to accident, injuries, and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
Product Liability Insurance
Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance purchased depends on the products sold or manufactured. For instance, a clothing store would have far less risk than a small appliance store.
Professional Liability Insurance
Businessowners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects a business against malpractice, errors, and negligence in provision of services to customers. Depending on a profession, certain types of insurance might be required by the state government. For example, physicians are required to purchase malpractice insurance as a condition of practicing in certain states.
Commercial Property Insurance
Property insurance covers everything related to the loss and damage of company property due to a wide-variety of events such as fire, smoke, wind and hail storms, civil disobedience, and vandalism. The definition of “property” is broad and includes lost income, business interruption, buildings, computers, company papers, and money.
Property insurance policies come in two primary forms: (1) special policies covering a wide-range of incidents and perils except those noted in the policy; (2) peril-specific policies that cover losses from only those perils listed in the policy. Examples of peril-specific policies include fire, flood, crime, and business interruption insurance. Special policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased when there is high risk of peril in a certain area. Consult an independent insurance agent about the type of business property insurance best suited for a particular type of business.
Home-Based Business Insurance
Contrary to popular belief, homeowners’ insurance policies do not generally cover home-based business losses. Depending on risks, a rider can be added to a homeowners’ policy to cover normal business risks such as property damage. However, homeowners’ policies only go so far in covering home-based businesses and additional policies might need to be added to cover other risks, such as general and professional liability.
To ensure your business is properly covered, meet with an independent insurance agent to review risks and coverages for your business.
Insurance 101 for new business owners
If you’re thinking about starting a small business, you know a thing or two about taking risks. Your entrepreneurial spirit is not only commendable, it’s critical to keeping our economy going. But at the same time, it’s smart business to limit your risks however and wherever you can. That’s where business insurance—and solid advice from your independent agent—come into play.
Is business insurance necessary?
The short answer is absolutely. Especially if you have employees, in which case some types of insurance, including workers’ compensation and disability insurance, may be required by law. You may also be required to have insurance if you have a company car. In other instances, insurance coverage can be a stipulation of getting a business loan, lease, supplier or customer contract or a state or local business license.
In many cases, though, there are no laws, rules or regulations that mandate business owners make smart choices about protecting their business. As a result, around 40% of small businesses don’t have insurance1.
What’s the risk?
Many small businesses go without insurance because of the cost. But those businesses haven’t carefully considered what not having insurance could cost them. The reality is, all businesses face risks that could be financially devastating without insurance protection. Obviously if you’re opening a skydiving school, your business risks are going to be a lot more substantial than if you’re opening up a bookstore. But no business is entirely immune to risks, which could include:
Natural or manmade disasters like tornados, floods or fires
Theft by an employee
Employee accidents
Death of a business partner or key executive
False advertising or copyright infringement
Malpractice or negligence
Product-related injuries or accidents
Data breach, and much more
Without the right insurance coverage, any of these situations could break your business—and even jeopardize your personal assets—closing your doors much more quickly than you opened them.
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Tips for protecting your business
If you don’t want all the hard work that goes into starting a business to be in vain, make sure your business is covered. Keeping these tips in mind can help you secure the right insurance for your company:
- Make the right call
Trying to understand your insurance needs and which coverages are the right fit can be overwhelming, if not downright impossible, to do on your own. So don’t go it alone. Call your independent insurance agent. Independent insurance agents are not only well-versed in the types of risks businesses face, they also know the types of insurance products available to protect businesses, and they represent multiple insurance companies, which means they have access to a wide range of products to choose from.. An independent agent can help you carefully consider and identify potential risks to the business and fully explore your insurance options, so that coverage can be matched to your unique needs. Essentially, working with an agent ensures you get the expert help and advice you need to make sure your business is covered, no matter what happens. - Plan on it.
Create a detailed business plan that outlines what the business will do and how it will do it. A solid business plan is a crucial tool when it comes to securing insurance as well as funding for a new business. A plan demonstrates to insurance underwriters and potential investors that you’ve done your due diligence to consider the risks you may encounter and how to protect your business as it grows. Your independent agent can help you create a good plan and pitch it to insurance underwriters. - Know your risks
There are many, many types of commercial insurance products on the market, ranging from general liability insurance, to property coverage, to commercial automobile coverage, to data breach and e-commerce coverage. Knowing what protection you need starts with understanding the unique risks your business faces. For example, if you’re starting a contracting business or a manufacturing company, equipment breakdown or electrical failure could seriously jeopardize your livelihood. On the other hand, if you’re launching an e-commerce site, protection against data compromise is probably a must. An independent agent can help you identify your potential liabilities and risks via a professional risk assessment so you know what types of coverage you need. - Consider a package deal
If your business requires a number of different types of coverage—such as property coverage, vehicle coverage, protection from business interruptions or loss of equipment and liability coverage—you may want to consider a Business Owner’s Policy (BOP). A BOP bundles different types of coverage together and can save you money versus buying separate policies for your various insurance needs. - Make it personal
Your business is unique, and that means your insurance coverage should be too. Even if a BOP makes sense for you, you should talk to your independent agent about customizing the coverage so you have added protection where you need it most. Your agent can help you look at adding endorsements or other options to your coverage based on your business’s specific needs and risks. Keep in mind that independent agents typically have access to a multiple carriers, so they’re very well equipped to deliver the customized insurance options you need. - Make no mistake
Owners of home-based and small businesses frequently make two common insurance mistakes. First, home-based business owners often assume their homeowner’s policy covers business assets. But in most cases, you need a separate commercial policy to safeguard business property and protect your business from liability. Second, owners who have incorporated or formed an LLC may think their business structure protects them. While a formal business structure may protect your personal assets, it won’t cover business losses. - Don’t overdo it
While protecting your business with insurance is no doubt a smart investment, no owner wants to pay for coverage he or she doesn’t need. Working closely with your independent agent and ensuring he or she truly understands your business can help prevent buying unnecessary coverage. You can also save money by choosing a higher deductible and following your insurer’s recommendations for avoiding loss. - Take a second look
As your business evolves, so will your risks. It’s a good idea to review your insurance policies with your independent agent at least two times each year to identify new risks and ensure you have the coverage you need to protect your company and your livelihood for the long term.
