A large percentage of small businesses in the United States don’t have enough insurance to protect them if things go wrong. Insurance can mean the difference between a setback and a disaster for the small business owner, but it’s also a regular expense — one you should include in your budget.
Having sufficient insurance coverage to protect your business when the unexpected happens is important, but unnecessary insurance costs impact on your business profitability. How can you go about finding the right balance for your particular business? You want adequate protection, but you don’t want excess insurance costs. Here are some tips that can help you figure out how much insurance your business really needs.
General Liability Insurance for Your Business
General liability insurance, or business liability insurance, covers you if one of your clients suffers some form of loss, injury or damage as a result of doing business with you. It can also cover property damage, damage to premises rented to you, personal and advertising injury and medical payments. How much liability coverage you need depends on the type of business you run.
If you have a store, and a member of the public slips and falls, resulting in an injury, or if you’re a builder and an accident happens on the site that causes damage to property, your liability insurance covers you. However, a lot of people don’t ever have contact with the public in their type of business. If you’re an IT expert who works from home, you may not need liability insurance at all.
While we’re on the subject of liability, remember that as a sole proprietor or member of a standard business partnership, your business liabilities may have to be covered by your personal assets. Forming a limited liability business entity ensures that your personal assets aren’t endangered by business liabilities.
Professional Liability Insurance
Professionals like lawyers and accountants may need to have additional professional liability coverage. This is because, even though you’re an expert in your field or business, you can make a mistake, which could damage your client financially. Hence, professional liability insurance, or error and omissions insurance (E&O insurance), can be very useful and save you a lot of money in potential claims. It helps protect you and your business against a claim that your professional advice or services you provided caused a client financial damage due to mistakes made by your company.
Workers’ compensation insurance, or workers’ comp, covers medical expenses and a portion of lost wages for an employee who was injured or became ill on the job. Workers’ compensation covers employee rehabilitation and death benefits as well. The key point is that an employee can only receive benefits if their injury or illness is related to their job functions or employment.
Workers’ compensation insurance is a must when you hire employees. Remember to factor this into your projections when deciding on whether or not to employ additional staff members. It doesn’t matter if you’re not in a dangerous industry.
Accidents around the office account for a large proportion of workplace injuries and compensation claims. An ordinary fall could result in serious injuries, so this is definitely not an area where you can afford to cut corners. The requirements for workman’s compensation insurance differ from state to state. Find out what the legal requirements are in your area.
Contractors, subcontractors and independent tradesmen should carry contractors insurance. This type of commercial insurance protects your business, but also is often a requirement by many employers before you can begin working for them. Some of the most common trades that need contractors insurance include construction, carpentry, plumbing, electrical work, landscaping, HVAC and similar business fields.
Premises Liability Insurance
If you own your business premises, you should certainly insure it. You may think that homeowners’ insurance will cover you if you do business from your home, but chances are, your home insurance has a specific exclusion clause regarding property that is used for business purposes. If you own a service business with heavy foot traffic in and out your doors, there’s always the potential for customers to slip and fall, which could easily lead to filing a claim.
Premises liability insurance is designed to address liability associated with owning the property. Premises liability insurance covers customers or guests who are injured on your business’s premises, which could be a restaurant, theme park or even a psychologist’s office. What premises liability insurance does not cover is your employees getting injured on your premises. This would be covered by your workers’ compensation insurance.
You can get premises liability insurance as an individual coverage policy or bundled with others. General liability insurance is frequently combined with property or premises insurance into a business owners policy (BOP).
When investigating your business insurance options, you may find that getting a single policy that covers liability, your vehicles, interruption of business activities and property insurance in one is often more cost-effective than taking out several policies to cover every aspect of your insurance needs. This is the thinking behind a business owners policy (BOP).
With a business owners policy, you get a package policy that generally includes both commercial property and general liability coverage. Small businesses tend to use this type of insurance policy, and insurance providers cater to this with their products.
A key advantage with BOP is that they usually offer broad coverage with a comparatively low premium. One drawback of a business owners policy is its inflexibility: It only covers property and general liability, whereas other insurance packages can cover those plus commercial auto, crime, professional liability and more.
Commercial auto insurance is liability and physical damage protection for vehicles that are used for your business. Commercial vehicles need their own separate policy because they’re vulnerable to more risk than personal vehicles. Businesses with fleets of vehicles naturally require commercial auto insurance, but companies that transport guests or clients might need to as well.
The value of your fleet determines how important vehicle insurance is to your business. Although the replacement cost for a vehicle may be high, older model vehicles may not be worth insuring owing to their low book value. If your employees use their own vehicles in day to day business, you should consider adding non-owned vehicle insurance to your package. Some business owners’ policies include this option.
Equipment insurance, also known as boiler and machinery coverage, protects you in case an equipment breakdown is caused by things like power surges, malfunction, operator error and more. Generally, equipment breakdown coverage can pay for the cost to repair or replace damaged equipment, costs for time and labor to do this and business income losses if the breakdown causes partial or total business interruption.
Some business owners go the whole hog and ensure every piece of equipment at the cost of higher premiums. Decide whether it’s really necessary to insure everything and consider reducing your premiums by only insuring equipment that would be very costly to replace.
Cyber liability insurance covers your online presence. How important is it to your business? If your online presence is a vital part of your business operations, you should get coverage to protect you from cyber-attacks that could otherwise spell the end for your business. However, if your online presence isn’t vital to your continued business operations, there is absolutely no need for this type of insurance.
Shop Around and Review Your Insurance Every Year
It’s worth taking a little time to get advice from a number of different brokers. Compare prices, coverage and benefits carefully before reaching a final decision. Remember that the cheapest insurance isn’t necessarily the best option for your business. The whole point of insurance should be that it will protect you if something goes wrong.
Think about what would happen to your business in various scenarios and ensure that you have sufficient coverage to get you through these disasters. While you’re thinking about potential risks, think about ways in which you can avoid the situation arising in the first place. You’ll still need insurance, but if you’re able to avoid a disaster in the first place, all the better.
Claiming a few hundred dollars could be more trouble for you than it is worth, plus having lower deductibles means higher premiums. If you want to cut down on business insurance premiums, being willing to pay for smaller hiccups out of your own pocket will decrease your premiums while giving you peace of mind.
Review your insurance on a yearly basis checking that you are not paying insurance for assets you no longer have and ensuring that your coverage is sufficient. If your business is going through changes, it’s time to review your insurance since your needs will change as your business changes.
A good insurance advisor will be willing to help you in this process. Remember, you do have the right to decide what kind of insurance coverage you’re going to choose, so ask why specific insurance packages are being recommended and ask about alternatives. Ultimately, the decision is up to you.