To assess what types of insurance are best for your business, and how to secure coverage to provide adequate protection and minimize risks, use these five steps from the SBA.
1. Assess Your Risks. Insurance companies determine the level of risk they’ll accept when issuing policies. This is known as underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each policy carries a premium and a deductible. Premiums vary widely and depend on a number of risk factors, including your business location, building type, local fire protection services, and the amount of insurance you purchase. Generally, the higher deductible you agree to pay, the lower your premium will be. When you agree to take on a high deductible you are taking on some financial risk. So, it’s important to assess your own risks before you go shopping.
2. Shop Around. Prices vary from company to company, so it pays to get several quotes. The Insurance Information Institute recommends that you get the names of insurance companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide. It’s also important to pick a company that is financially stable. Check the financial health of insurers with rating companies such as Standard & Poor’s and consult consumer magazines.
3. Consider a Business Owner’s Policy. Insurance can be purchased separately or in a package called a business owners’ policy (BOP). A BOP combines typical coverage options into a standard package, and is offered at a premium that is less than if each type of coverage was purchased separately. Typically, BOPs consist of covering property, general liability, vehicles, business interruption and other types of coverage common to most types of businesses. BOPs simplify the insurance buying process and can save you money. However, make sure you understand the extent of coverage in any BOP you are considering. Not every type of insurance is included in a BOP. If your business has unique risks, you may require additional coverage.
4. Find a Reputable, Licensed Agent. Finding a good insurance agent is as important as finding a good lawyer or accountant. You should always look for one that has a license. State governments regulate the insurance industry and license insurance brokers. Many states provide a directory of licensed agents.
5. Assess Your Insurance Coverage on an Annual Basis. As your business grows, so do your liabilities. You don’t want to be caught underinsured should disaster strike. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss changes in your business and how they affect your coverage.
Today we will try to answer the question “Does Your Small Business Need Insurance?”
The short answer is YES.
If you don’t have business insurance you run the risk of losing more than your business. Without the right type of coverage, a fire, theft, accident, or lawsuit could destroy your business and may put your personal finances at risk.
Whether you are starting a business, taking on employees for the first time, or evolving your business structure, there are many variables that determine the right insurance for your small business. Insurance companies differ in the types of business operations they will cover under the various options they offer. So it’s wise to shop around for coverage options as well as price.
Since there are such a wide variety of insurance policies available, always discuss your individual business insurance needs with an insurance agent or broker.
There are two fundamental types of insurance – commercial business insurance, which is not necessarily required by law, and employer insurance, which is. Caron Beesley, a small business owner, writer, and marketing communications consultant, complied this summary:
1. Types of Commercial Business Insurance
- General Liability Insurance – This insurance broadly covers and provides protection against the legal hassles associated with accidents, injuries and claims of negligence.
- Product Liability Insurance – If you manufacture, wholesale, distribute and retail a product, this insurance protects against financial loss as a result of a product defect that can cause injury.
- Professional Liability Insurance – If you provide a service to a customer, this insurance can protect against malpractice, errors, and negligence in the provision of those services to your customers. Some state governments require certain professions (e.g. physicians) to carry such a policy.
- Commercial Property Insurance – This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. The definition of ‘property’ is broad, and includes lost income, business interruption, buildings, computers, company papers and money. This is definitely one you should talk to an insurance expert about to understand your specific needs.
2. Insurance Requirements for Employers
If your small business hires employees, you are required by state law to pay for certain types of insurance. Here are the three key employee insurance requirements:
- Workers Compensation Insurance – Businesses with employees are required to carry Workers’ Compensation Insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program. Visit your state’s Workers’ Compensation Office for more information on your state’s program.
- Unemployment Insurance Tax – If you have employees you are required to pay unemployment insurance taxes as determined by your state. First you’ll need to register your business with your state’s workforce agency. The State Taxes page on IRS.gov includes links to connect you with your state’s agency.
- Disability Insurance – In the U.S., it is mandatory to purchase disability insurance only if your business is in one of six locations – California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.
Next time we will look at “Five Tips for Buying Business Insurance” from the U.S. Small Business Administration (SBA).