When making financial decisions for your small business or startup, you may be tempted to cut costs by signing up for only the business insurance you’re legally required to have. However, just one uninsured accident can cost more than your monthly premium – it can cost you your entire business.
With many types of business insurance available, it can be tough to know just which kinds you need. Analyze your organization to make strategic decisions about which coverage plans are right for you.
When accidents happen, you want to be protected. Business insurance insulates your business from financial loss during times of crisis or unforeseen events. There is no one-size-fits-all business insurance; instead, there are several types of insurance that can protect your business. The exact combination of policies you need depends on your company’s unique circumstances.
“[Business insurance] assists in legal payment, claims, employees’ issues and business property in case anything goes wrong because of your business activities,” said Phil Crippen, CEO of John Adams IT. “It can help toward the cost of compensation claims and legal fees, as well as damage to your property or employee-related issues.”
The benefits of insurance are often related to financial and legal protection. Insurance can protect you from a variety of losses – for example, if an employee is injured, your office building burns down, your business is sued or your business partner passes away. The right business insurance can help you recover and continue operating your company.
“As a business owner, you define what the right insurance is going to be,” said Seth Morton, owner of Morton Insurance. “Insurance itself is simply an agreement by an insurance company to pay the insured for business losses. To determine what should be insured, a business owner needs to analyze his risk. Once the scope has been established, the owner can evaluate the cost of insurance versus the risk of loss.”
Use the legal defense your insurance provides to pay any legal fees incurred if you get sued for a covered claim.
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Business insurance can cover a litany of things. It ranges from basic to comprehensive, so you’ll want to choose coverage that adequately protects your property, people and business processes.
Here are the common aspects of a business that insurance can cover and protect:
Business insurance can financially and legally protect the main elements of your business, including your property, people and business processes.
The type of business insurance you choose dictates your monthly costs. The average cost of business insurance is $65 per month for general liability and $111 per month for workers’ compensation. Some business owners purchase a business owners policy, which combines liability and property coverage into one policy. The average cost for a business owners policy is $101 per month.
Another factor that impacts how much you pay each month is your business type. For instance, builders pay a lot more for business insurance than accountants. The reason for the increase is related to the hazards associated with the job; there is a greater inherent risk of injury and potential damage if you operate a construction firm versus if you run a small accounting company.
Business size, or the number of employees your company has, is also a cost consideration. Each employee poses a potential risk for your business, which raises your monthly premium.
Coverage amounts influence cost too. The higher your coverage, the more you’ll pay. One way to offset the cost if you choose a higher coverage level is to have a higher deductible (which is the amount of money you pay out of pocket before the insurer will pay for a covered loss). Taking on greater risk can lower your monthly premiums. Insurance companies offer a range of deductible amounts, from a few hundred dollars to thousands of dollars.
In the event of a claim, business insurance is normally payable directly to the company. For instance, if your business is damaged during a fire, you would file a claim, and an adjuster would assess the damage and decide on the cost to repair or replace your damaged property or items. Once you pay your policy’s deductible, the insurance company would cut a check to your business based on the parameters of the policy.
There are numerous types of business insurance available, and you’ll likely need a combination of policies to protect your company. Speak to an insurance expert to identify the specific policies necessary for your organization. However, these are some primary types of insurance that most small businesses need.
These are just a few of the most common types of insurance small business owners should consider. You should seek professional assistance to find the coverages that best protect your specific business.
The best insurance for your business depends on your unique needs, as well as the laws regulating your state and industry. To determine which types of insurance you need, you’ll have to undertake a careful analysis of your business. It is always advisable to speak with an insurance expert to find the right combination of coverage to keep your business legally compliant and financially protected.
To get started, follow these steps.
First and foremost, you should do a careful evaluation of your business and assets to determine what you want to insure. What insurance are you legally required to have, and where do your additional liabilities lie?
For example, Morton said a machine shop might want to insure employees for injury, whereas a jeweler might want protection against theft. Owners of a large distribution company would insure inventory as well as employees, as required by law.
“Each state has different requirements, and business owners should consult with professionals in the state where they operate to determine what to insure,” said Morton.
Analyze your additional risk and liability. This will help you determine which insurance will offer the right type of protection for your company. For example, if your business is situated on the bottom floor of an office building in a region prone to floods, you’ll likely want comprehensive flood insurance, whereas a business operating in a dangerous industry will probably want insurance to cover the risk of its employees getting injured.
“In general, careful analysis of business operations, including human resources and facilities, helps determine where the risks are and what should be insured,” said Morton.
Morton continued, “Beyond what could be called insurance for the operation of the business, there is the question of succession planning. What is the plan if an owner dies or is incapacitated, and how is it funded? It is an area often overlooked by business owners and requires professional help to set it up correctly.”
Depending on what you’re insuring, you may need a basic level of insurance or comprehensive insurance that covers all aspects of the potential loss. Factor in how costly the loss would be, and assess the probability of it happening. This will minimize the risk of overpaying for coverage you don’t need or skimping on coverage that is imperative for your protection.
Insurance providers aren’t all the same. Policies, premiums and coverage vary, so research to find the best one to protect your business. Choose a few top providers and compare them by policy coverage, cost, reliability, customer service and how they handle claims. This will help you find the best insurer for your business. [Read related article: How to Buy Small Business Insurance]
To determine which types of business insurance you need, you should analyze your operations, assets, risks and liabilities. Then, decide how comprehensive you want your policies to be and compare providers.
Business insurance is essential for all businesses. The protections it provides can mean the difference between having a claim covered by your insurer and having to pay the claim yourself, which could cause serious financial distress for your company. Getting the right policies will ensure you’re covered for your most likely claims. Insurance doesn’t need to be expensive; you can get a general liability policy for as little as $25 per month, with the average policy costing $65 per month.
Kimberlee Leonard contributed to the writing and research in this article. Source interviews were conducted for a previous version of this article.