When you're starting a business, you're likely so focused on what needs to go right that you don't consider all the things that could go wrong. Risk is an inherent part of business ownership, and even though it may be unpleasant to think about, you need to account for that risk and know how to handle it.
Purchasing a business insurance policy is the best way for a new entrepreneur to mitigate and manage some of the risks that accompany day-to-day operations. But no two insurance providers are alike — each one offers different coverage at different price points and limits, and you may be confused about what's worth the expense and what's a waste of your already-limited budget.
Business News Daily asked insurance experts about what coverage small business owners need, and how they can save money on their policies.
Know what you need. Every business has its own unique risks and, therefore, unique insurance needs. Regardless of business size, what's right for one company may not be right for another, so do your homework so you can select and pay for the coverage you really need. At the bare minimum, companies with employees are legally required to have workers' compensation, unemployment and, in some locations, disability insurance, according to the Small Business Administration.
But what other coverage should you have? All of our sources agreed that general liability insurance is a good place to start. This covers your business for any third-party damages you may incur (property damage, injuries or incidents that occur on your premises); certain legal defense costs if your company is sued; and reputational damage due to libel, slander or copyright infringement. You can also take out a business owner's policy (BOP), if you qualify for it under a carrier's terms and conditions. In addition to general liability, a BOP will cover your business property, making it a better overall deal.
"Generally a BOP policy will offer more coverage for less money than the mono-line general liability policy," said Jennifer Rasiah, founder of Givesurance, a company that allows members to donate 5 percent of their insurance premiums to charity.
Olavo Macedo, senior managing director of national commercial accounts for insurance brokerage firm Risk Strategies Co., said that hired and nonowned automobile coverage is also a good idea, if it's not already part of your BOP. He also recommended cyberinsurance, since data security is becoming a top priority for many businesses.
"Cyberliability coverage ... has become a necessity as many businesses utilize online platforms to transact business, and the collection, management and protection of client data creates a huge risk," Macedo said.
Don't overlook important coverage options. Although you might think a general liability policy or BOP is "good enough" for your business, it's important to remember that this doesn't cover everything you might experience. Coverage options like business interruption may be a minor expense now, but they'll save you tons of money in the long run should you ever need to file a claim. Ted Devine, CEO of online small business insurance provider Insureon, offered the example of a fire destroying your storefront or office.
"Your property insurance can cover the cost of rebuilding the property, but what happens in the meantime?" Devine said. "How does the business bring in revenue while the construction is in progress? Business interruption insurance can pay a business's ongoing expenses while it rebuilds — including loan payments, rent, employee salaries, taxes and more — so that it can continue functioning until it reopens."
Myles Gibbons, president of select accounts at insurance provider Travelers, advised professional liability (for service businesses) and employment practices liability — protection for claims related to discrimination, wrongful termination, harassment, etc. — as these policies can help you cover legal fees for any related lawsuits.
Devine noted that one of the overlooked advantages of adding more insurance coverage is that it bolsters your reputation among clients and customers.
"[Business owners] may find that having an active policy makes it easier to win other clients because having the coverage adds a layer of professionalism to what they're doing," Devine said. "So, in that sense, every policy is potentially an upfront investment that can mean more revenue down the road."
Look for discount opportunities. Every insurance provider is different, but many do offer lower prices for combined policies, similar to the discounts offered for combined homeowner and auto policies for consumers. Devine noted that purchasing a BOP, which is designed specifically for small businesses, will already help you save because of its bundled general liability and commercial property insurance. He also said that some carriers may offer discounts on other add-on policies.
If you're not sure about what discounts an insurance carrier provides, ask to speak with a representative who can explain the different policy combinations and available deals.
Get help from an agent. Smart small business owners know they need to do their due diligence in researching insurance coverage, and you'll likely be able to figure some of it out on your own with the variety of insurance comparison tools and online resources available. Still, it's wise to seek professional assistance to help you compare rates and coverage.
"There are many hidden risks associated with running a business, and while you'll think of many, you probably won't think of them all," Gibbons said. "Getting advice from an independent agent will give you peace of mind in knowing that you aren't overlooking something important. An agent can tell you precisely what type of coverage you need based on the type of business you operate so you don't under- or overpurchase."
David Lupica, a division president at ACE Commercial Risk Services, agreed, adding that a good agent can help business owners trim costs while minimizing their exposures.
"The agent can help the small business owner successfully navigate by purchasing the right amount of coverage for their needs, consider the best deductibles and possibly bundle coverage from one carrier," Lupica said.
Devine reminded business owners that price isn't the only consideration they should make when choosing a policy, and an agent can help you find the best value for your budget.
"Sometimes, the cheapest policy is a terrible deal because it doesn't offer the kind of coverage you need, or it has a deductible so high you can't afford it," he said. "Working with an agent who understands both your industry and small businesses can make a huge difference in the quality of policy you get because that agent can walk you through the policy and answer your questions."
Review and update your coverage every year. Your business is constantly changing, and your insurance needs will change right along with it. You might need certain coverages now that you didn't need last year and vice versa, so taking the time to review and update your policies with your insurance agent will ensure you're spending exactly what you need to, Rasiah said.
Macedo recommended constant, proactive discussion about insurance with your agent or broker, which may mean using higher deductibles to purchase broader, higher coverage limits for a lower premium.
"[Business owners] should talk to their brokers and insurers and really go over their risk profile and make sure the coverages match the potential liabilities," Lupica added. A small business is a risky venture, but the right coverage can help take some of the risk out of the proposition."