If you fail to plan, you plan to fail. Risk is an inherent part of business ownership, a reality for every small business and solo entrepreneur. Even though it may be unpleasant to think about, you need to account for that danger and plan how to handle any future issues. A business insurance policy is the best way for an entrepreneur or owner of a small business to plan for and mitigate some of the risks that come with its day-to-day operations.
Approach selecting business insurance the same way you’d address any problem or challenge in your operation — do your research. By assessing your needs, considering your options, looking at your current resources and consulting subject matter experts, you’ll be prepared to select the best small business insurance for your business.
Every business has its unique risks and, therefore, unique insurance needs. Do your homework to select and purchase the coverage your business needs without paying for what you don’t require. Start with the basics. According to the Small Business Administration (SBA), companies with employees are legally required to have workers’ compensation, unemployment insurance and, in some locations, disability insurance.
After you’ve covered your business’s legally required basics for your employees, general liability insurance is a good place to start. This covers any third-party damages your business 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.
Check to see if you qualify for a business owner’s policy (BOP) under the insurance carrier’s terms and conditions. A BOP will cover your business property in addition to general liability, which makes 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 Jr., senior managing director of mergers and acquisitions for insurance brokerage firm Risk Strategies Co., said that hired and non-owned automobile coverage is also a good idea if it’s not already part of your BOP. He also recommended cyber insurance, since data security is a top priority for more and more businesses.
“Cyber liability 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.
Small businesses in the same industry or market may seem similar, but each one is unique. That includes what kinds of insurance coverage they need.
Although you might think a general liability policy or BOP is good enough for your business, 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 if you ever need to file a claim. Ted Devine, the global head of AIG 200, 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 the commercial accounts group and middle market chief underwriting officer at insurance provider Travelers, recommended two different types of liability insurance — professional liability for service businesses, as well as employment practices liability — protection for claims related to discrimination, wrongful termination, harassment and so on — to help 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.”
Many insurance providers offer lower prices for combined or multiple 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 it bundles 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 what discounts an insurance carrier provides, ask to speak with a representative who can explain the different policy combinations and available deals.
Did you know that many small business insurance carriers offer discounts to customers that hold multiple policies? The same way you can receive a reduction for bundling home, life and auto insurance with one carrier in your personal life, you may be eligible for a discount on multiple business insurance policies when you use the same carrier.
Smart small business owners and entrepreneurs know they need to do their due diligence when researching insurance coverage. During your research into policies and providers, you will likely narrow down your options by using the 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 over-purchase.”
David Lupica, COO and head of distribution at Westchester, A Chubb Company, agreed and added 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 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.”
Your business and your industry will evolve over time, and your insurance needs will also change. You might need certain coverage now that you didn’t require last year and vice versa. Making time every year 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 risks out of the proposition.”
When looking for the right small business insurance, consider the type of relationship you’ll have with that insurance agent or broker over the long term. If you enter the association as something that will grow and evolve, rather than purely transactional, you’ll be adding a key business advisor to your team.
Hope for the best and plan for the worst. Small businesses are lean operations with limited cash flow and assets. Business owners and entrepreneurs must choose the right small business insurance that meets their needs to protect them from unexpected problems.
Small businesses also need to protect their profits and cash reserves. Spending money today on unnecessary insurance is not just a waste of capital — it comes with opportunity costs. The cash you spend on an irrelevant insurance policy could have been used to repair equipment, purchase supplies, expand your distribution or marketing, or upgrade your materials.
Small business insurance protects your business operations and helps you achieve your long-term business goals. Insurance deductibles and premiums typically represent lower out-of-pocket expenses that you can plan for, as opposed to the high cost of replacing or repairing business assets and lost revenue without small business insurance.
Assess your needs, do your research, and build a relationship with your insurance agent or broker to protect your business and your business goals.
Leslie Pankowski contributed to this article. Source interviews were conducted for a previous version of this article.