Choosing Small Business Insurance
Nobody likes buying insurance.
It’s expensive and it’s hard to compare policies and understand the differences. It’s difficult to know what kind of insurance you even need.
But business insurance should be the backbone of your efforts to protect your small business against risk. There are many legal strategies that can help you avoid disputes and stay out of court, but you still need insurance to guard against liability that arises because someone claims you were negligent. You need insurance to cover you if your place of business is damaged by fire or flood. And you need insurance for your company automobiles.
Without insurance, a slip and fall accident, a malfunctioning product or a broken water pipe can have devastating financial consequences.
Here are some things to consider as you shop for insurance for your business.
Weigh Your Risk
You probably already have auto, homeowners or renter’s insurance, and business insurance works in much the same way. You pay a premium for a specified amount of coverage. Your insurance policy may also have a deductible - the amount you’ll have to pay out of your own pocket before the insurance company will pay a claim. As a general rule, the higher the deductible, the lower the premium.
To decide how much insurance to buy, you’ll need to consider the amount of loss you need to insure for, the likelihood of a claim, your ability to pay the premiums and your ability to pay the deductible if you do have a claim.
Find an Agent and Shop Around
As with everything else, the cost of insurance and type of coverage can vary from one insurer to another. You may find the best rates and best coverage by working with an insurance broker who specializes in your industry. You may also save money be getting a business owner’s policy that combines several types of insurance into one package. Always work with agents and brokers who are licensed and reputable.
Some industries pose unusual risks. Be sure your agent or insurance company has enough experience in your industry to understand the risks your business faces and provide the type and amount of insurance you need.
Know What Kind of Insurance You Need
Depending on the size and type of business you have, you may need several types of business insurance:
- Liability insurance covers you when you are legally responsible for an injury to a person or property. Your insurer is also obligated to provide defense counsel to represent you in the event that you are sued.
- Property insurance reimburses you if you suffer a financial loss because property has been destroyed. This insurance could cover such things as fire and water damage.
- Automobile insurance covers damage to - or caused by - vehicles that are used for business purposes. As with personal automobile insurance, you can obtain liability, collision or comprehensive coverage.
- Umbrella insurance extends your coverage to losses that exceed the limits of other policies.
- Business interruption insurance covers you if you are temporarily forced to stop doing business at your usual location because of fire or other circumstances. These policies usually reimburse you for expenses and lost net profits. They may also reimburse you for the cost of temporarily doing business at a different location.
- Key executive life insurance is a policy that names your business as its beneficiary. It is designed to compensate the business for the loss of a key employee or to provide the business with cash to buy out a deceased owner’s interest in the company.
- Director and officer insurance protects a corporation’s officers and directors from liability if they are sued as a result of work they perform for the corporation. A potential director may require you to purchase this insurance before agreeing to serve on your board, and outside investors may require it before agreeing to put money into your business.
- Professional liability insurance, also known as malpractice insurance, protects people in certain professional occupations from liability for negligence in performing their professional duties.
As your business grows and changes, your insurance needs will also change. Make sure to re-evaluate your insurance policies at least once a year to make sure they still meet your needs.