A good insurance company will guide you into a policy that is affordable and effective. Research and ensure that they cover small businesses and have your best interests at heart. InsideUp can help you find the right insurance provider for your business, with free competitive quotes from top providers. Visit http://www.insideup.com/compare/business_insurance
Protecting Your Business With the Right Type of Insurance Operating a business requires a considerable investment. You can protect your investment and reduce the financial risks associated with unanticipated events by purchasing business insurance.
It is generally advisable to purchase at least enough insurance to protect your company’s assets. Moreover, if you have employees, you are required by law to have certain types of business insurance.
In this guide, you’ll find facts to help you make an informed decision about which type of insurance you should have, as well as tips to help you to make the right choice when looking for a provider.
Important Facts about Business Insurance The laws in your state will determine which types of insurance you are required to have. In most states it is mandatory for employers to carry workers' compensation insurance, unemployment insurance, and state disability insurance.
Your state may require you to have insurance to cover specific business activities. For example, if you own a vehicle that you use for business purposes, you will likely need to purchase commercial auto insurance.
Additionally, your financial lender or your investors may require you to purchase fire, flood, business interruption, life or other types of insurance to protect their investments.
Types of Business Insurance Insurance coverage is offered for every possible risk your business may face. The price and the amount of coverage provided with any given policy will vary among insurers. You should talk with your insurance agent or broker about your particular business risks and the types of insurance available. Your agency can advise you regarding the specific types of insurance you should consider. Below is a list of the most common categories of business insurance.
General Liability Insurance If your business is an LLC or a corporation, your personal assets are safeguarded from business liabilities. Neither business structure, however, is a replacement for liability insurance, which protects your business from losses by providing coverage for legal entanglements due to accidents, injuries and claims of negligence. This type of policy will also protect your business against the costs incurred when defending lawsuits. It will cover payments resulting from incidents involving property damage, bodily injury, medical expenses, libel and slander as well as judgments or settlement bonds required during an appeal procedure.
Umbrella (Supplemental Liability) Businesses may incur various forms of liability in conducting their normal activities. One of the most common types is product liability, which may be incurred when a customer suffers harm from using the business product. There are many other types of liability, which are frequently related to specific industries. Liability law is constantly changing. An analysis of your liability insurance needs by a competent professional is vital in determining an adequate and appropriate level of protection for your business.
Product Liability Insurance Businesses involved with the manufacture, wholesaling, distribution and retailing of a product may be liable for its safety. Product liability insurance protects against financial loss resulting from a defective product that causes bodily harm or injury. The amount of insurance you should purchase depends on the products you deal with. A clothing store, for example, would have far less risk than a small appliance store.
Professional Liability / Errors Omissions (EO) Companies that provide services should consider purchasing professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors and negligence when providing services to your clients. Depending on your profession, you may be required by your state government to carry such a policy. Physicians, for example, are required to purchase malpractice insurance in order to practice in some states.
Business Automobile Whether you use your own vehicle for business purposes or your company has a fleet of vehicles, it’s important to be properly insured. To ensure that you and your business are protected from risk, you will need to have liability coverage for bodily injury and property damage to others, as well as coverage for any medical costs resulting from personal injury to the driver and passengers.
Directors Officers (DO) Insurance This protects a business, its directors and officers from lawsuits by current, prospective and former employees. Any claims on the policy are paid to the directors and officers of a company, or to the organization itself, as indemnifications for losses due to legal action for alleged wrongful acts in their capacity as directors and officers. The policy may advance funds to cover the costs of legal defence in such cases.
Business Interruption While property insurance may pay enough to replace damaged or destroyed equipment or buildings, how will you pay costs such as taxes, utilities and other continuing expenses during the period between when the damage occurs and when the property is replaced? Business Interruption (or “business income”) insurance can provide sufficient funds to pay your fixed expenses during a period of time when your business is not operational.
Key Person Life If you or any other individual are so critical to your business that it could not continue in the event of illness or death, you should consider “key person” insurance. This type of policy is frequently required by banks or government loan programs. It also can be used to provide continuity in operations during a period of ownership transition caused by the death, incapacitation or absence due to a Title 10 military activation of an owner or other “key” employee.
Commercial Property Insurance Property insurance covers everything pertaining to the damage or loss of company property due to a wide variety of occurrences, including vandalism, fire, smoke, wind and hail storms. The term "property,” in this instance, can refer to buildings, computers, company data, money, and lost income. Property insurance policies are available in two basic forms:
All-risk policies that cover a wide range of incidents and perils, with the exception of those noted in the policy. All-risk policies cover risks commonly faced by the average small business.
Peril-specific policies that protect against losses from only the perils specified in the policy. Examples of peril-specific insurance include fire, flood, crime and business interruption policies. Peril-specific policies are typically obtained when there exists a greater possibility of peril in a certain area.
Your insurance agent or broker can help you determine the type of business property insurance best suited for your company.
Home Based Business Insurance Your homeowners' insurance most likely does not cover losses associated with a home based business. However, depending on the risks to your business, you may be able to add riders to your homeowners' policy. Riders can cover normal business risks such as property damage. Such coverage may be limited however, so you might need to purchase additional policies to cover risks such as general and professional liability.
Insurance Required for Employers Companies with employees are required by law to purchase certain types of insurance. These include workers' compensation insurance, unemployment insurance and, depending on where the business is located, disability insurance.
Workers' Compensation Insurance
Companies that have employees are required to carry workers' compensation insurance coverage, either on a self-insured basis, through a commercial carrier, or through the state Workers' Compensation Insurance program. Your state's Workers' Compensation Office will be able to give you specific information regarding the requirements in your state.
Unemployment Insurance Tax Businesses with employees are also required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state's workforce agency.
Disability Insurance Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury. Currently, if your employees are located in California, Hawaii, New Jersey, New York, Puerto Rico or Rhode Island, you are required to purchase disability insurance.
Potential Drawbacks Cost-Protecting your assets always makes good business sense, but insurance is expensive, and fitting adequate coverage into you budget can be challenging.
Being Underinsured-In an effort to cut your insurance costs, you could end up with inadequate coverage, leaving your business vulnerable.
Being Overinsured-Conversely, you could miscalculate your insurance needs and wind up paying for more insurance than your business needs, or for a type of insurance that your business does not really need.
Solution- Any of the above scenarios can be avoided by doing your research and carefully assessing your true needs. Research is also important when choosing a business insurance provider; the right provider will help you determine exactly the type and amount of insurance your business requires. A trusted and reputable insurance company will not leave you underinsured, nor will they attempt to sell you more insurance than you really need.
Top Questions to Ask When Comparing Providers
How much experience does this company have? A typical tendency among business owners is to try to obtain business insurance through their individual insurance provider. However, your personal insurance company may not have the expertise required to adequately care for your business liability insurance needs.
Does the company offer adequate liability insurance coverage? Make sure the agent you choose has experience providing insurance for your type of business. Such a provider will be familiar with the needs of businesses like yours and can help you accurately assess your needs to ensure your business is not left vulnerable to any unnecessary risk.
Can the provider adequately insure your assets? You have likely invested in property, goods and equipment for your business. Without adequate coverage of your assets, your investment could be vulnerable to a wide variety of risks, including theft, damage and other threats. Your liability policy will not protect you from this type of loss. A good insurance provider will help you accurately determine the value of your assets and advise you regarding the amount of coverage you will need.
How does the company measure up in terms of scalability? Be sure to find a provider that will be able to adapt to the needs of your company as it grows. Consider your expectations for growth during the first five years of your business. For example, will you need additional insurance to cover new products or services you may offer in the future?
Is the provider both reliable and reputable? Will the business insurance company operate with your best interests in mind? Check with the Better Business Bureau, and talk to owners and managers of businesses similar to yours to get their recommendations.
Making Your Final Selection The SBA.gov website offers the following advice: ‘When looking for a good insurance company, ensure that you choose one that will provide an instant commercial insurance policy that is tailor-made for your business. A good insurance company will guide you into a policy that is affordable and effective. In addition, research and ensure that they cover small businesses and have your best interests at heart.’
InsideUp can help you find the right insurance provider for your business, with free highly competitive quotes from top providers.
Glossary of Key Terms
Actual Cash Value (ACV) Coverage for the dollar amount needed to repair or replace damaged property minus depreciation.
Blanket Insurance Coverage for more than one type of property at a single location or similar types of properties at multiple locations.
Business Income (also called "Business Interruption") Insurance Coverage for lost net income and continuing expenses for a specified period of time, as a result of a cessation in normal business activities due to a covered loss.
Business Owner's Policy (BOP) A package policy that combines property, general liability, business income and other types of coverages into a single policy.
Coinsurance (for property insurance) A clause in the property policy requiring the policyholder to carry an amount of insurance equal to a specified percentage of the value of the property. Compliance will result in full payment on a covered loss minus the deductible. Failure to comply will result in a penalty for underinsurance.
Deductible A dollar amount, usually a predetermined figure (i.e., $1,000) or a percentage (i.e., 2% of the value of the property) for which the policyholder must pay before the insurance company will pay for a covered loss.
Endorsement A provision attached to an insurance policy that amends the policy's original terms.
Exclusion A provision in a policy that eliminates coverage for certain losses, people, locations or conditions.
Liability Insurance Coverage for covered claims of bodily injury or property damage for which the policyholder is legally liable.
Medical Payments The specified amount for which the insurance company agrees to reimburse the policyholder for the medical expenses for bodily injury of a third-party. Medical expenses usually are paid regardless of fault.
Named-Peril Policy An insurance policy that only covers losses resulting from perils specifically named in the policy.
Peril An event or condition that causes a loss (e.g., fire, windstorm, theft, etc.).
Professional Liability Insurance Coverage for professionals as determined by their respective industry's expected standard of care for claims of negligence, errors or omissions causing damages to a client.
Replacement Cost Coverage for the dollar amount needed to repair or replace damaged property without deducting for depreciation.
Special (or "Open") Peril policy An insurance policy that covers losses resulting from any peril not specifically excluded in the policy.
Umbrella Coverage for losses above the limit of the underlying policy. Umbrella policies may also broaden coverage for losses not normally covered in the underlying policy.