Protect your business with insurance coverage

What You Need to Know About Insurance for Small Businesses

Most of us would never own or lease a vehicle without auto insurance. Should the unthinkable happen, insurance can help take care of expensive repairs or a replacement. It protects you in the event of a lawsuit or other drivers who have little or no insurance. Insurance safeguards your assets such as your home, retirement, and investments.

Not having business insurance, on the other hand, could mean the end of your business. If the unexpected happens, it could drain your cash flow and it’ll be too late for a small business loan. Just like consumers invest in auto, home, life, and travel insurance, small businesses have options for insurance. The right plans depend on your company and the state in which you conduct business. Some require businesses to carry certain types of insurance.

What are the types of business insurance?

Your insurance agent can advise you on the types of insurance and the amount of coverage you might need. Here are some types to explore.

General liability insurance

Liability insurance protects your business when another person or business makes claims of injury, property damage, libel, slander, or data breaches as the result of your business operations. This policy covers property damage, bodily injury, medical bills, defense costs for lawsuits, and personal and advertising injury for slander and libel claims.

Professional liability insurance

Also called errors and omissions insurance (E&O insurance), professional liability insurance protects services business being sued for negligence, malpractice, or errors that occur while servicing clients. (A business can be sued without having made a mistake.)

Businesses opting for professional liability insurance tend to provide professional services or give advice to clients. Sometimes clients may request coverage prior to signing a contract.

Product liability insurance

Businesses that manufacture or distribute products rely on product liability insurance to protect them if a product has a defect, causes injury, or provides inadequate instructions or warnings.

The type of coverage depends on the product, volume produced or distributed, and the company’s role in the product. For example, a company distributing parts for the oil and gas industry wouldn’t have the same coverage as one that manufactures medical products.

Commercial property insurance

Commercial property insurance is similar to home insurance in that it helps small businesses pay for repairs and replace buildings or other property damaged due to incidents covered in the policy. Such incidences can be storms, fire, water damage, and vandalism. Property insurance can cover leased and owned buildings, inventory, furniture and equipment, fence and landscaping, and outdoor signs.

Home-based business insurance

Homeowner’s insurance may not cover everything a home-based small business needs. Either you could look into home-based business insurance or ask your insurance agent about adding a rider to your homeowner’s insurance to cover business-related risks.

Commercial auto insurance

Commercial auto insurance covers vehicles used for business. Coverage can include borrowed or leased vehicles, employees using their own cars for business, and medical costs for employees injured while in the company’s vehicle.

Business continuation or business interruption insurance

Business continuation insurance protects the business in the event of an unexpected death of someone critical to the business or shutdown of operations not covered by other insurance plans. It also pays business expenses including payroll, vendors, rent or mortgage, taxes and utilities.

Workers’ compensation insurance

Most U.S. states require businesses carry workers’ compensation insurance for employees. This insurance pays lost wages and medical bills for employees injured while on the job in exchange for the employee not suing the employer.

Health insurance

Health insurance protects employees from high medical costs for preventive care, illness, or injury. Some employees won’t take a job unless a company offers health insurance. Not only does it help your small business attract and retain employees, but also it can limit absenteeism and increase employee satisfaction.

Life insurance

What happens if the owner dies? If a key employee — owner, executive, or founder — dies, key person life insurance helps pay debts, supplements lost revenues until replacement is hired, and offsets operating expenses.

Buy/sell agreements protect the business from the deceased person’s family members taking ownership. A family member may not have the knowledge to take over the business. And he or she won’t be able to under a buy/sell agreement. This plan can ensure the deceased person’s heirs gets a fair price for assets and share of the business.

Business owner’s policy (BOP)

Purchasing multiple types of policies can mean high premiums. Rather than paying multiple premiums, you can get business owner’s policy (BOP) that typically contains business property and business liability insurance in one package. Thus, you have one premium that’s likely to be lower than two separate ones.

Sometimes business interruption may be included. However, BOP may not have one or two things your business requires. An insurance agency may allow you to round out your coverage by adding optional coverages. This route can be cheaper than picking and choosing different plans.

When should my small business revisit insurance coverage?

After you find the right insurance plan for your business and make your payments, your work on business insurance doesn’t stop there. There will be times when you need to review your small business insurance coverage.

You’ll want to review your insurance coverage when …

  • Your business relocates or adds property.
  • You’re nearing the end of your current policy.
  • You’re not happy with your current policy.
  • You hire or fire employees.
  • An employee dies.
  • Your business add new products or services.
  • You buy new equipment.

Although shopping around is a must, a cheaper plan isn’t always better as it may offer incomplete coverage. Make a list of the coverage your small business needs. Contact your insurance agent or find a trusted resource to find out your options.

If you switch to another insurance company, watch out for gaps in your coverage. You don’t want to go a week or even a day without having a policy. As you know, anything can happen on a given day.

How do I find an insurance agent?

Some insurance companies specialize in an industry. They can better advise you on the types of coverage you need and possibly for the best rate. Ask your peers and industry groups for suggestions of reputable, licensed agents who specialize in your industry. Many states have a directory of licensed agents and authorized insurance companies in the state.

In researching insurance companies, look at their credit rating, financial strength, debt rating, and licensing. One resource is A.M Best, a credit rating agency that specializes in the insurance industry. For basic company information, check out Standard & Poor’s and Moody’s.

A good first step is find an insurance pro you trust. Ask around, use LinkedIn to find common connections, and check licensing. Your contact can evaluate your small business to determine what insurance coverage it needs and you can return your focus on growing your business.

Image credit: dcubillas

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