When you start a small business you’ll be presented with many new and complicated choices, among them will be the need to purchase business insurance. This can seem a bit daunting, possibly expensive … and maybe not very fun.
Look on the bright side, business insurance really doesn’t work that much differently than the more familiar auto insurance, both require that you provide a premium to an insurance carrier in exchange for a promise for financial protection in the event something … well … doesn’t go as planned.
Who are we kidding, that’s where the familiarity ends. When you venture into your first business insurance purchase you’ll be breaking new ground.
You’ll know you need business insurance, but you won’t know what kind. You may not know why you need business insurance, and you’ll have limited understanding of how much it should cost. Business insurance is just more complicated.
But you don’t have to navigate this new terrain without a guide, you can get advice from a business insurance agent.
Some of you will resist speaking with an insurance, you’re just the do-it-yourself type, for you we’ve put together these 8 questions to help you determine just what type of small business insurance you need.
So, What Type(s) of Business Insurance do You need?
Each business is a little different, so there isn’t a single answer to this question. When you review the specific details of your business, you’ll begin to uncover where your risks reside, and get an understanding of the types of insurance you’ll require.
In most cases, we’re dealing with small businesses, those with less than 20 employees, so you can get to the facts buy answering these 8 questions.
Questions #1: Do You Own a Small Business?
You’re reading a blog post about small business insurance, so we’ll assume you own a small business. But if you’re not certain, you can think of it in terms of your employee count, or your total revenues. If you have less than 20 employees, you may be a “small business,” or if you have revenues in excess of $10 million, you’re likely not a “small business.”
If you think you’re a small business, then here is a good place to start.
- Commercial General Liability Insurance, is essential for all businesses, big or small. It provides you protection when your business is facing a lawsuit for injury or property damage resulting from a covered loss. A general liability insurance policy will also provide coverage for product liability, advertising liability.
- Professional Liability (also called Errors & Omissions Insurance), professional liability insurance provides protection for a business when there is an error in professional advise or consultation, or an omission of fact that leads to damages to a client. This is different from commercial general liability in that it is primarily for exposures related to your professional conduct.
Questions #2: Do You Have Employees?
As you’re business begins to grow, you’ll need to hire employees to help you provide services or produce products. If you have employees, there are additional forms of business insurance you’ll require.
- For businesses with employees, Workers’ Compensation Insurance is a legal requirement in every state but Texas. It covers the costs associated with injuries and illnesses your employees sustain on the job. For details, check out our state-by-state guide to Workers’ Comp laws.
- Employment Practices Liability Insurance (EPLI) protects you when an employee sues you over discrimination or harassment.
Questions #3: Do You Own or Rent an Office?
Another sign that your business is growing is the need for commercial office space. If you have purchased, or even leased commercial facilities you’ll need Commercial Property Insurance to provide insurance protection to the building structure where you house your business. This will also be a requirement of any landlord, or mortgage company.
As a small business, you typically will not purchase commercial property insurance as stand-alone coverage. This is because most small businesses qualify for a convenient bundle called a Business Owner’s Policy ( or BOP) that includes Property Insurance along with General Liability Insurance.
In fact, the Business Owner’s Policy also includes a coverage called Business Personal Property, which provides coverage for property owned by the business like desks, computers, and other items used in the day-to-day performance of your business.
Question #4: Do You Take Credit Cards?
Many businesses will take payments online or store customer data on a local or cloud storage system. If this is you, then you can be a target for cyber-criminals or hackers.
Cyber Liability Insurance is a form of protection if there is a data security breach. Cyber liability insurance pays for the costs of responding to a data breach, and can provide you assistance in complying with state and federal laws. If you have the right insurance, you will be able to move quickly to remedy a breach, and begin to earn back customer trust.
IronPoint Insurance Services offers Cyber Liability coverage as part of a the Business Owner’s Policy or as stand-alone coverage.
Question #5: Do You or Your Employees Ever Drive for Work?
This is a area of misunderstanding for most employer and employee alike. Many assume their personal auto insurance will coverage accidents when they happen during a work-related trips. This, however, may not be the case. In fact, many private passenger auto insurance policies have exclusion for business use.
If you require your employees to use their personal vehicle for any trips as part of the course-and-scope of employment, you need to consider the following business insurance options:
- Commercial Auto Insurance, which covers cars titled in your business’s name.
- Hired and Non-Owned Auto Insurance, which covers cars owned by you or your employees that are used for work purposes. In some cases, you may be able to add this policy to your Business Owner’s Policy.
Question #6: Do You Sell Alcohol?
If you run the type of place where you can get an adult beverage, you may need to secure a very specific form of business insurance called liquor liability.
In all 50 states, a business can be held liable for alcohol-related damage that happens on its premises, including fight-related injuries and damage to patrons’ property. This is where liquor liability comes into play.
Another important reason to get liquor liability insurance is for “dram-shop laws”. 42 states allow businesses to be held liable for damage their patrons cause after leaving the premises if it’s established that liquor was a proximate cause of the damages, or the driver was driving under-the-influence.
Question #7: Do You Have a Lot of Cash in the Bank?
For a relatively low investment, an umbrella insurance policy offers an additional layer of protection that can be applied to multiple underlying policies, including General Liability and Hired and Non-Owned Auto. This will come in handy if your business doesn’t have a lot of reserve cash, and you discover that your liability exposure exceeds your purchased limits.
Questions #8: Are You a Nonprofit?
You may benefit from Directors & Officers Insurance (D&O). This policy pays out when someone sues the members of your board for doing something wrong (e.g., mishandling money or improperly firing an employee).
But What About the Cost of Small Business Insurance?
This is the most frequently asked question we receive. As we stated above, each business is a bit different, so it’s not the type of questions that you can easily answer. However, we did conduct a study of our business insurance policies and determined some averages that may prove to be useful. For a more detailed breakdown by industry, check out our Business Insurance Cost Analysis portal.
As time goes by you’ll get more familiar with your small business insurance needs, but that alone is likely not the best way to proceed.
And even though these basic questions are a nice way to think through the basics of your insurance needs, the best way is to sit down with a business insurance expert to get an professional review of your risk profile. This can help to fully determine the right portfolio of insurance protection that is right for your unique small business.
Image Source: Bench Accounting