1. Understand your legal obligations:
Not everyone is required to purchase insurance for their small business but some are, depending on their industry, state laws, or other requirements. For example, if a business owner is renting a commercial space, the landlord might require general liability insurance, which can protect against the costs associated with third-party property damage or injuries. Every state except Texas requires business owners to carry workers’ comp, sometimes as soon as they have one employee.
Business owners should research the legal obligations for their area and industry to ensure they have proper coverage. An experienced insurance agent can help advise them on the coverage they are likely to need.
2. Know your industry’s risks:
Every industry is different, and so are the risks that a small business owner might face. For example, an accountant needs to worry about being sued if a mistake is made filing a customer's tax return, while a restaurant owner should be more concerned about a customer becoming sick after eating a meal at the restaurant. Professional liability insurance can protect accountants and other experts from lawsuits related to errors they make in their professional capacity, while product liability insurance can pay a restaurant's legal bills if customers become ill or suffer an allergic reaction because of the food they consumed.
By carefully evaluating the risks they are most likely to experience in their industry, business owners can ensure they are purchasing the appropriate coverage to protect their business.
3. Prioritize coverage over business insurance cost:
Once business owners know which policies they need, their next question is usually how much business insurance will cost. After all, when the budget is tight, every penny counts. However, it's important to realize that while business insurance is an added expense, it plays a crucial role in protecting businesses from serious financial damage.
It can be tempting for budget-conscious business owners to pick the cheapest policies they can find, but that could leave them exposed to greater financial risk. Cheaper policies are priced that way for a reason. Perhaps they offer limited coverage, or maybe the insurance carrier follows questionable practices, such as slower claim processing times or abrupt premium hikes.
Business owners would be better served by prioritizing the reputation of the insurance provider and the amount of coverage they are getting instead of making decisions based strictly on cost. That way if an incident happens and they need to file a claim, they have the needed coverage.
One way to ensure that you purchase coverage from an insurance company you can trust is by looking at its rating. Ideally, you should look for insurance companies with an "A" rating. A-rated carriers have a reputation for offering reliable coverage, prompt payouts, and consistent terms. They are top-tier in the industry and have a reputation for the quality of their products.
4. Work with Licensed Insurance Agents:
To make sure you are buying coverage from insurance carriers you can trust, consider working with licensed insurance agents. Licensed agents can then help you select the coverage that best matches your business's needs.
Experienced agents can also help save you money by bundling policies. For example, agents often recommend a business owner's policy, or BOP, which combines general liability and commercial property insurance – typically at a lower rate than if the two policies were purchased separately.
5. Read your business insurance policy thoroughly:
Policies vary widely from carrier to carrier, each with its own limits, premiums, deductible, and exclusions. Business owners should make sure they understand what is included – and excluded – in a policy before they buy.
Taking the time to read and understand a policy before purchasing it can help business owners ensure there are no gaps in coverage, and can help prevent unexpected surprises if they ever need to file a claim.
6. Consider the deductible:
Most business insurance policies include a deductible, which is the amount the business owner is responsible for paying in the event a claim is filed for a covered loss. The insurance carrier will then cover the rest of the claim amount, up to the policy limit.
Business owners may be tempted to choose a policy with a higher deductible in order to pay a lower premium. But if they ever need to file a claim, a high deductible might be more than their business can afford to pay. Although policies with a lower deductible tend to have a higher premium, it also means a smaller amount to pay when making a claim.
7. Overestimate your insurance needs:
If your business is ever sued, the litigation process can be financially devastating. Even if a lawsuit is dismissed, it can still cost your business thousands of dollars in legal fees. That’s why it's better to buy more than the minimum insurance coverage if you can. You never know when you might need that extra protection.
If a customer is injured at your business, or an employee gets into a car accident while running work-related errands, expenses can add up quickly. If a settlement is awarded, any amount past your policy limits is your business's responsibility.
One way to make sure you have adequate protection is with commercial umbrella insurance. This policy offers extra liability coverage in situations where legal costs exceed the limits of your policy. It can supplement existing policies you've already purchased for your business, such as general liability, employer's liability insurance (typically included in workers' comp policies), and commercial auto liability insurance.
8. Compare Multiple Offers Before Buying Business Insurance:
Every insurer has its own formula for determining premiums. Some put more weight on your industry while others are more concerned with your claims history, revenue, or business size. As a result, it’s a good idea to compare costs and coverage details from more than one insurer. An easy way to do this is to work with an independent agent or broker who has access to and can submit your information to many carriers.
9. Have an Annual Business Insurance Checkup:
As your business grows, so do your liabilities. No one wants to be caught unprepared when a disaster strikes. Have you purchased or replaced equipment or expanded operations this past year? If so, contact your insurance broker to discuss changes in your business and how they affect your coverage.
Running a small business comes with a lot of unknowns, and as an entrepreneur you must take risks on a regular basis that may or may not work out for your business, but your company’s best interests drive every decision. You should use that same mindset when purchasing small business insurance.
It might seem like wasted time and resources now, but should something unexpected happen, you’ll be thankful you made that investment. With the right business insurance coverage, you’re in control of your company’s future.