When making annual or quarterly financial budgets for your company, you may feel tempted to overlook business insurance by only opting for the minimal requirements. After all, why add the extra insurance cost if your company is doing fine?
However, running a business comes with certain risks. Some risks you know and can mitigate; some you don’t know, and their occurrence can run your business to the ground.
Business insurance protects your business from unknown and unexpected events.
It’s a shield against extreme financial exposure from an unfortunate crisis that affects your business in one way or another. Some events, for example, fires and earthquakes, can be so damaging to your business that they force you to close permanently.
In such a case, the right business insurance could have helped you get back on your feet and continue operating in no time.
A Strong Overview of Business Insurance
There are many types of business insurance. Some are right for your business, while some you don’t need. Some are legally mandated by the government, while some are essential but not compulsory.
So how do you know which business insurance to take and which to forgo?
How can you apply for it when you don’t know what aspects of your company it protects, let alone why you need it? This article will take you through everything you need to know about business insurance.
Understanding Business Insurance
Business insurance protects you from the unforeseen risks of running a business. Examples of unforeseen risks include accidents, theft, natural calamities, loss of income, vandalism, and lawsuits. Such hazards can expose you to financial loss that you or your business can’t handle.
Business insurance helps you with monetary compensation to ensure you recover from loss or damage caused by unexpected events.
In the event that a customer is injured on your property, they may be able to file a liability lawsuit against your company. In this case, general liability insurance can help cover legal defense fees and compensation payouts.
It can also cover the customer’s medical expenses. Another good example is property damage caused by fire or vandalism. Commercial property insurance can assist with covering the cost of repairing or replacing the damaged property.
Aspects Covered by Business Insurance
Depending on the type, insurance can cover many aspects of your business. Some insurance covers are comprehensive, protecting many things in your entity. Some are basic, covering only one part.
Here are the aspects covered by business insurance:
- Business assets
- Business losses
- Owner and employee injury liability
- Product liability
- Employee health insurance
- Employee and company data liability
Benefits of Having Business Insurance
Let’s look at the benefits that come with having business insurance.
1. Legally mandated by the government
Some business insurance covers, for example, worker’s compensation insurance, are mandated by law. You need to get this type of insurance if your business has employees. Having worker’s compensation insurance guarantees you are legally compliant. Other legally-mandated business insurance policies include:
- Professional liability insurance: required for various professional services
- Liquor liability insurance: necessary for businesses that sell liquor
- Commercial auto insurance: required for entities with vehicles
2. Helps cover loss and damage in case of occurrence of an insured event
When you acquire business insurance, you share the unforeseen risk with your insurance provider. If the insured event occurs, the provider will compensate you for the damage or loss. Business insurance helps ensure your company does not go under as a result of the occurrence of the insured event.
3. Demonstrates confidence to partners, customers, and employees
An entity with the necessary business insurance looks more credible to investors, partners, customers, and employees. These stakeholders know that they will receive compensation if the insured risk occurs.
Employees feel safer working for you when they know you have worker’s compensation insurance. Likewise, investors and partners feel more confident working with you when they see you’ve taken measures to protect your business.
4. Minimizes financial loss
Some accidents and emergencies, for example, the collapse of the building where your business operates, can halt your operations and harm your ability to make revenue. In addition, it may lead to financial loss since you still have ongoing expenses such as payroll. A type of business insurance called loss of income insurance can compensate you for specific ongoing business expenses, as highlighted on the policy.
5. Protects employees
A company’s workforce is an important part of operations. You need to protect your team with the right insurance coverage. Workers’ compensation insurance can cover their medical bills and lost wages if they become sick or get injured when working for you. The coverage can also provide financial assistance to your employees’ families if they pass away because of injuries.
How Business Insurance Works
Business insurance is a contract between your business and the insurance providers (also called the insurer). The insurer requires you to pay a regular annual premium and agrees to compensate you if the insured risk occurs.
However, the insurer can only cover you up to a maximum limit per the policy. Therefore, the business owner may be required to pay a deductible before coverage begins.
Types of Business Insurance
There are several types of business insurance, each covering different aspects of your business. Some of the most common ones include:
- Business Owner’s Policy
The business owner’s policy also called an umbrella policy, is a comprehensive insurance policy that protects you from a combination of risks. This policy combines property insurance, business interruption insurance, and some types of liability insurance into one package.
Some business owners prefer this policy because it simplifies the application and acquisition process. The payable insurance premium might also be less than what you would get for the three policies separately.
- Business Interruption Insurance
This insurance policy applies to entities that need a physical location to conduct business. It covers the loss of income caused by events that disrupt the normal operations of a business. Some people refer to this policy as loss of income insurance.
- Errors and Omissions (E&O) Insurance
E&O insurance, also known as professional liability insurance, is a policy for businesses that offer certain professional services. This policy protects companies against negligence and malpractice related to professional services. The professionals who get this coverage include accountants, physicians, and lawyers. Some states in the US require you to get this policy if you offer certain professional services.
- Worker’s Compensation Insurance
Worker’s compensation insurance covers employees if they become sick or get injured while on the job. Most states require you to get this policy if your business hires more than a certain number of employees. The worker’s compensation policy covers the employee’s medical costs and lost wages when away from work.
- Commercial Auto Insurance
This business insurance is for entities that own and operate vehicles. The policy covers your entity’s commercial vehicles and drivers in case of personal injury caused by accidents and collisions. Most states also require this insurance policy for businesses that own commercial vehicles.
- Product Liability Insurance
Product liability insurance is for businesses that manufacture and sell physical products. This policy protects you against product-related claims and lawsuits, for example, if your product causes damage to a third party.
- Data Breach (Cyber) Insurance
Cyber insurance protects your business against cyber threats and data breaches. If your business loses data to hackers, this policy helps cover the damage caused by the data loss or leak.
- Commercial Umbrella Insurance
Commercial umbrella insurance protects you from claims whose maximum compensation limit is not enough to cover that claim. It extends the policy limits for your insurance policies. If a claim exceeds your policy limit, the commercial umbrella policy kicks in and covers the difference.
- Property Insurance
Property insurance protects any owned or rented equipment, inventory, or building you use in your business. In addition, this policy covers the costs of repairing or replacing the damaged property in the event of fire, theft, or storm.
However, property insurance doesn’t cover perils such as floods and earthquakes. These two have separate policies, for example, commercial flood insurance.
Tips for Choosing Business Insurance
Choosing the right business insurance is often a dilemma for many small business owners. Most struggle to identify the business insurance their entities need.
Below are tips to help you select the ideal insurance coverage for your business. But before we delve into them, you first need to know the different types of business insurance available. Having this knowledge will make the selection process easier. Here are eight tips for choosing business insurance:
1. Assess your industry’s risks
Every industry experiences varying risks. The risks an accounting firm should insure aren’t the same as those of a construction or restaurant business. Therefore, your first action should be to identify the risks affecting your entity and industry. Doing so brings you closer to pinpointing the business insurance suitable for your entity.
2. Evaluate different insurance providers
Once you choose the business insurance covers you need, your next task will be to select an insurance provider. Choose one with a good reputation and top rating. Your goal should be to work with a financially stable vendor who communicates promptly and gives fair payouts to claims.
3. Thoroughly understand the insurance policy
Ensure you thoroughly read and understand the insurance policy before buying it. Doing so will ensure you don’t miss any gaps that may hinder your ability to claim compensation if the insured event occurs. Every policy has its limits, deductibles, and exclusions. Make sure you know all three before getting the policy.
4. Consider the legally required insurance
As mentioned above, some business insurance, such as worker’s compensation insurance, are legally mandated by the federal government. Some, such as professional liability and commercial auto insurance, are legally required in most parts of the United States. Specific regulations vary from state to state, so you need to figure out which ones apply to your area.
5. Don’t just consider insurance cost
The insurance cost isn’t the only thing you should assess when picking an insurance provider. You may feel tempted to select a policy or provider offering the lowest premium payments. However, some cheap policies have limited coverage, which leaves you vulnerable to other risks not covered by the policy.
6. Learn the factors that may affect your insurance premium
Various factors can affect your insurance premium. While some are out of your control, you can reduce or tone down others. For example, to decrease your workers’ compensation premiums, you can create a safe working environment and provide protective gear for your employees. If you want to lower your commercial auto insurance premiums, ensure your drivers have good driving history. Don’t tolerate reckless driving.
Here are factors that can affect your premium:
- Size of business
- Number of employees
- Location of business
- Value of property or assets you wish to insure
- Working conditions at the business
- Nature of products or services offered
7. Consider deductibles
A deductible is the amount of money you should pay before your insurance policy kicks in to compensate you. The insurer then covers the remaining amount up to the maximum policy limit. Most business insurance covers contain a deductible clause.
The lower your deductible, the more you’ll need to fork out for your insurance premium and vice versa. However, this doesn’t mean you select a high deductible to reduce your premium. Instead, select only a deductible amount you can comfortably pay as compensation before your insurance kicks in.
8. Ask for help
Buying insurance can be overwhelming. Don’t hesitate to seek guidance if you don’t understand the coverage terms and conditions. Contact your insurance agent and ask them all you would like to know about the insurance for your business.
Information You Need to Provide When Applying for Business Insurance
This information may be required when filling in the insurance quote. Therefore, it’s best to know it beforehand.
- Business identification details: business name, address, contact details, and website
- Business entity information: type of business and the date of registration and commencement
- Business Location: size and scope and whether you own or rent the location
- Your business’s industry
- The list of products or services you sell and their nature
- Current and future anticipated number of employees
- Estimated payroll for the next year
- Estimated gross sales for the next year
You now have a strong overview of business insurance, including the information needed during the application process. If you already have the necessary information, filling out the insurance quote will take minutes. Your insurance provider will then give a quote highlighting the payable monthly or annual premiums. Before buying the insurance, ensure you thoroughly understand the policy coverage.