Starting a business is a rewarding venture. For some, it’s a realization of their dreams while for others, it’s a great alternative to working on a 9-5 schedule. It also requires a considerable amount of money, not to mention the substantial effort you put into it. With all the investments allotted in the business, it is only imperative to protect it from any untoward incident.
In many cases, entrepreneurs incorporate a venture or form a limited liability company (LLC), protecting personal savings from debts. For additional protection, business owners also get small business insurance. There are a wide range of policies available in the market nowadays, each offering a different layer of coverage depending on the needs of a business. How can you choose the right insurance for your small business? Here are some of the things to take into account:
1. Know the Various Kinds of Insurance Coverage
Businesses vary in the products or services they offer, the area of operations, as well as the vehicles and pieces of equipment used. They also differ in risks that can potentially lead to significant financial losses. This means that one business may need protection against losses that are due to theft, while the other needs protection against damage to property. When choosing the right small business coverage, make sure to understand the types of policies available so you can determine which apply to your business.
Here are the types of coverages to consider:
- General Liability insurance – covers customer injuries, damage to the property of another person, damage to rental space, product liability, and lawsuits about libel, slander or copyright infringement.
- Commercial Property insurance – covers damage to improvements you made in the rental space, damage to your business property including equipment, and damage to your building(s). It also protects you from when someone steals from you.
- Business Owners Policy – a combination of General Liability insurance and Commercial Property insurance.
- Professional Liability insurance – covers errors made when offering professional services. It also covers legal defense expenses and settlements.
- Workers’ Compensation insurance – this type is required in almost all states in the US and covers injuries your employees may sustain while working.
- Commercial Auto insurance – this is what you need if your small business utilizes vehicles for business transactions.
You may also want to consider other insurance products such as Business Interruption insurance or Inland Marine.
2. Know the Inclusions and Exclusions
The insurance industry takes into account a wide range of factors that affect the coverage and premiums. Business owners need to be aware of these to make the selection process much easier. These are some of the elements or inclusions and exclusions to keep in mind:
- Coverage of occurrences. This means that if an untoward incident happens within the coverage period, the insurance policy is in place and will provide protection to the business. On the other hand, any occurrence outside of the coverage period may result in financial losses in case of a claim.
- Endorsement. This refers to a change to a policy that determines the coverage of a typical exclusion. This is done on specialized policies that normally come with specific restrictions when it comes to coverage. For instance, an endorsement may be required for specific risk and is availed on top of General Liability policy.
- Data that can be considered tangible or capable of physical harm. If your small business deals with computers, you may want to know and understand the coverage of your policy, as it provides coverage for damages to the property of another person if computer data is considered tangible or the damage is “physical.”
- Property insurance. Having comprehensive General Liability insurance will not be enough to protect you against claims due to damages to property that you own. That is why it is essential to include property insurance in the policy.
- Advertising, intellectual property, etc. This refers to the inclusion of losses from damages to other people due to incidents such as slander, libel, defamation, invasion of privacy, unfair business practices, and copyright infringement. However, insurance providers have recently considered infringement as an exclusion in the coverage. To get a better understanding of this aspect, make sure to read the fine print carefully and talk to your insurance agent.
- “Expected” damages. The coverage excludes damages that the insured considers as expected. What courts need is evidence of what the business owner is thinking about at that time. Of course, it’s difficult to show proof of that. Bear in mind that the insurance provider needs to do more, aside from showing proof that someone would have seen the damages as expected.
- Choose the limits and deductibles that meet your business needs. Two other things to consider when choosing the right small business insurance are the appropriate limits and deductibles. These play a role in the amount of premiums to be paid so make sure to get them right.
Policies offered by different insurers may have the same name, but it does not mean that the coverage is the same as well. Also, compare a few quotes from several insurance providers and see which best meets the business needs. It may help to be a member of an organization in the industry since they usually recommend a reputable insurer. Of course, it will not hurt to seek more guidance and advice from an insurance agent to ensure that you are well protected against losses due to different types of claims.
Choosing the right small business insurance can be daunting, but don’t be disheartened. It’s an essential element of any business, something that will give you peace of mind at the thought of being protected against significant financial losses. Do your research and seek professional guidance from a reputable insurance agent or provider. You may also want to ask family, friends, and even fellow small business owners about their own experience in choosing the right insurance for their operations.