It can be hard for a small business to invest in insurance. After all, with the daily expenses of running a company such as payroll, overheads, and marketing, it can be hard to spend time and money into a product that's geared towards preventing future liabilities. However, investing the energy and funds to establish a robust risk management program may prove to be a wise decision for many small business owners.
Without a proper risk management strategy, businesses are vulnerable to a plethora of risks. It doesn't matter how good you are at your profession - bad things can happen to anyone. One expensive lawsuit, unexpected injury on your premises, error in your service, or a natural disaster can easily disrupt your operations.
Without the right insurance program in place, business owners will have to pay to mitigate these misfortunes themselves. Depending on the severity of the incident, this could mean an end for many small businesses.
Additionally, individual states may require you to carry specific insurance policies before you're allowed to operate. The same goes for clients that will want to know the potential damages to their property caused by your services will be covered.
Every business has unique insurance needs. When deciding on which coverage to get, you should take the following into account:
There are several core insurance policies that most business owners should look into. Let's break them down, and see what risks they will protect your business from:
Workers' Compensation: A staple policy that will cover the expenses associated with workplace injuries or illnesses. For most businesses, a workers comp policy will be mandated by the state, except Texas.
Business Owner's Policy (BOP): A policy geared towards smaller businesses. It includes three basic insurance coverages: commercial liability, commercial property, and business interruption coverage. A BOP will ensure that a small business has all the essential coverages while paying less for insurance. As your business grows, you'll need to add more policies to your insurance program to cover additional risks and extend your coverage limits.
Commercial General Liability Insurance: General liability insurance will pay for claims of property damage or injury to third parties that occur on your property. It will cover both the defense costs and any eventual settlements awarded against your company. It will also include the medical expenses of those injured on your property.
Commercial Property Insurance: This policy will protect your property, such as the building and equipment used in your business. It will pay the cost to fix or replace assets, equipment, and personal property used in the business. Additionally, commercial property insurance will also pay for business interruption due to the damage to your property.
Commercial Auto Insurance: If you or your employees use vehicles in your business operations, they won't be covered under personal auto insurance. Commercial auto insurance will extend coverage to both personal and commercial vehicles used in the business.
Errors & Omissions (E&O) Insurance: This policy will pay for legal expenses and settlements if a client alleges that your services caused them damages. Any business that provides professional services (lawyers, accountants, etc.) should consider securing this policy.
Cyber Insurance: A cyber insurance policy will cover expenses associated with a cyber-attack or data breach. A preferred policy will pay for business interruption costs, computer forensics, PR, and notification expenses. It will also cover liability claims from third-parties wronged by the attack or breach.
If you run a home-based business, this article from the SmartBiz Small Business Blog has policies to consider: What Home-Based Business Owners Need to Know About Insurance.
It can be hard to determine how much a business will have to pay for insurance without consulting a broker, as each business faces a unique set of challenges. However, certain factors will always impact how much you'll have to pay for insurance. Let's break them down:
Any business that's looking for sustainable growth should consider setting up the right insurance program based on their specific needs and unique risk profile. Using insurance to transfer risk can make any business more resilient when misfortune strikes. By working with the right insurance broker, you'll be able to ensure that you're both adequately covered and aren't paying too much for your insurance.
Daniel Chavenson is the Vice President of Strategic Partnerships at Embroker responsible for bringing all Embroker products to market.