Whilst insurance is crucial to small businesses, a lot of owners don’t understand the insurance environment and consequently struggle to find an insurance package that’s appropriate to their needs. This is understandable – unless you’re an insurance professional, your core knowledge probably lies elsewhere!
Knowing what insurance types exist and what they cover, however, is key to putting together the right insurance plan for your business. And becoming familiar with the concepts involved might one day mean the difference between being covered for an event or being on the brink of disaster.
Keep in mind, also, that some insurance is mandatory; businesses with employees, for example, are required by federal law to have workers’ compensation insurance in some states. The National Federation of Independent Businesses have a great resource for checking workers compensation requirements in each state here.
Main Insurance Offerings
General Liability Insurance
General Liability protects your business from the kind of third party lawsuits for property damage or bodily injury that can run into the millions of dollars. General Liability is essential as it covers a huge risk – the duty of care you have to keep people and their possessions safe when dealing with your business. It’s generally designed to pay all defence costs and damages up to your chosen limit, even if the claim against you isn’t valid. General Liability also protects against any accidental damage you might cause when visiting a clients business property, and will usually also cover product liability (ie damage caused by an item you manufacture or sell).
Accidents happen in every workplace, to every type of business, but small businesses have an even greater need for General Liability insurance because they typically have fewer resources to cope with a legal claim. If you, your business or employees do any of below, General Liability insurance should be a serious consideration:
- Visit a client’s place of work
- Routinely interact with outside parties
- Have customers, vendors or other parties visit your premises
- Use a third-party location for any business related activities
- Sell a physical product
- Provide physical services to others
Professional Liability / Errors & Omissions Insursance
Professional Liability insurance (which is sometimes also known as Errors and Omissions) covers your business against claims of negligence, mistake or misrepresentation. These cases typically involve a client or customer alleging damage was caused due to the advice or a service that was provided. Regardless of whether the claim is real or not, this insurance is designed to protect you by paying for attorney fees and legal expenses, as well as all costs and expenses relating to a settlement or judgement.
Any business that provides a service should give Professional Liability insurance serious consideration. Examples of these business types include engineers, consultants, beauticians, accountants, therapists and personal trainers.
The cost of Professional Liability insurance will vary widely and depend on a number of factors, including the below:
- Revenue size
- Length of time in business
- Claims history
- Geographic location
- Risk management procedures
- The amount of coverage desired (ie ‘Limits of Liability’)
- The size of your deductible
Business Owners Package
A Business Owners package (BOP) is a common offering from major insurers, and packages General Liability with coverage for your business equipment and physical assets as standard. BOP insurance can also include a variety of other insurance types, such as Business Interruption, Hired and non-owned Auto Liability and First Party Commercial Crime coverage.
By bundling several insurance policies into one, insurers are able to offer a simpler and more efficient coverage that is tailored to protect businesses from multiple risk exposures.
Due to their flexibility, there are very few small businesses that wouldn’t benefit from considering a BOP. In fact, any business that would say yes to any of the below would consider a BOP:
- Do you need general liability insurance and other types of insurance in one convenient package?
- Do you use your personal car or rent cars for business use?
- Do you own or lease business equipment such as computers, printers and furniture?
You may already have an idea of the types of insurance you’re looking for and the best place to find it. If not, try these four steps;
- Know the Risks
Think about what kind of dangers your business faces. The need for General Liability is common to all businesses, and if you provide a service Professional Liability insurance will also warrant consideration. Are there any kind of physical dangers, such as fire, that pose a risk? Do you have valuable stock, or rely on refrigeration or air conditioning? Assessing risk is the first step to mitigating it, so you’ll want to put some thought into this.
- Get Online or Contact an Agent
There are a host of online service providers that can arrange a business insurance quote within minutes, and most of these have service lines that you can call to get more information. Don’t be afraid to ask as many questions as you need, and if you come across any terms that you don’t understand be sure to ask for an explanation.
- Compare Offers
This is all about getting savvy! Compare the policies that different providers offer. Or, find a site that offers comparisons between policies so that you can stack them up against each other. Be wary of exclusions in your policy however; cheapest isn’t always best and you want to make sure you comparing ‘apples with apples’.
- Review & Report
Once you’re all set up, your insurer will contact you annually with regards to renewing your insurance. This is a great time to give your policy a ‘health check’, and confirm that all the relevant details still apply. If you’ve had a significant change in the business you should notify your insurer; things like a change in staff number, revenue, address or nature of operations are the kind of things you’ll need to report. Keep in mind that if your business goes through a change (at any time) that would affect your policy, you’re obliged to notify your insurer as soon as possible. Any failure to do so could adversely affect your chances of a successful claim.
Disclaimer – The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice.