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Insurance Buying Tips for Small Businesses

When you start a business, you need small business insurance. Even large companies don't need insurance for everything. If they did, they couldn't afford to stay open. There are many types of business insurance for every business need. As a small business owner, your best plan of action is to know what kind of insurance you need first and what can wait until you're established.

Your first step should be contacting a reliable insurance company. You can get names from other businesses in your industry and the Small Business Administration (SBA). Review insurance quotes from all insurers, and have a business law attorney review your policies before you sign them.

Basics of Business Insurance

A good insurance agent will review your options and discuss your primary needs. If you are a "typical" business, you need insurance to protect your company in the event of property damage, bodily injury, theft, or monetary loss.

A standard package policy is the business owner's policy (BOP). This general insurance package includes basic insurance coverage to start business operations. The BOP has versions for different businesses but usually includes:

  • General liability insurance: This covers property damage, burglary, and personal injury claims from customers injured on your property. It is sometimes called business liability insurance.
  • Business income insurance: This covers any income loss because of natural disasters or other property damage. Your liability coverage repairs any physical damage, and the income insurance replaces the monetary loss.
  • Business property insurance or commercial property insurance: These protect the contents of any building you own or lease.

If your business uses any vehicles or has any automobiles under the company name, you will need commercial auto insurance. Your personal auto policy will protect your car for basic company needs, but not a company vehicle.

Workers' Compensation Insurance

In general, you must have workers' comp insurance if you have more than one employee. Every state except Texas requires employers to carry workers' comp. This is separate from any medical insurance or other business insurance you have.

Workers' comp covers all medical expenses for employees who suffer on-the-job injuries or illnesses. Small business owners can work with their states for lower rates and premiums.

Specialized Coverage

There are many types of coverage. Not every business needs them all. Consider the nature of your company before settling on a particular type of specialized insurance.

  • Professional liability insurance protects attorneys, doctors, and others offering professional services. This insurance covers the legal costs of malpractice claims.
  • Errors and omissions insurance covers mistakes that damage a third party. Accountants, notaries, and similar businesses carry this insurance to protect against accidental errors that harm others.
  • Cyber insurance is a newer form of insurance. It protects your business if you experience a data breach or a hack. If your business uses credit cards or carries out any online transactions, you may need some type of data breach insurance.
  • Natural disaster insurance gives you hurricane, tornado, or earthquake insurance, depending on your location. These types of coverage have many exclusions coupled with high premiums and deductibles but are essential if you live in a disaster-prone area.

Remember to shop around for your best deal. The first quote you receive may not be the best one out there.

Commercial Leases

If you rent your property, review your lease with care. Your insurance requirements may differ from ordinary business requirements. A commercial general liability policy should be enough, but the landlord or property owner may want additional coverage. Ensure the coverage is sufficient to move your business operations if the landlord terminates your lease or you need to move for other reasons.

Tips for Buying Insurance

It can be tempting for small business owners to skimp on insurance and only get the lowest available coverage at first. This is a mistake. If you limit your coverage, it can be harder to get insurance later if something happens and you're not fully covered at the time. If cost is an issue, a smart business owner can limit their expense by following a few guidelines:

  • Prioritize the needs of your business: Check your state and local requirements for coverage you must have for your business license. If your lease requires specific liability coverage, get that first.
  • Ask about risk reduction programs: Insurers may have lower rates for customers who install security systems, fire alarms, and other loss-prevention devices.
  • Review your policy annually: You may need to change your policy limits as your business expands. Insurance costs change, and you may find other companies offering better rates. Rather than changing companies, you should ask your agent to match their competitors' rates.
  • Check your liability: Your homeowner's insurance will not cover your business liability if you run a home-based business. Many homeowners insurance policies contain clauses that specifically exclude home businesses. Check with your agent to see what business insurance coverage you need for your business.

Independent Contractors

Small businesses often use independent contractors for specialized or part-time work. In general, independent contractors are also small business people and have their own liability insurance coverage. If you hire a contractor, ask to see their certificate of insurance or other proof of coverage before letting them work on your project.

Seek the Help of a Legal Expert

Commercial business insurance policies contain many limiting clauses. You should know what your policy covers before signing. Have a business and commercial law attorney review your policy and other insurance products if you have any questions.

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