If you have a business or are thinking of starting one, you are probably aware of taking risks. Starting a business itself is a risk as you are investing cash and are not sure if you will get rewards or at a loss. Other than the matter of profit and losses, there are many risks that one gets exposed to once you start running the business. A smart entrepreneur knows that you may not be able to prevent risks, but you can minimize the damage they cause if they happen. That is why most business owners opt for business insurance.
You will often hear new entrepreneurs asking whether insurance is necessary and how does small business insurance work? There are many types of business insurance, and you have to choose one or a few that work for you. In some circumstances, it may be a law requirement, while in others, it can be a requirement to get a loan or a customer contract. Whatever the reason is, when you are insuring your small trade business, here are a few tips to keep in mind.
Make the Right Choice
One thing that always overwhelms business owners when they are about to buy insurance is understanding which coverage is right for them. For instance, if you are wondering how does small business insurance work for an adult orthodontics business, first evaluate the types of risks that your business is likely to face. If you are not sure, contact an insurance broker or agent and get their advice. They are always happy to help, as that may mean business for them. Since they have been in the field for a long time, they also know the risks that different businesses are exposed to. For example, some of the risks a roofing company may face are not the same a law firm will face. You, therefore, have to ensure you are making the right choice for your business.
An insurance agent will answer any questions you have regarding how does small business insurance work. Apart from that, they can help you identify potential risks your business may be exposed to so as to explore what insurance options you have. By doing this, you can comfortably buy coverage that will adequately protect your business. Also, note that sometimes you may have the same business as your friend’s but have different coverage needs. This is because there are other factors to consider, like the security in the area. Therefore, if you own a salon in an area with a high crime rate, you are at more risk than a person owning a salon in an area with good security. This, therefore, causes a difference in your insurance needs. Working with an agent ensures you have the right advice to make an informed decision.
Recognize Your Risks
Once in the market for commercial insurance, you will learn that there are many commercial insurance products. From workers’ compensation insurance, commercial auto insurance, general liability insurance, among many others. To know what product is right for you, you also have to know the unique risks your business will be facing. For instance, how does small business insurance work for an auto repairs shop? Most auto repairs face risks like fire and theft, and employee accidents. If your employees get injured while working, you will have to take responsibility for the injuries as the business owner. In addition, there is also the risk of fire because of the equipment used, and thieves may break in to try and steal cars. If you can think like this before purchasing insurance, it will be easy to know which insurance product to buy.
On the other hand, say you are starting an eCommerce site and are wondering how does small business insurance work for such businesses. Note that even this kind of business faces various risks. For instance, if you collect personal data from clients, you may be at risk of a cyber-attack. When there is a data breach, you may face fines, lawsuits, penalties, settlement fees, and legal fees. If you buy a commercial insurance product like cyber insurance, your insurer will compensate you for these losses, ensuring you do not make a financial loss.
Consider The Type of Insurance You May be Legally Required to Carry
Sometimes buying commercial insurance may not just be for your protection, but a necessity. Depending on your state, industry, lenders, and clients, you may have to carry a particular coverage. For instance, forklift dealers who have taken a loan to purchase inventory may be required by lenders to carry commercial general liability insurance. How does small business insurance work for a forklift dealer? This is a business exposed to various risks like lawsuits from third parties over property damage and bodily injury claims. Therefore, the lender will require this type of insurance to ensure the business is protected and that you can pay back their loan.
Most states require employers to carry workers’ compensation insurance. For example, if you do bark dust installations and have hired a few employees or even one, you will have to get this type of insurance. If you are curious, how does small business insurance work regarding your employees? Workers’ compensation insurance protects you and your employees if they get injured in the workplace. This type of compensation covers medical expenses, loss of income, the ongoing cost of treatment, among other things, and depending on your policy.
There are also clients that will only work with you if you have some level of coverage. They want to ensure that you will be able to cover any financial losses if the worst happens. Before buying any insurance product, you should also confirm what is required of you depending on the parties you are dealing with. In such cases, an experienced agent can assist you in picking the right coverage.
Consider Package Deals
It is common to find most businesses needing more than one type of coverage, like auto coverage, property coverage, and protection from the company being interrupted. However, instead of buying individual policies, compound them together for a package deal or get a Business Owner’s Policy (BOP). It combines different coverage, which ends up saving you money. Perhaps you are asking yourself how does small business insurance work for an ATV dealers company when you want a package deal. First, you need to understand what a business owner’s policy involves. A BOP includes,
- Liability protection- This covers the legal responsibility of the business towards the harm or damage it may cause others. That damage can result from either something you or your employee did or failed to, which led to property damage or bodily injury due to faulty installations, defective products, and a mistake in service provided.
- Property insurance for the building and the contents inside. Property insurance can be standard or special, where special provides more thorough coverage.
- Business interruption insurance. This provides protection for the loss of income you may incur if a catastrophe like a fire interrupts the business’s daily operations. In other circumstances, it can cover the expenses incurred if you have to move to another location.
By now, you can see how bundling these types of commercial insurance can benefit your ATV business. However, note that a business owner’s policy does not cover products like auto insurance, professional liability, and workers’ compensation insurance. For these covers, you will have to get a separate policy.
Focus on Coverage Before the Cost of Business Insurance
Once you know which risks your company will be facing and the coverage you will need, the next question is the cost. Starting a small business comes with trying to save every penny you can. So it is only natural to be worried about how much your coverage works. However, it is essential to know that as much as commercial insurance is an extra expense, it plays a significant role in protecting your business. Say you have sent one of your employees for seawall maintenance, and they happen to get injured as they were using faulty equipment. Will the workers’ compensation coverage you have be enough to cater for the resulting expenses? This includes medical expenses, lost income, and in some instances, legal fees if they decide to sue. If the coverage is not enough, you will have to go back to your pocket to cover those expenses.
So how does small business insurance work when you are factoring in cost? Take an inventory of your assets. If you offer RV services, how many do you have, and what is the cost of each RV? With the amount of coverage you want to buy, will it be enough to repair or replace if something happens to those vehicles? While it can be tempting to purchase a cheap policy to save some cash on the premiums, later on, it might cost you. Apart from that, sometimes, a policy might be cheap because the insurer has questionable business practices like taking a long time to process a claim. Do your own research and ensure you use a reputable provider. Also, buy as much insurance coverage as your budget allows. Otherwise, you may later find that the cheap coverage you bought might fail to cover your losses to keep operations ongoing.
Understand What Can Affect Your Insurance Rate
Beyond the risks your company is likely to face, you should also know what can affect your company’s insurance quote. Obviously, things like the size of your business, the assets you want to insure, the location, and other factors will contribute to the premium you ought to pay the insurance company. For example, if you own expensive equipment to run your company, it will affect how commercial property insurance premiums are calculated. If you are asking how does small business insurance work when it comes to rates, know that there are many determining factors which your insurer will discuss with you.
Some of these factors are beyond your control. For instance, you cannot control the cost of equipment you are using in your business, especially if its output is excellent. However, some of the measures you can take to keep your rates down include:
- Try your best not to let your insurance lapse. A break in coverage can lead to an increase in your premium.
- Install security systems at your place of work. For instance, if you own a machine shop, install an alarm system and security cameras. This can make your commercial property insurance costs go down.
- Ensure your employees are working in a safe environment with safe equipment. This is particularly important, especially if you are in a high-risk field like elevator repair, roofing, or electrical work. This can help minimize the chances of a job-related injury. And with fewer claims to make, you can reduce workers’ compensation premiums.
- Only hire employees skilled for the job. For instance, if your company uses cars, do not employ a driver with a poor driving record. A driver with a good driving history can contribute to lower rates.
Once you purchase insurance, you may eventually get exposed to risks. For instance, a thief may break in. Something to note is that your claim history will affect your premiums. If you keep filing claims, the insurance company considers you a high risk, which automatically drives your premiums up. When damage is minor, like if the thief only managed to break the window and did not steal anything, or someone vandalized your wall, and a simple paint job can erase the damage, it is better not to file the claim. Instead, handle the damage yourself. Save insurance for when the damage is too extensive, and repairing it from out of pocket will dent your wallet. This way, you can ensure your premiums do not increase.
Purchasing commercial insurance can be an overwhelming process for any entrepreneur. Often you will ask yourself how does small business insurance work for my business. To be safe, work with an insurance agent or broker. Also, do your research on the type of coverage available on the market. Only after you have understood what you are getting yourself into should you sign an insurance contract.