How Much Insurance Does Your Small Business Need?
Most small business owners have accepted a particular truth: they need insurance for their small businesses. From worker’s compensation insurance to E&O coverage to property insurance, protecting your company from the financial costs is associated with errors, accidents, lawsuits, and more. The next question, however, is more complicated: how much insurance does your business need?
The question is complex and ultimately needs to be answered by an insurance agent who can give your company a customized business insurance quote. Talking to other companies in your industry can give you a good idea of which insurance agents you can trust to give you the best and most accurate answers. In the meantime, however, we’ve assembled some general guidelines to get you started.
What type of work does your business do?
The type of company you run will determine a lot about what insurance you need to be protected. For example, nearly all businesses should have professional liability insurance to protect against errors and omissions. Any company with employees should have worker’s compensation insurance. Any business with a physical location should have property insurance, while businesses that are operated out of the home should make sure that their rental or homeowners insurance includes a provision for the business.
If you’re not sure which coverages are most important for your company, talk to mentors in your market. They should be willing to give you insight into which insurances are most important for your business, and which are less crucial.
How many employees do you have?
If you don’t have any employees, worker’s compensation insurance isn’t necessary. If you only have one or two employees, the cost will likely be lower than if you have many employees. Some experts are also starting to recommend insurance against EEOC claims, which are claims of discrimination in the process of either hiring or employing a person. If your business has more than a few employees, this may be a wise coverage for your business to carry.
Another consideration is whether your company has business vehicles that need to be insured. If there are just one or two drivers, that will change what sort of company vehicle insurance you might need, versus having a significant number of employees who drive for you.
Where is your business located?
Your business’s location plays a significant role in what sort of insurance you need. If your business community is located in a flood plain, for example, you need very different coverage than if your business is in an area plagued by hurricanes, snow storms, or wildfires.
Many property insurance coverages do not protect against this kind of mass event; you need specific insurance to cover these sorts of damage. Many businesses find that they feel safer having those insurances through a bigger company; in the aftermath of hurricanes and flooding, businesses have seen small insurance companies fold due to all claims coming in at once.
Again, if you aren’t sure what sort of insurance your business needs in its location, speak to a local mentor, or discuss it with your insurance agent for a business insurance quote.
Downsides of over-insuring
It might seem smart to buy all the insurance your business can afford. But in reality, you want to find the right size insurance policy for your business so you aren’t tying up more of your liquid assets than necessary. Remember that insurance costs stay the same throughout the year, so if you overcommit to insurance, you will still need to pay those bills during your lean months. Choose the right amount of insurance for your company and your income.
After that, it’s a good idea to reevaluate your insurance needs and coverage levels every year, or whenever there is a big change in your business. If you expand to a new location, for example, or bring on 10 new employees, contact your insurance agent to make sure your current levels are still appropriate.
Consider what you can afford in event of a disaster or lawsuit
Remember that you don’t need to actually make a mistake to get sued, and even an illegitimate lawsuit can have substantial costs.
The same goes for any disaster or event; you should be insured in such a way that you can afford any deductibles you might need to pay, and the insurance should cover additional damages. If you are considering going without business insurance, consider how you will pay for legal fees, damages, or other fines and fees if your business were damaged or an employee was injured.
Choosing the right level of insurance for your company is just good business.