Growing a business is hard enough, finding good business insurance doesn't have to be.
Small business insurance, also called commercial insurance, is a policy that protects the property, assets, and income of a small enterprise. It's mostly offered as a business owner's policy (BOP). Depending on the policy you choose, a BOP can protect your business against things like financial losses and legal expenses involved in defending a court case.
A business can also be covered against perils like fire, theft, lightning, falling objects, and winds. Business owners should evaluate their businesses to know which perils should be covered by the insurer.
The BOP includes a coverage limit. This means there is a maximum amount of money the insurer can pay for a covered claim. Other coverages may include a deductible, which is the amount a business owner pays towards a covered claim.
A BOP mostly includes three types of packages to cover businesses: general liability coverage, business property coverage, and business interruption coverage.
1. General Liability Coverage
General liability coverage, often referred to as general commercial liability, is coverage that protects a business from various claims such as property damage, bodily injury and personal injury that may occur in the line of work. It also covers medical payments, products-completed operations, and damages to properties rented to the business. However, the policy is subject to a coverage limit. If the medical bill of a person who was injured within the business exceeds the threshold, the business owner will have to cover the rest.
Which businesses need general liability insurance?
Often, contractors and small business owners need some liability insurance to safeguard their businesses. General liability may be offered to contractors as a stand-alone coverage but may also be combined with BOP. If your business has exposure to certain liability such as accidents, general liability insurance can help you protect it against lawsuits that may arise.
You may also require some form of general liability before you can work with some clients.
If you're a contractor, you may not require a full BOP; general liability will be enough. Although you may not own any commercial buildings that require property insurance, you are still exposed to risks from your job. Some insurance companies may offer general liability.
2. Business Property Coverage
Property coverage protects businesses against perils that may affect the building and its contents. For instance, if there is a fire at your building, a BOP may pay for repairs and replace property such as machinery and furniture. However, as with general liability coverage, the coverage is subject to a limit and a deductible.
Some of the perils that may be covered by commercial property insurance include fire, storms, burst pipes, explosions, theft, and vandalism. Often, floods and earthquakes aren't covered but may be added to the policy depending on the insurer.
The cost of business property coverage depends on risk factors. The insurance company looks at the construction materials used. Businesses that are constructed with fireproof material and upgraded plumbing and wiring materials pay fewer premiums. Factors that could increase premiums include proximity to storm-prone areas and high cases of theft in the location.
If you have insufficient policy limits, you may face a penalty. To avoid such fines, ensure you have purchased enough insurance to cover your business and its contents.
3. Business Interruption Coverage
Business interruption insurance, also known as business income coverage, covers for extra expenses when a business is affected by covered perils or when the business loses income. Some of the risks that may be covered in your policy include fire, wind, theft, lightning, and falling objects. Washington businesses can consult Insureon to be covered against such risks.
If a business is handicapped by one of the covered perils, business interruption coverage will help in one of the following ways:
Pay for extra payment- The business will be reimbursed if it incurs additional costs such as rent and transport for relocating to another place.
Reimbursing for lost earnings- Lost income is defined as revenues minus ongoing expenses. Your policy will reimburse for the destroyed merchandise, without costs such as shipping, which the business would have paid for.
Mortgages and lease payments- The coverage can pay for the mortgage if you don't own the space where the business is located.
Loan repayments- If there are upcoming loan payments, business interruption coverage can help pay.
Taxes- Even after your business has been interrupted; taxes still have to be paid.
Payroll- When the business isn't operable due to the covered perils, employees will still need to be paid. Business interruption coverage covers the costs of paying employees.
To determine how much business interruption insurance coverage your business requires, you need to estimate your future profits. Your projection should be realistic. This will also be important because the coverage has a limit. You will be responsible for any costs that exceed the limit.
Business interruption insurance excludes the following:
Damage caused by floods and earthquakes- A traditional BOP does not cover damages by floods or earthquakes. However, you can purchase a separate policy that will protect your business against these factors.
Undocumented income- Your insurer will not cover some of your income loss if it's not included in the financial records.
Items damaged after a reimbursement- If an item breaks after the losses in your business have been covered, business interruption insurance will not pay for it. However, you might get help from your business property insurance.
You can customize your policy to include specific needs for your business. Some available covers include:
- Miscellaneous professional liability insurance, also known as errors and omissions insurance- If your business involves representing the needs of others, making a recommendation, giving advice, providing physical care, or designing products, clients or patients could sue you for failure to perform your business properly that harmed them in a way. Errors and omissions liability insurance covers such situations. It covers any judgment that the business is liable for and any legal defense costs that may be incurred. However, this insurance is subject to a limit.
- Outdoor property coverage- covers outdoor property such as fences, satellite dishes, plants and signs among others.
- Cyber liability coverage- covers any losses associated to cyber crimes such as data breaches. Cyber liability coverage is especially important nowadays due to the rising cases of hacking.
- Business auto insurance- covers the company's automobiles and injuries caused by your vehicles.
- Data compromise coverage- Provides legal liability for victims of data theft. It may also pay for services to provide recovery of personal information that has been compromised.
- Equipment breakdown coverage
- Employment practices liability coverage- Pays for damages that the employer is legally liable for violating an employee's rights. It also pays for the legal fees that may be involved.
- Directors and officers liability insurance coverage- covers for judgment and legal defense costs when there is a lawsuit claiming that the business was managed without proper regard for the rights of others.
- Umbrella policies- The policy provides coverage for costs that are over and above your liability insurance. Umbrella policies protect businesses against high losses when underlying policies have been used up.
Now that you are aware of the various types of insurance, we will look at why a small business requires insurance.
Reasons Why Your Small Business Needs Insurance
As explained above, running a business comes with inherent risks such as natural disasters, injuries to employees, and lawsuits. It is, therefore, vital to protecting your assets by making sure your business is adequately insured. Here are some reasons why your business needs to be insured:
1. To comply with the law
The law requires any business with employees to provide various forms of insurance covers such as worker compensation, disability, and unemployment. However, this depends on where the business is located.
Another type of small business insurance that is required by the law is vehicle insurance. Any company vehicles used for the business needs to have a commercial auto insurance policy. Failure to comply with this may lead to fines, criminal and civil penalties, cease and desist orders as well as exclusion from public contracts. This can cost your business more than the price of an insurance policy.
2. Cover legal fees
Our society is litigious. You could get sued over an accident, a broken contract, or anything else. In the event of a lawsuit without insurance, your business could be terminated. Even if the court rules in your favor, you will incur substantial costs for legal defense.
Instead of worrying about the dents that the legal fee could leave for your business, get liability insurance and concentrate on running your business successfully. If you are operating your business in Missouri or Kansas, Beacon Point Insurance can help you get affordable insurance.
3. Keeps your business running in times of difficulty
With business owner insurance, your venture can survive serious hits by natural disasters. This is critical because it protects you against loss of income. After your business is hit by an insured calamity, the insurer pays the income your venture would have made if it were still running. Additionally, BOP pays for normal operating expenses such as rent that you would have paid during the time. Some policies may pay your employees for up to 12 months.
4. Makes your business more credible
When you have small business insurance, your business looks credible to prospective clients. They know that if anything goes wrong with the services you offer them, they will be compensated. This is why home services companies use the slogan "licensed, bonded, and insured." It builds trust, which is the currency of the economy today.
5. Protects your employees
While most people might think that their business' most valuable asset is their equipment or products, it is the employees that hold the highest value. It's a legal requirement that you carry workers' compensation insurance. Business owners should additionally have disability coverage. This is a good way to protect your employees' interests as well as defend your business against lawsuits.
6. It might be a requirement for some contracts
Some clients' contracts may specify you carry insurance in case things don't go as per the plan. Often, freelancers may lose jobs that they had already landed once the client realizes they don't have insurance.
If your business is conducted in a rented or leased premise, you may need to have your own insurance because the landlord's policy may not cover the facility. Additionally, if you are planning to borrow money to finance the purchase of equipment or buildings, the loan agreement will require insurance.
7. Attracts and retains employees
Having small business insurance isn't just about protecting your business against unexpected situations. There are numerous positive benefits of insurance such as drawing and retaining your best talent. Job seekers not only look for good pay but also other benefits such as health, life, and disability insurance. If your business doesn't offer these, you may lose your best employees to your competitors.
8. Guards your human assets
What would happen if you lost the most valuable employees in your company to a serious accident, heart attack, or another unfortunate circumstance? Such situations can stop your business from running normally. There is, therefore, a need to cover losses of income that would have been generated. The cover gives your company funds to purchase your interest under a buy-sell agreement.
9. Covers Acts of God
Acts of God refer to any event that is not caused by humans. Such events include hurricanes, floods, tornados, and fires resulting from lightning. You will be covered if you have an all-risk or peril-specific insurance.
10. You don't know what the future holds
It would be perfect if your business isn't faced with the risk of theft, fires, or natural disasters. However, you can't just hope and do nothing. As a small business owner, you will enjoy some peace of mind when you know that you can easily recover damaged property through compensation from your insurer. With this, you can now focus on how to make your business more productive and profitable.
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How much does insurance cost?
The rate for your insurance is based on specific types of covers that your business might need and the type of work you do. Each business faces different risks depending on the location.
The national average cost of business insurance ranges from $50 each month, for professional liability, to about $200, for workers' compensation.
As you purchase your small business insurance, it's vital to make sure you obtain sufficient coverage. Your business should neither be under-insured or over-insured. To help you estimate the right amount of insurance you need, list all your assets, including equipment, property, and inventory. You can buy insurance based on the actual value of the business or its replacement value.
How to Keep Premiums for Your Business Down
For a small business, insurance premiums can be a significant expense. If you can find ways to reduce these costs, you will have more money to invest. Here are some of the ways to lower the cost of your premiums:
1. Find the best insurer
While looking for an insurance company, shop around because prices vary between companies. Get several business insurance quotes and select the companies that specialize in your type of business. It's also crucial to select a company that is financially stable. If you choose a big insurance company for your small start-up business, it's likely that you will pay unnecessarily high premiums. You need to work with agents who will help you find the best rates for your business. For instance, Insureon offers affordable small business insurance services in Washington and beyond.
2. Bundle all your insurance covers
As you need to insure your business against every probable risk, it pays to get all the covers from one insurer. Some of the covers you might need include general liability, commercial liability, workers' compensation, business owner property, and vehicle insurance. Getting the package from one insurance company enables you to get a lower rate compared to when purchasing each cover from a different insurer. The more business you have with one company, the less you will pay.
3. Choose a higher deductible
Insurance deductible is the amount of money you pay before compensation. The higher the deductible, the lesser premium you will pay for the policy. However, you should set a realistic deductible to avoid giving yourself financial burdens.
4. Review your equipment and auto schedules
Go through your commercial auto, equipment, and property policy to determine whether you still own all the equipment and vehicles listed. At the same time, you should update your policy if there are items that have been recently purchased but aren't listed in the policy.
Your auto policy would be more effective if it only included the newer vehicles. Auto physical damage losses are calculated on the actual cash value of the car at the time. Most autos depreciate as they age. Insuring older vehicles is not cost-effective. A third-party cover can be just enough to keep the vehicle on the road.
5. Conduct background checks on your employees to minimize theft and malfeasance
Your business needs to operate on a safety-first strategy and avoid making any claims. Clients and employees can make claims. So, you need to hire employees with integrity and without criminal backgrounds. If you can go for a year or two without making claims, your premiums will drop.
6. Train your workers
Workers need to be well trained to ensure they perform their duties correctly. Well-trained workers are less likely to injure other people or injure themselves. Your insurance company may reward you for performing operations that reduce premiums. For instance, you may earn discounts on your auto premiums for defensive driving programs. Your insurer should also advise on the kind of training that will reduce insurance costs.
7. Install security and safety systems
Another way to reduce your premiums is to secure your valuable assets properly. Ensure your business has proper safety equipment and that they are regularly tested. Having a well-monitored security system on the business premises will reduce the risk of theft or damage.
8. Maintain a good credit history
If you have just started your business, your insurance company will most likely use your personal credit history when setting premiums. You, therefore, need to establish a good credit record for you and your venture to get a cheaper business insurance quote.
9. Classify your workers correctly
The rate of charges for worker compensation may vary from one class to another. You, therefore, need to ensure each worker is rightly placed in their classification. Otherwise, you may pay more than you are required, and your premiums may be high.
10. Work closely with your insurance agent
You need to build a relationship with your agent so that they can understand your finances and your enterprise. With this, you can get suitable premiums.
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Insurance for an LLC
LLC insurance is designed to protect your company against liability claims that may arise from injuries within the business. Starting a limited liability company is a great way for business owners to secure their personal assets by separating them from their venture. Your enterprise can be faced by lawsuits that may put it on the line. It's, therefore, essential to understanding the different types of LLC covers available.
It's worth noting that an LLC protects you from personal liability for business claims but it's not all-encompassing. The owner can't be protected if:
- They have acted in an irresponsible manner.
- They have committed fraud or done something illegal.
- They have signed a personal guarantee for loans.
- They have injured someone.
- They have mixed business expenses with personal expenses.
- They have failed to deposit taxes withheld from employee wages.
Here are the key components that the LLC Insurance covers for:
- Professional liability- it covers all professional errors made by the enterprise.
- General liability- Protects against lawsuits that may be related to property damage or injuries caused by the business.
There are additional covers that an LLC might consider. They include:
- Commercial auto insurance- It covers any damage or theft of vehicles used to run the enterprise.
- Property insurance- covers damages to physical office space.
- Workers' compensation- Pays for medical costs, death benefits, permanent disability, or lost wages for employees. The coverage is only effected if the injuries or illnesses occur within the workplace. It's mandatory in most states.
- Inland marine insurance- Protects equipment, property, and tools used for the business.
- Installation floater insurance- This is a form of inland marine insurance that covers materials and products from the time they leave your business to the time they are used.
Always insure your business to avoid loss of property, disruption of operations and various lawsuits among other risks.
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