When you are launching a new small business, insurance needs are probably not the first thing on your mind. However, just as you do with your home, your car, your health and your life, you need to plan for the unexpected involving your business.
Your needs for insurance will vary according to the type of business you have as well as its size, its location, what equipment you have and how many people you employ. Here are some insurance basics to help you determine what you need for your small business.
Types of insurances you need in a small business
Liability. A first consideration is your business structure. When your small business is a sole proprietorship or a partnership, there is no legal separation between you and your business. In other words, if someone sues your business, you are personally responsible. By creating a formal business structure, such as an incorporated business, an LLC (limited liability company) or an LLP (limited liability partnership), you can protect your personal finances.
There are three basic types of business liability coverage:
- General liability insurance covers your business against accidents, injuries and negligence claims.
- Product liability coverage protects you in case your product is defective and causes injury or damage.
- Professional liability coverage protects against errors and negligence.
Property. What would you do if a fire or a natural disaster destroyed your workplace and/or your inventory? Even if you have a home-based business, your homeowners’ insurance policy usually offers little to no coverage for business-related property. Property coverage helps protect the physical property of your business against certain causes (they can vary from policy to policy). This type of insurance policy can protect the actual building site of your business as well as your equipment, inventory, furnishings and other property.
Employees. Currently every state except Texas requires that businesses with a certain minimum number of employees (usually three to five) have workers compensation coverage to help protect workers who are injured on the job.
Business Vehicles. Just as you need coverage for your personal vehicles, if your business owns cars or trucks vehicles that either you or your employees operate, you will need insurance coverage.
Data Compromise. Depending on your business and how much financial information you have from your employees or clients, you should consider a policy to help protect you in the event of an electronic or a physical data breach.
The Small Business Administration (SBA) recommends that small business owners conduct a risk management assessment in order to come up with a list of potential events that could lead to any type of loss: property loss, business interruption, liability losses, key person losses, automobile losses and loss due to employee injury.
A qualified, licensed insurance agent who is familiar with your type of business will usually be able to provide you with this risk assessment at no cost to you. Take the time and effort to find the best insurance agent for your industry. Ask for recommendations from business owners you trust and plan to interview your agent just as you would other professionals you hire to help you with your business.
Your state government regulates the insurance industry and provides a number of services to small business owners. Also visit this helpful website: http://www.insureuonline.org/smallbusiness/. Produced by the National Association of Insurance Commissioners (NAIC), an organization of insurance regulators, the site provides tips for owners of small companies and home-based businesses.
Your insurance agent may suggest a package known as a Business Owner’s Policy (BOP). A BOP combines coverage options into one standard package, with a premium that costs less than if each type of coverage was purchased separately. If your business has certain unique risks, you may not be eligible for a BOP, or you may require additional coverage.
A final note: As your small business grows, so will your liabilities. Plan to review your insurance needs on a regular basis, especially if you have expanded your services or operation or if you have purchased new or different equipment. These changes will impact your insurance coverage needs.