As a new business owner or an entrepreneur who is just laying the groundwork for a passionate idea, it’s easy to get caught up in the building process and excitement that comes along with starting a new endeavor. There are business plans to write, products or services to develop, and a never ending string of fires to put out along the way. Often times important steps surrounding business insurance will get pushed to the side or forgotten about all together during this period of excitement which you definitely don’t want to have happen!
The purpose of insurance is to make you or your business whole after a loss or incident. Most people are aware of what personal insurance they need, but once you enter the business world there is a new list of things that can fall back on the company.
Here are some tips that can help you be prepared for insuring your new business:
Find out what your industry liabilities are – This is usually the first step in insuring your new business and requires due diligence. The good news is that you can typically combine this with your overall business research and save some time. Look at the business from all sides and figure out where a business in your field could be sued from or liabilities could arise. Some questions to ask are:
• Will you have employees that could get injured physically or emotionally?
• Will you have a physical presence that needs to be covered?
• Will non-employees be on your business premises?
• Will you have a product that could potentially injure someone?
• Will your employees need to drive as part of their business activities?
• Could you be sued for something like slander or be held libel? (Blogs, reviews, etc.)
Know what type of insurance to get – Once you have determined where your business could be vulnerable, you must figure out what insurance is needed to protect against those potential liabilities. The good news for many businesses is that a commercial general liability policy will cover most of the common things a business could be liable for.
Commercial general liability policies can be combined with property insurance to cover many different forms of liability as well as business property. Even with this combination (often referred to as a Business Owner’s Package or BOP) there can still be gaps in the coverage.
Professional service industries, such as accountants and insurance agents, generally need and additional coverage referred to as Professional Liability Insurance or Errors and Omissions (E&O.) This protects them in case they are accused of negligible acts. For example, if an insurance agent received a premium payment by check from a customer but put it in their drawer and forgot to deposit it causing their coverage to lapse on their homeowner’s policy, if that house burned down the insurance agent could be sued for negligence. By not submitting the payment on time, the insured was no longer covered and it was the insurance agent’s fault.
Insurance is to make a business whole again – Insurance is best utilized as a tool to make a business whole after a major loss, not cover every little scratch or ding that pops up. New businesses and start-ups are usually strapped for cash, and they can save money by raising deductibles and forgoing small coverages. This may sound counter intuitive, but it allows a business to keep their cash flow higher and put more into the business in the beginning.
The purpose of insurance for your business is to prevent the unlikely scenario of you having to close up shop because of a lawsuit or loss. Carrying low deductibles will increase your premiums and reduce the amount of cash available to get the business of the ground. It is important to figure out how much you could afford to pay out of the business coffers, and match your deductible to that. Lower amounts may sound appealing, but mailing in the monthly check will not be.
Eric Stauffer is a former insurance agent and you can find his handy work at ExpertInsuranceReviews.com. His firm reviews insurance companies like Aetna, and also provides buying guides for personal and business insurance products.