The Basics of Business Insurance
Regardless of which industry your business is in or how big your company is, there are a few basic coverages that the vast majority of businesses require. First up is workers’ compensation insurance, which is the only form of insurance that’s actually required by state governments (except for Texas, where it isn’t legally required). Nearly every company that has employees needs to have workers’ comp coverage, which protects your business in the case of an employee injury or illness.
Next, any business that has a physical location will need to get commercial property insurance, which protects your building itself as well as its surroundings and contents. This includes your signage, landscaping, fencing, and similar outdoor accessories as well as your indoor furnishings and equipment.
Finally, general liability insurance isn’t always necessary, but it is very widely applicable. With this form of coverage, you’re protected against many of the most common claims that occur for businesses of all types. This includes third-party injury, third-party property damage, reputation harm, and advertising liability.
These forms of coverage aren’t necessarily applicable to every single business, but they are required for most companies. One way you can easily acquire insurance for your company is to look into a business owner’s policy (BOP), which is a combined policy that includes both commercial property and general liability coverage.
Especially when you consider that you can add other types of coverage onto it, a BOP can be a convenient option that also saves you some money due to the bundling discount aspect. If you are going to acquire property and liability policies anyway, you should at least give business owner’s policies a look to see if they might better suit your needs.
Insurance for Growing and Mid-Sized Companies
It can be tough to tell when your business crosses the threshold between a small business and a mid-sized company, but you could view it as the point where more-advanced insurance solutions become necessary. The most commonly required policy for growing companies is commercial auto insurance, which is a must-have if your company owns or rents any vehicles.
However, it’s also a necessity if your company even has employees using their own vehicles to accomplish work tasks, because any potential lawsuit will absolutely name your business as well as that employee, no matter who owns the vehicle.
Business interruption coverage can keep your company afloat in the case of a catastrophe that results in not being able to operate your business for a temporary period. In addition to lost income replacement, this coverage can help you get your company back in operation if a covered physical property loss forces you to close for repairs.
Another common insurance policy for growing and mid-sized companies is employment practices liability insurance (EPLI). This type of policy covers the costs incurred by an employee lawsuit due to allegations like discrimination, harassment, or wrongful termination.
If your business relies on your expertise, professional liability insurance should also be on your acquisition list. As opposed to general liability coverage, professional liability (also known as errors and omissions insurance) is tailored specifically to the perils faced by professionals in your field. If someone sues you for giving them bad advice as an expert, professional liability insurance covers legal defense costs and other associated claims.
Business interruption insurance, professional liability insurance, and EPLI are all commonly acquired as part of a Business Owner’s Policy, which shows how flexible and adaptable a BOP can be for your business. It really can grow with your company, evolving along the way to suit your current needs.
Insurance for Larger Businesses
As your company continues to evolve and grow, so too will your insurance requirements, which could expand beyond the scope of a BOP at some point. Your company may end up requiring key person insurance, which is a policy that covers businesses with one or two primary individuals who produce most of the company’s work. This coverage kicks in if your business loses one of these income generators, enabling your company to stay afloat while you figure out how to replace your key person.
Similarly, directors and officers (D&O) insurance is a form of liability insurance that covers your business management team—and your business itself as an entity—if there’s a lawsuit filed against your company’s directors or officers. These policies cover each director and officer’s personal assets, and your business receives funds to cover legal fees and related costs.
Where Should You Buy Business Insurance?
There are a few different ways to pursue purchasing insurance coverage for your business, and which one you’re most comfortable with may come down to personal preference. However, in general, we don’t advise placing your trust in online insurance providers, because insurance is such a specialized field that we don’t like simply going with a generic package offered on the internet.
One common option is to acquire coverage from an insurance agent. Agents typically either work for one specific insurance carrier, or they work independently and sell policies offered by several different providers. Another option is to enlist the services of an insurance broker, a type of insurance sales that’s typically more client-focused and less beholden to one company.
If you have a specific industry that your business operates in that has its own rules and regulations, you might also be interested in acquiring the services of an insurance specialist. This individual will understand the unique risks of your industry and has plenty of experience helping entrepreneurs like you navigate those risks.
How Should You Compare Quotes?
When you decide it’s time to get quotes from insurance providers, there may be major variance in the pricing you receive from different sources. Because of this, it’s important that you carefully study the details of each quote to determine where the price difference is coming from and whether that increased cost is worth it to you.
When comparing quotes, make sure to take note of the following details:
- Check the provider’s carrier rating: Smaller insurance carriers may have more impressive pricing models, but they may not have the financial security ratings to provide reliable service.
- Compare deductibles: The most obvious answer for why one quote is more expensive than the other is also often the truth: perhaps the less expensive option has a higher deductible! Always make sure to weigh the pros and cons of a policy’s deductible-to-premium ratio.
- Examine the sublimits: Depending on what type of policy you’re dealing with, there may be sublimits that cap how much compensation you can receive for each specific part of a claim. For example, a sublimit that significantly restricts third-party medical payments on a general liability insurance policy greatly hinders the effectiveness of that policy.
How Can You Mitigate Your Risk Levels?
In many cases, the risk level of a business is directly tied to how high the rates are that the company pays for insurance. By mitigating your company’s risk factors, you can not only help avoid claims but you can also often lower your rates as well. If you want to decrease your company’s risk levels, try taking some of the following steps.
- Keep your business clean and tidy so customers can’t slip and fall on spills or trip over loose items.
- Maintain appropriate levels of lighting both in and around your business location.
- Create hiring processes that thoroughly vet all candidates and minimize occurrences of harassment/prejudice claims.
- Always follow all local, county, and state regulations to maintain your compliant status and stay up to code.
Shopping for commercial insurance isn’t the easiest step in the early business life cycle, but it’s one that you absolutely must take seriously. Underinsured or uninsured businesses can easily go under with even just one claim filed against them, and not all insurance policies are created equal!
When shopping for business insurance, you should have an idea of which types of coverage you want before you consult with any providers—doing your own research ahead of time is always a smart step. Also, make sure the policies offered by your broker or agent fit your company’s needs, including your desired sublimits. As long as you keep these key items in mind, we think you should be successful in your quest to find the right policies for your unique business.
We hope this article answered your toughest questions about how to shop for business insurance. No matter where you end up acquiring your policies, we wish you the very best in your future business endeavors!