Is there anything more exciting in all the world than business insurance? The blood-tingling thrill of actuarial tables, the on-the-edge calculation of policy premiums, the xcj;kladfldksda;. Oh sorry, I faceplanted on the keyboard from sheer boredom. Let’s admit it: insurance is dreadfully, dreadfully dull stuff. However, it is important, particularly for a small business that isn’t in a position to absorb the potentially catastrophic losses that a negative event can have. One customer slipping and falling in your retail location, one dishonest employee, one bad storm, and your business could be wiped out, bankrupt, kaput. The prospect of that kind of disastrous consequence ought to be interesting enough to keep us awake for a bit.
There are a number of different types of small business insurance, and depending on what your business does, you won’t need all of them. Among the basic types are property insurance, worker’s compensation insurance, product liability insurance, vehicle insurance, professional liability insurance, and business interruption insurance.
Pretty much every business needs property insurance, to protect against losses like theft or fire. However, many insurance buyers assume that their property insurance covers against all such losses, and nothing could be further from the truth. Major disasters such as earthquakes or floods (sometimes referred to as “acts of God”) are usually NOT covered by standard property insurance. You need specific riders for those kinds of catastrophes, which will be more or less expensive depending on your location. Tornado insurance in California is cheap while earthquake insurance is costly, but it’s the other way around in Kansas.
Interruption insurance is a tricky area to analyze, because it depends in large part on how your business operates. Interruption insurance is usually an addition to your property insurance, and it protects you against a loss of operating income if something disrupts your operations at your normal location.
For example, a retail store might get interruption insurance to cover the net income they would have made if some event hadn’t forced the closure of the store for a period of time. Interruption insurance can be expensive, and it’s important to consider whether you actually need this coverage. Some businesses would be completely out of commission if their location was disrupted, while other businesses are much more flexible.
If your workflow model consists of one person, a laptop, and an Internet connection, then relocating your business after a disaster is almost trivially easy and you can skip the expense of interruption insurance.
Many small businesses are operated out of a home, and most small businesses probably have some overlap between personal and business operations. For example, what small business owner hasn’t used their personal vehicle for work-related tasks? If you give an employee a lift to the airport in your personal car and get in an accident, is your personal car insurance going to cover their medical expenses? Can they sue your business? There aren’t easy answers to these questions, but there are two basic ways to protect yourself. One is to separate your personal and business operations as much as possible. The other is to ensure that the business has adequate coverage.
Some small business owners who operate a home office think that their homeowner’s insurance will cover problems the business encounters, since it’s in the home. This is incorrect. There are sharp limits on protection for business operations in the home. For example, many homeowner’s policies limit damage to business property to $2,500. If your house burns down with $100,000 in inventory in the garage, your homeowner’s policy will not cover that loss. In addition, many policies offer no coverage at all for things that happen in outbuildings like sheds or detached garages/carports.
It’s possible to extend your coverage from a homeowner’s policy with an endorsement. This increases your coverage limits. For example, you could extend your coverage to $10,000 in business property losses. This might work well if your home office is small and doesn’t contain a great deal of valuable property. For more significant operations, you’ll want a business owner’s policy, or even a stand-alone commercial property insurance policy.
The Internet era has been the era of disintermediation, when half the business models in existence have crumbled to nothing as people use technology to connect themselves directly with the providers of services. Getting rid of the middleman has saved untold amounts of money, time, and convenience. However, business insurance is one area where nearly all of us would be very ill-served by foregoing expert help from a middleman. Insurance is complicated and the consequences of a mistake can be ghastly. A good insurance agent, someone who knows the ins and outs of the insurance business, is a lifeline. Find an agent you can trust and listen to their advice. They know more than you do about this.
There are a lot of ways to find an insurance agent. You can watch the commercials on television and choose the company that has the best jokes, for example. But realistically there is only one good way to find an agent, and that is to network. Ask your friends and colleagues who they use. Importantly, get advice from someone who has actually had to make claims and deal with that end of the business. Every insurance agent and company is great at selling you a policy and collecting the money; find someone who is great at helping their clients after something goes wrong.