Everything has its ups and downs, even as a human being, it is impossible to be happy all the time; the same applies to businesses. And for small businesses, it can be incredibly difficult to undergo difficult circumstances as capital can be a challenge. Now imagine not having to start from scratch every time there is a tragedy; that is what insurance for small businesses does. It gives security and protection to these businesses.
The year 2020 must be an incredibly tough year for small businesses. It started with the deadly Coronavirus, and then in its midst, demonstrations and riots erupted all over the world and especially in the USA, demanding justice and racial equality. This is the type of circumstance that proves challenging for businesses, especially small businesses. First, people were staying home to avoid close contact and interactions; businesses were closed due to this; and due to the riots, companies took a hit, literally.
For the small business owners, it is almost impossible to predict or even prepare for such a turn of events apart from Investing in Insurance. Adequate insurance coverage can protect your small business from several things, and the effects of the pandemic and even riots are some of them depending on the type of insurance policy you decide to take.
Business insurance is a contract agreement between you and an insurance company that they will cover your costs in case certain situations or emergencies occur. In exchange, you will pay them a certain amount of money at regular intervals.
In this article, we will introduce, cover, and give insight into basic information that small business owners and businesses should know about business insurance.
Types of Insurance for small businesses
This type of insurance policy is essential for small businesses as it allows the holder to insure multiple properties from loss under one policy. This can be helpful for small business owners with several branches of the same business.
Business interruption insurance:
This type of insurance is especially crucial for startups as it covers expenses that are incurred during a period when a business has been shut down due to a loss covered by your insurance.
This is used to ensure a business owner if they own a building or have personal property in the building such as office equipment, computers, etc.; they can be insured against fire, theft, vandalism, etc.
Business owners’ policy (BOP)
This is incredibly cost-effective for small businesses as it combines property insurance and liability insurance.
This type of insurance policy protects an employer from employee acts that may be detrimental to the business. This would be important for small businesses where every penny counts.
Commercial auto insurance:
This policy covers the employer, employees, and company vehicles in case of an accident, and there are injuries or damages. It covers the cars whether the business owns them, leased, or rented; it also covers the passengers.
Data breach insurance:
This is a wide-ranging insurance policy that covers the costs associated with a potential data security breach as well as mitigating the effects caused. A business can also take a cyber-insurance policy with this.
Employer’s liability insurance:
This protects a small business owner in the case that an employee files a lawsuit against the employer because of being injured while on duty. The right of the employee to sue is even limited if the employer has workers’ compensation benefits.
Employment practices liability insurance:
This protects a company in cases where employees may be accused of employment-related claims such as harassment.
Errors and omissions insurance (“E & O”):
This business insurance policy provides liability protection to a company if its employee’ or employees’ commit a professional error that would lead to losses or injury on the side of its clients.’
A standard insurance policy doesn’t cover some certain risks or liabilities, and as such, a small business owner may need to take riders, i.e., pay extra for more protection.
General liability insurance:
Protects businesses in situations where the company can be held accountable for causing bodily injury or property damage.
Group health insurance:
This is a medical insurance policy that an employer offers his employees, and they are covered when they seek healthcare services according to the health plan they chose.
Key person insurance:
Many small businesses have a key person or key people who are central to their operations; as such, critical person insurance is used to provide life insurance to that one person; in case of the death of that individual, and it issues benefits to help cover the losses made when that person is not available till they find a replacement.
Commercial earthquake insurance:
This is a rider type of insurance coverage that covers businesses from the effects and loss of property caused during an earthquake.
Commercial flood insurance:
This type of policy is provided by the NFIP (National Flood Insurance Program) and is available through independent agents. It covers the effects of loss caused by high waters, excessive rain runoff as well as hurricanes.
To learn more about the types of Insurance covers, check out insurance for small business owners.
Steps to buying Small business insurance
- Assess the rights you might encounter. You can get important information on this by checking the NFIB website to help you analyze your risks and liabilities and make an informed decision on the type of insurance policy to take.
- Use a reputable and licensed insurance agent or agency. Commercial insurance agents are empowered by insurance firms and have a lot of knowledge that is useful in helping you assess your risks and find policies that match the type of business you are in.
- Be flexible when looking for an insurance policy. This is especially important as prices and benefits vary from one insurance firm to the next. And as a small business, you should look for one that is favorable to you and your needs.
- Reassess your business policy every year. This is because liabilities increase as the business grows. Thus it is important to increase the coverage of your insurance policy. You do this by contacting and informing your insurance agent of the changes in your business.
Benefits of Business Insurance
- It provides body injury coverage in case the business or its operations cause it.
- It provides property damage coverage in case the business or its operations cause it.
- Liability insurance comes to the rescue of small businesses or businesses in general in the case that it has violated copyright law when running a marketing or advertising campaign. It covers the legal liability in this instance.
- Businesses suffer a lot if there is an unfortunate occurrence. A business liability helps one mitigate this financial loss.
- Helps cover small businesses in the event of lawsuits or settlements by covering the investigation and attorney expenses.
- It helps sustain business continuity and operations by covering the business in case of an unfortunate event by financially covering the losses to income and property.
- There is risk-sharing between the company through its finances and the insurance company in case of misfortune that is covered by the insurance policy.
- Small businesses, as an entity, have with them several people attached to it, such as customers, employees as well as trading partners. Insurance helps to protect the business as well as the people attached to it from the effects of a catastrophic event.
Common terminologies used in small business Insurance
There are among a number of terminologies that have been used in this article or that apply to insurance in general that are important for you to know about. They are listed below:
This is the maximum amount of money that an insurer will reimburse a policyholder for losses incurred in a specified period of time.
This is the amount of money that you, as the insured, regularly pay to the insurer for coverage of risk.
This is an addition or addendum/change that will alter the current or provided terms of an insurance cover. Insurance holders’ pay more for riders.
This is the amount of risk or liability that is covered in the insurance agreement.
This is a three-party insurance agreement that has, in it, an agreement that a third-party (surety) will step in to help cover losses of the obligee in the instance that the principal is unable to.
This is the process of determining appropriate premiums by reviewing and analyzing potential risk factors.
This is a tool used to reduce the possibility of a loss occurring or reducing its effects in case it occurs.
This is a loss or event that is mentioned by name is your business insurance policy and is covered by the said policy.
Small business insurance case study
Mr. Smith runs a recruitment agency consulting firm from his house in Ontario, Canada. From his point of view, he has no employees, business property, or assets and so he thinks that his risk exposure is minimal and so he does not need insurance.
For his case, let us not focus on the prospect of a fire happening in his house, and he loses all these official documents; instead, let us take a more likely occurrence. Mr. Smith goes for a business meeting in a hotel, and a lady trips over his briefcase, which is on the floor. The lady has every right to sue Mr. Smith and, in this case, his business; if he has a Business Owners’ Policy (BOP), the expenses of the lawsuit can be covered; if not, he will have to pay out of his pocket which can prove quite expensive for a small business owner.
Small business owners can take insurance as an unnecessary expense, especially when they are looking at only ripping maximum profits forgetting that there are risks involved in every business. With this in mind, below is several steps that can be taken to lower insurance premiums by reducing risk:
- Have good sufficient lighting in your business work area to enable good visibility.
- Keep electrical and appliance wiring in safe areas, i.e., where they are not interfering with areas of movement, and also keep stairways, carpets and floors, elevators, and escalators in good condition.
- Install quick response mechanisms such as a sprinkler system, smoke & fire alarms to be used as the first line of defense in case of an emergency
- Keep only a minimal sum of cash on your business premises to reduce the chances of theft.
- Have a good record keeping of inventory, financial, and other official documents. Consider having a second set of records off-site, such as with your lawyer, trusted insurance agent, or a safe at home.
- Your employees must know how to handle themselves properly and use all required safety equipment when conducting their work duties, e.g., goggles, gloves, and respirators. And in the case that they do not, training should be offered to them.
- Consider hiring a risk manager to help with risk & liability assessment. This will, in turn, help and guide you in applying the safety and environmental regulations on your work premises.
- Lastly, make sure to use the right insurance agent who has your business interest at heart. Since he/she understands the nature of your business, they will be able to identify the risk factors that it entails and advise accordingly on risk management techniques you can use.
While having insurance may seem like an expensive undertaking, it provides security to the business owner and business. You can check out more detailed information on small business insurance by checking out: Consumers’ guide.
Why is business insurance important?
Because it protects the business against losses that may be incurred if a catastrophic event covered by its insurance policy were to occur, depending on the coverage of the policy, it can protect employers, employees, property as well as individuals or entities that may interact with it.
Should a startup have business insurance?
Yes, it should. A lot of startups incur losses in their first few months, and some even close shop, but insurance helps cover the employers against the expected challenges.
How much is small business insurance?
Small businesses’ insurance premium varies from firm to firm and also the policy coverage. Still, on average, general liability insurance for a sole proprietor is $500 annually, while a small firm is likely to pay around $3,000 per year.