The more an agent understands about your overall business and finances, the better he or she will be able to find competitive prices.
Any enterprise can be sued. People may claim that your business caused them harm as the result of, for example, a defective product, an error in a service or disregard for another person’s property. Or someone may allege that you created a hazardous environment. Your liability insurance pays damages for which you are found liable, up to the policy limits, as well as attorneys’ fees and other legal defense expenses. It also pays the medical bills of any people injured by your business.
If you use your own car for business purposes, discuss this with your agent. Many personal auto insurance policies exclude coverage if the vehicle involved in an accident is used mainly for business. A business auto policy provides coverage for autos owned by a business. The insurance pays any costs to third parties resulting from bodily injury or property damage for which your business is legally liable, up to the policy limits. Depending on what kind of coverage you buy, the insurance may pay to repair or replace your vehicle because of damage resulting from accidents, theft, flooding and other events.
In addition to the basic coverages highlighted above, there are various other policies needed by some businesses. They include:
Some businesses need specialized liability policies. They include:
Insurers often combine a number of coverages into a package that is sold as a single contract. The advantage of a package policy is that it offers a broad variety of coverages for small businesses at a price that is usually lower than if the same coverages were bought separately. The most common type of package policy is the Businessowners Policy or BOP (see below).
Many insurance companies have their own unique names for the package policies they offer, and the coverages may vary somewhat from company to company. Often, these policies are created specifically for businesses that generally face the same kind and degree of risk. There are, for example, package policies designed especially for restaurants, undertakers, hair stylists, accountants and many other enterprises.
A Businessowners Policy (BOP) combines coverage for all major property and liability insurance risks as well as many additional coverages into one package policy suitable for most small businesses. (For detailed information on property coverage under BOP, see chapter 3. For detailed liability coverage under BOP, see chapter 4.)
The term “BOP” specifically refers to insurance policy language developed (and revised as needed) by experts at ISO. ISO provides sample insurance policy language, research and a variety of other products to insurance companies.
A BOP includes business income insurance. This compensates you for the business income you may lose following a disaster. Disasters typically disrupt operations and may cause you to vacate your premises. The BOP also covers the extra expense you may incur if you must operate out of a temporary location.
To cover specific risks associated with your business, you may purchase a variety of additional coverages to add to the basic BOP. For example, the BOP doesn’t cover outdoor signs unless you specifically add coverage and pay an additional premium. If your business relies on electronic commerce, you may want to add coverage for lost income and extra expenses in the event your ability to conduct e-commerce is slowed down or stopped due to a computer virus or hacker.
Only small- to medium-sized businesses that meet certain criteria are eligible for a BOP. Factors insurers consider include the size of the premises, the required limits of liability, the type of business and the extent of offsite activity. Premiums for BOP policies are based on those factors plus business location, financial stability, building construction, and security features and fire hazards.
In discussing small business insurance, we make frequent reference to the coverage provided by the ISO BOP because it is a standardized policy form. Your particular policy may be somewhat different. The coverages, however, will be similar.
A BOP does not include all the coverages you may need. It does not cover professional liability, auto insurance, workers compensation or life, health and disability insurance. You will need separate policies for those.
When purchasing business insurance it’s important to obtain the right amount. Be sure that your company is neither overinsured nor underinsured. To help you decide the amount of property insurance you need, list all your company’s assets—including property, equipment and inventory. You can buy property insurance on the basis of the property’s actual value (the replacement cost minus depreciation) or its replacement value (the cost of replacing the item without deducting for depreciation).
An agent and insurance company familiar with the risks typically involved with your type of operation can help you decide on a reasonable amount of property and liability insurance.
Prices vary from company to company, so it pays to get several quotes. Get the names of insurance companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide.
It’s also important to pick a company that is financially stable. Check the financial health of insurers with rating companies such as A.M. Best and Standard & Poor’s and consult consumer magazines. Your trade association or other group that represents your business may be able to provide recommendations.
Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay for the policy. At the same time, be sure you don’t set the deductible so high that it will be a financial burden for you to pay the deductible if you have a loss.
You may be able to reduce your premium for certain coverages by following your insurer’s specific recommendations. These can include tips on workplace safety, disaster preparation and devices that reduce losses (loss mitigation), such as installing alarms and sprinklers. In addition, there are steps you can take to lower the possibility that one of your employees might file a lawsuit against you for discrimination or sexual harassment, for example.
Insurance is regulated by the individual states. Many states have publications and information on their Web sites to assist small businesses with understanding and finding insurance, as well as a great deal of other consumer insurance information. Most states have telephone helplines so that you can call and ask questions about insurance.
Should you wish to make a complaint about an agent or company, you should file it with your state insurance department. A listing of state insurance department information is included on the I.I.I. Web site.
The types and amount of insurance that you need for your small business are based on several factors. Ask yourself: What type of business are you in? Where is it located? Do you have employees?
You can evaluate your insurance needs—and start your search for insurance—by first considering the size of your business. These definitions may vary, but are generally based on the number of employees, total sales and earnings. The definitions below can help you determine where your business falls—and your insurance professional can provide guidance as well.
Many successful business launches start at home. Typically home-based businesses consist of one or no additional employees and have relatively little revenue. However, that doesn’t mean that the business shouldn’t be insured. Every business—including home-based businesses—should be insured against risk. According to the U.S. Small Business Administration (SBA), more than half of American businesses are based at an owner’s home—and too many fail to carry appropriate business insurance. While a home-based business is almost always by most definitions a small business, its location may require special attention to insurance coverage. Homeowners insurance alone will not necessarily cover your home-based business against business property loss or liability.
As a licensed insurance agent, Kevin is responsible for researching and writing about all matters related to insurance. He has over ten years of experience in insurance and financial planning. His history involves working with StateFarm, MassMutual, and other mutual companies.