Every entrepreneur wants the best outcome for her business. But if and when the worst happens, business insurance comes in handy. Read on to learn the benefits and potential costs of obtaining insurance for your small business.
Business insurance refers to commercial insurance that protects your business against financial losses or damage stemming from legal disputes, accidents, natural disasters or other unforeseen events.
All business comes with some level of risk. But if ever those risks were to be realized and lead to real losses, having business insurance can minimize both the financial and the psychological impact of the damage or injury. Conversely, going uninsured can expose your business to potentially significant losses. While it's generally true that the higher the risk of doing business, the higher the potential losses, having a low-risk business doesn't eliminate the need for insurance. Accordingly, it's important to remember that business insurance is not a silver bullet. Depending on the type of insurance you obtain, the insurance may only partially pay, or in some cases, may not provide any coverage, for the specific losses your business suffers. To put it another way, if you choose to buy insurance, it's essential to buy the right type of protection for your small business.
There are many types of business insurance available, the most common being: General liability insurance: This catch-all option suitable for any business covers losses from property damage, claims of bodily injury, libel or slander and the cost of legal defense, settlement bonds or appeals judgments. Product liability insurance: This option for businesses that make, distribute or sell products covers losses arising from product defects that cause harm or injury. Professional liability insurance: This option for service-based businesses covers losses arising from errors or omissions, negligence or malpractice. Commercial property insurance: This option for businesses with considerable property or assets covers losses from property damage from events ranging from theft to fire and hail damage. Home-based business insurance: This option for businesses operating from home provides limited coverage for losses relating to business equipment or third-party injury liability. Sometimes it can be purchased as a "rider," i.e., an add-on coverage option to your homeowner's insurance policy. Business owner's policy: This is usually a bundled option comprising of multiple business coverage options.
Certain types of employer insurance, such as worker's compensation insurance, are required by law. Similarly, using a business vehicle would require obtaining commercial vehicle insurance. However, most types of business insurance are optional. Principal insurance coverage for new business owners should include general liability and property insurance. But these types of insurance may not both be necessary for the specific business you operate. Furthermore, they may not provide the appropriate level of coverage for the distinct aspects of your business that you deem to be most at risk. For example, if you live in a disaster-prone area, you may want not only property insurance but also business interruption coverage to cover the loss of revenue during a business closure. For this reason, you need to identify the specific risks affecting your business and the potential extent of the losses or damage that could arise from them. Then, consult a business insurance broker to narrow down your options that address these specific risks.
The premium cost an insurance broker will quote you for a small business insurance policy depends on the several variables. They have to consider an insurance carrier, the particular type of insurance, and the deductible amount. Lastly, the policy value and your business' perceived exposure to risk. Generally, the higher the deductible is, the lower the premium is. Risk itself is assessed based on multiple criteria, such as the nature of your business activity, the business location and the condition of the business property. General Liability insurance averages $500-$600 annually, according to HowMuch.net. However, a small retail store would pay closer to $750 annually, whereas a hair salon would pay closer to $450. Similarly, Commercial Property insurance averages between $1,000 and $3,000 annually for $1 million of coverage. It's helpful to do comparison shopping with a few insurance brokers to zero in on a policy that offers the type and level of coverage your business needs at a premium you can afford.