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Small business insurance is a necessity for any startup. This is because your business can be rendered inoperable by the occurrence of a single risk event. For instance, a devastating fire could mean a total halt of operations for your business. Also, it would be tragic to lose all the fruits of your labor in the blink of an eye when the loss could have been insured. The importance of startup insurance cannot be understated.
Selecting a small business insurance policy brings with it a myriad of questions; “What kind of insurance does my business need?”, “What limits of liability will I require?”, and many more that you might have in mind. It is important to get comprehensive answers to your questions.
Let us look at the below 13 questions you must ask yourself when starting a small business.
1. What Type of Insurance Is Available for Small Business Owners?
Nowadays, business auto, liability, worker’s compensation, and business interruption policies are common for small business owners. Depending on specific insurance needs, these covers extend to include other risks such as property damage arising from hail or storms.
2. What Insurance Should I Consider and Why?
You need to cover your commercial property against loss or damage caused by perils such as fire, earthquake, floods, and others. This will offer you compensation for damaged property and allow you to resume business operations following the occurrence of a covered risk.
You should also consider liability insurance. This comes in handy when someone sues you after they get injured on your business premises. Also, your employees could sue you for injuries sustained in the course of their employment to you. The liability insurance will cover the expenses associated with legal costs and settlements.
3. What Types of Insurance Policies Are Required?
In most states, you must get a Worker’s compensation policy for your employees. You may need to confirm whether it is mandatory in the state in which you intend to run your startup.
Apart from that, some situations will necessitate general liability coverage for your startup. For instance, you may rent office space in a building whose landlord requires all tenants to have general liability insurance.
4. What Are the Policy’s Limits?
To put it simply, a policy limit is the maximum possible amount that your insurer can pay in the event of a claim. For instance, if your general liability limit is, say, USD 100,000 per risk, and someone makes a valid claim against you for USD 150,000, your policy will only pay for expenses of USD 100,000.
Based on the type of your startup and the nature of your business, you need to carefully consider the limits of liability that you may require before starting up a small business.
5. What Does This Insurance Policy Not Cover?
Exclusions to the policy are the risks and conditions that your insurer will not cover. Claims caused by said exclusions will not be paid. Common exclusions include but are not limited to nuclear reactions, war, and loss due to normal wear and tear of machinery.
Once you know the exclusions in the policy, you may opt to include some of them at an additional cost. This will depend on the specific needs of your business.
6. Are There Any Discounts?
Discounts are a good way of keeping the expenses of your business down. Some companies offer a No Claim Discount on your renewal premium, provided that you did not report any claims in the previous year or two. You need to carefully read the fine print and understand the related terms and conditions.
In addition, there may be Long Term Agreement discounts, meaning the company is willing to give you a discount provided that you promise to insure your startup with them for a pre-specified period, say 3 years. This may, however, limit your freedom to change insurers should your needs change. Therefore, you need to carefully consider whether signing a Long Term Agreement is the right move for your business.
7. What Drives the Cost of Business Insurance Coverage?
The key factors that determine the cost of your business insurance policy are the type of industry, claim history, and policy limits. The type of industry implies the kind of trade that your business deals in. Some examples of industries include, but are not limited to, the real estate industry, the tourism industry, or even the building and construction industry. If you run your startup in the construction industry, you are likely to pay more premiums than Jane, who sells clothes from her retail shop in the mall. This is because your employees are more likely to get injured at the construction site.
Claim history includes information about the number, if any, of claims you have reported on your insurance policy, and whether they were paid. This information is used to price your business insurance policy. You need to know that the more claims you file, the higher your premium will be. This is usually due to a claim loading, that is, a percentage increase in the renewal premium.
Policy limits tell us the maximum amount that the insurance company will be liable for in case of a claim. This is the total amount that you can recover from your insurance policy. There are different bands of coverage available. For instance, one policy has a liability limit of USD 10,000, and another one has a limit of USD 150,000. Naturally, the policy with higher limits will attract more premiums than one with lower policy limits.
8. What Is Covered in a Business Owner’s Policy?
Your business owner’s policy covers several risks. First, it covers business interruption, which compensates for lost income following damage or loss that renders the business inoperable. This compensation can be extended to cover increased costs of working while repairs continue. It can also cover fixed expenses such as rent, wages, and utilities.
The business owner’s policy also covers general liability, workman’s compensation, and professional liability. Furthermore, it includes cyber coverage which caters to data breach expenses as well as cyber extortion.
9. How Much Liability Coverage Do I Need?
Above the required limit of liability, your business may need additional liability coverage based on its activities. A startup law firm, for instance, will need a higher liability limit than a coffee shop.
As the owner of a business, you must select a limit that can comfortably cover you in case of liability claims. If you feel like the limit of your business auto and general liability are insufficient, you can opt to get additional coverage by purchasing an umbrella cover.
10. How Do I Know if My BOP Is Adequate for My Company?
You can do scenario analysis. This is a simple way to determine the adequacy of your insurance policy by coming up with worst-case scenarios that could possibly occur. Ask yourself, if the worst does come to worst, are you covered?
Picture this: you own a chain of bakeries across the state. While making a routine delivery, your commercial business vehicle accidentally crashes into a jewelry store. Your driver is found at fault, and you are slapped with a lawsuit for damaged property, amounting to USD 100,000. Additionally, two people were hurt in the process and their medical bills added up to USD 15,000.
You are forced to turn to your business insurance policy. In such a case, will your liability limit be adequate to settle the losses, or would you need an additional umbrella cover?
11. How Does Insurance Fit Into My Overall Strategic Business Plan?
Insurance is vital in ensuring the continuity of your business. By choosing to purchase a business owner’s policy, you are ensuring that your business will remain afloat in the face of any future adversities.
This is the purpose of insurance, to indemnify you back to the financial position you were in before the loss occurred. Insurance will therefore play a key role in terms of the going concern of your startup.
12. What Are Some Ways to Keep Insurance Costs Down?
You can start by minimizing risks. Generally, insurers want to insure responsible clients. You can install fire extinguishers, sprinklers, and smoke alarms to curb fire risks. Also, paying your premium upfront could help keep your insurance costs down. As compared to the installment packages, an upfront payment is almost always cheaper.
Do an annual review of your policies. An annual review can uncover assets no longer held by your business, or employees no longer on your payroll. This reduction in the sum insured leads to a decrease in your premiums as well. Therefore, you should review your insurance policies regularly, and communicate all changes to your insurer. Finally, you can improve security measures. If you deal with sensitive customer information, you could procure a renowned service provider to handle the data and install security protocols to curb cybercrime. Also, hiring professional watchmen to guard your premises could earn you lower premium rates.
13. How Do I File for a Claim?
The first thing you need to do is to contact your insurance company and inform them of the loss immediately. You can do this by calling them directly. This will enable the company to register your claim.
After this, you will need to fill in a claim form with the details of the claim and submit it together with relevant documentation to your insurer. Be sure to note details like the time of loss, names of other people involved, condition of the asset insured, and any witnesses. In cases of theft, you have to involve the police and present all relevant documentation while filing the claim.
Let’s face it, insurance is a necessity for small businesses and startups. Your small business insurance policy should sufficiently cover the risks that your business may face. The above questions are only the tip of the iceberg and you probably have many of your questions.
Have questions? Want to know more?
Reach out! At IMA, we’re here to help safeguard your future!