The Basics Of Small Business Insurance

By Author: Frank Kasimov
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Many small business owners overlook the need for insurance in favor of getting business equipment or running marketing promotions. It's often perceived that only large businesses require insurance and that for small businesses, it's an unnecessary expense. However, as a small business owner you need to carefully consider how it would affect your business should an unforeseen event occur. A large legal claim or a fire could very well put you out of business. On the other hand though, you don't want to be straining your cash flow with large insurance premiums when a simpler and more affordable policy will provide you with adequate cover.

What to Consider When Looking at Insurance for Your Small Business

The first thing to consider is what industry are you in? Is it a service business, a manufacturing business or an internet-based business? Are their risks associated with your particular industry? If you have good industry contacts, ask colleagues or other business owners what their experience is in terms of insurance risks. Often, there are insurance policies tailored to a specific industry and finding these can ...
... save you a lot of time and money.

Next consider what your business's assets are. Is it your knowledge and experience that drive the business? Do you have specific equipment that is essential to your operations? What is the value of these assets and how easily can they be replaced? If you own a small printing business, for example, you may have picked up excellent quality second-hand equipment at an auction or sale for a good price. But would you be able to find the same deal if you had to replace it? You must consider the actual replacement cost rather than the purchase cost when looking at insurance values.

Lastly, have a look at your cash flow and budget, and estimate what you could afford as an insurance premium on a monthly basis. Some insurance companies offer a discount if you pay the full annual premium at once. If you can afford a large lump sum payment, it may be worth your while to pay an annual rather than a monthly premium.

Types of Small Business Insurance

A general liability policy covers legal costs when there is a claim of negligence, bodily injury or property damage. This would include covering the costs of a lawsuit, associated medical expenses, settling bonds or court judgments that result from a claim. As a small business, you may want to look at industry-specific policies and compare them to a general policy, as they may provide you with a better level of coverage for your particular business. This will ensure that you that the right kind of coverage for the risks associated with your industry.

Property insurance covers your business premises and risks such as fire, storm and flood water damage, and vandalism. If you operate your small business from home and already have a homeowner's policy, make sure that whatever business assets you have, such as computers, are specified and covered under your household policy. If your homeowner's policy does not cover these items, you can look at insurance that is designed for businesses operating from a private home. This is usually called home-based business insurance.

Product liability insurance is for businesses that manufacture, wholesale or retail a specific product range. Businesses are considered liable for product defects, negligence, express or implied warranties, and even defective instructions or product warnings.

Professional insurance is sometimes also known as malpractice insurance. It is applicable to businesses that have a service offering. In most states, malpractice insurance is legislated for medical professionals. Professional insurance covers legal defense and associated costs arising from a claim of service negligence on the part of the business or its employees.

If you operate a web-based business, you may want to consider internet insurance. This provides protection against damage done by hackers and viruses as well as electronic copyright infringements, meta tag abuse and illegal banner advertising. It is possible to tailor the insurance coverage to specific online activities.

Workers compensation insurance is legislated in most states for any business that has full-time employees. The insurance covers medical expenses and missed wages for employees that are injured while working. Business owners and contract workers are exempt from needing this type of insurance.

Key person insurance makes the business a beneficiary in the event that the business owner dies. This will ensure that the business can continue to function even after the business owner, who is key to the operations, is no longer around.

Tips for Getting Small Business Insurance

Be selective on the type of insurance your business needs and the value of the insurance. Do your research thoroughly and ensure that you are not under- or over-insuring your business and its assets. Also, make sure that you are not duplicating insurance coverage. Shop around and get various quotes from different insurance companies. Check into the reputation and track record of the insurance companies in terms of how they pay out and process claims. Once you have decided on a policy, read the policy details including all the fine print before signing off on a contract.
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