6 Important Factors When Selecting Small Business Insurance
Integral to the success of a small business is small business insurance. Choose inadequate insurance policies and you might find yourself in serious financial straits. Choose an appropriate business insurance plan and you could put your business in a position to thrive.
The question, however, is how to select small business insurance. What factors should you consider when making your choice? We're going to discuss them at length below, helping you find business insurance for your small business.
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1. Your Level of Financial Vulnerability
The point of business insurance is to help protect your company financially in the event that something goes wrong. Your company pays a premium so that, if something unexpected happens, the insurance policy can help cover the costly expenses of the "something unexpected".
The thing, however, is that not all insurance policies provide the same level of financial coverage. Some policies can only cover, for example, up to $50,000 worth of damages. Others can cover up to $250,000 and beyond. It depends on the policy limits.
Your goal is to assess your business' financial vulnerability should damages occur. You should buy insurance that is adequate to help make up for this vulnerability.
For example, if a customer incurs an injury on your property and sues you, what might you stand to lose in terms of money? If you determine this, you may want to purchase a general liability policy that could cover a large amount of these types of damages.
Or, what if some damage is done to your property? You may not want to pay for the damage out of your own pocket. You may want to ensure your property insurance coverage is vast enough to cover the majority of the damages.
Generally speaking, the bigger the company, the more financially vulnerable it could be. Smaller companies typically may not need as much coverage as bigger companies.
That said, before purchasing insurance for your business, it is advised to speak with an insurance representative. They can help you decide just how much coverage you might require.
2. Your Level of Inventory Risk
Another important factor to consider is the level of inventory risk of your business. If your business holds inventory, it may be at a higher risk for financial impact than a business that doesn't hold inventory. This is because a single incident could destroy said inventory, costing you hundreds or thousands of dollars in the process.
On the other hand, if you're a freelance writer, for example, you might not hold inventory. As such, you might have a much smaller risk of such damages.
Now, most businesses carry some liability. Therefore, they should consider a general liability insurance policy. But only those with great amounts of inventory can benefit from business property insurance.
If you do decide to opt for both general liability and business property insurance, you should consider taking out a Business Owners Policy (BOP). This package includes business property insurance, general liability insurance, and cyber insurance and is commonly purchased by many small business owners.
3. Workers' Compensation Laws
Another thing you may want to consider when choosing small business insurance is your state's Workers' Compensation laws. Depending on the laws in your state, you may or may not be legally required to purchase Workers' Compensation insurance.
Some states require companies with employees to have Workers' Compensation insurance. Other states require only companies with, for example, 2 or more employees to have Workers' Compensation insurance.
That said, regardless of the state you live in, if you have even a single employee, you may be advised to purchase Workers' Comp. This way, if one of your employees gets injured or sick while on the job, you can help pay for their medical bills as well as wages or salary they might miss out on.
If you don't have Workers' Compensation insurance in these scenarios, you could face a lawsuit. This could have a negative impact on your business, both in terms of reputation and finances.
4. Whether You Do Business Online
Do you conduct business online? If so, you may be advised to purchase cyber insurance. Cyber insurance can cover you financially in the event that your customers' digital data is hacked or stolen.
Let's say that one of your customers' credit card numbers is discovered by a hacker via your website. The hacker can take this credit card number and use it to make thousands of dollars worth of purchases. Now, after finding out your business is the one that made their credit card number vulnerable, the customer might want to file a lawsuit against you.
Odds are, you could lose this lawsuit. As such, you may have to pay the customer thousands upon thousands of dollars in legal fees. If you don't have cyber insurance, you may have to pay these fees out of your own pocket.
If you have cyber insurance, however, these fees can be covered by your insurance policy. You'll only have to pay your premiums and your deductible.
5. Whether You Work Out of Your Home
Another thing you might want to consider when choosing an insurance plan is whether you work out of your home. If you do use your home as your place of business, you should strongly consider purchasing a HomeHQSM insurance policy. This is appropriate for both homeowners and home renters.
Your residential property insurance plan can cover certain damage that occurs to your home. However, it may not cover the damage that occurs to your business property. HomeHQ insurance can help fill this gap.
It consists of three separate types of coverage: business liability insurance, business property insurance, and business stock insurance. We'll discuss the specifics of each below.
Business Liability Insurance
Business liability insurance can cover things such as third-party injuries that occur on your property. Not only can it cover the medical costs that occur as a result of these injuries, but the legal costs that you may incur as well. It can also protect you in the event that your business is sued for things like libel, slander, third-party property damage, and advertising injuries.
Odds are, at some point, a customer/client can come onto your property. You may want to have this type of coverage to help with expenses in the event that damage or injury occurs.
Business Property Insurance
Business property insurance can cover the cost of business property in the event that it is damaged. It doesn't cover the building you work out of, but it can cover the business items housed inside it.
Note that a residential property insurance plan may not cover your business-related property. So, if you work out of your home, you may want to get business property coverage in addition to your residential property insurance plan.
Business Stock Insurance
Whereas business property insurance can cover the cost of damaged business-related possessions, business stock insurance can cover the cost of damaged merchandise and inventory.
So, if your home suffers damage, and that also damages some of the inventory that you're about to ship out, your business stock insurance plan can help cover the cost of replacement for that inventory.
This can be vital even if you have a small inventory present in your home at any given time. If the inventory were to become damaged, and you did not have business stock insurance, your business could be impacted financially.
6. Your Budget
One of the last things you should consider is your budget. After all, business insurance costs money. The more coverage you buy, the more likely you're going to have to pay a higher amount in premium.
Now, this isn't to say that you should buy too little coverage for your needs. You may want to be covered in the event of damages or a lawsuit.
However, it doesn't mean that you shouldn't be mindful about how much you spend. In the early days of running your business, when your profit margins are tight, you might want to keep your premiums to a minimum.
Choosing Small Business Insurance Can Be Vital
When it comes to the success of your small business, choosing small business insurance can be vital. Not only should you select policies that match your business needs, but you should select coverage amounts that fit your budget as well. So, when buying insurance for your small business, be sure to consider the 6 factors discussed above; doing so can make a difference.
Interested in buying insurance? On the hunt for a policy for your business? If so, look no further than PolicySweet®.
We offer a wide variety of business insurance. This includes general liability insurance, property insurance, cyber insurance, Workers' Compensation insurance, and more. Contact us now to discuss your insurance needs!