Are you on the verge of opening a small business? After the pandemic, you might find lots of opportunity. In fact, 31.7 million small businesses employed 60.6 million people in 2020, according to the U.S. Small Business Administration. That included 1.6 million net additional jobs in 2020. Of course, that’s against the wider backdrop of Covid-19 in April 2020, the unemployment rate was 14.7%, up from 3.6% in April 2019.
Business leaders, policymakers and customers alike thought many of these small businesses would hear the death knell throughout and after the pandemic, but many have continued to hang in there. Indeed, the pandemic created winners and losers.
For those on the verge of opening or already in command of a small business, have you completely insured yourself?
What is Small Business Insurance?
Small business insurance, also called commercial insurance, helps protect business assets, property and income. It usually includes general liability coverage, product liability, commercial property, workers’ compensation, professional liability coverage and more.
You can choose from so many different types of small business insurance, and each type does something different. You’ll ideally want to work with a trusted insurance agent so you know how to purchase the right policies for your business and industry.
But first, let’s take a look at the most common types of small business insurance and the covered losses involved.
General liability insurance, also called business liability insurance, protects you and your business from general property damage and/or bodily injury claims. General liability insurance covers medical expenses and attorney fees associated with these claims and helps with any financial setbacks you may experience as a result of these claims.
Take a look at the general coverage offered by general liability insurance:
- Property damage and/or bodily injury caused by your products, services and operations; and
- Can cover the site where your business operates if held responsible for damage caused to the property.
On the other hand, you can’t get coverage for the following:
- Auto accidents;
- Employee injuries;
- Intentional acts to damage or harm; or
- Professional mistakes.
If your product causes damage to someone else, you may find yourself facing a lawsuit. Product liability insurance can cover the legal fees that you need to pay to defend your business, as well as medical costs, compensatory and business damages.
Commercial Property Insurance
Commercial property insurance protects the physical aspects of your business:
- The building that houses your business;
- Furniture and equipment inside your building;
- Business inventory; and
- Outdoor fences and landscaping and signage.
A basic policy should cover losses due to fire, lightning, wind, hail and acts of vandalism. Note that you cannot get coverage for earthquakes and other types of damage with a basic policy — those require additional coverage. If your business suffers from a covered loss, you’ll file a claim with your insurance company. The company will pay for the losses so you can either replace, repair or rebuild.
If your business has employees, you need to have workers’ compensation insurance. This insurance protects you and your employees if a work-related injury occurs.
Workers’ compensation covers medical costs for employee injuries. Employees also receive financial assistance during recovery.
Professional Liability Insurance
Professional liability insurance covers you if a client or patient claims that you made an error, omitted information or were otherwise negligent in your business. Professional liability insurance policy covers you even if someone makes an unfounded claim against you.
Accountants, business consultants, lawyers and doctors often carry professional liability insurance.
Cost of Small Business Insurance
The cost of small business insurance depends on the industry you work in, your location, business size, deductible amount and coverage amount.
You can often bundle multiple policies for a discount and may even be able to bundle small business insurance along with your home insurance or car insurance, depending on your insurance company’s options. Keep in mind:
- Some insurance companies may offer discounts to businesses that actively work to lower risks in their business;
- Some insurance companies offer discounts to businesses that work within a certain profession; and
- Policies and premiums vary by business size and industry.
Determine the costs through an insurance agent to pin down the costs for your particular business.
How to Choose Small Business Insurance
Now that you know all of the details, how do you choose the best insurance and the right company for your needs? Follow the steps below.
- Step 1: Assess your risks. First, think about the different types of accidents, natural disasters or lawsuits that might befall your business. You want to get precisely the right insurance to cover all your risks and options.
- Step 2: Find a reputable, licensed agent. Commercial insurance agents can help you find policies that match your business needs. You want to find a trustworthy agent who can help you line up what you need with what you want — and who won’t sell you things you don’t need. Stick to large company names like State Farm, Liberty Mutual, Nationwide, Hiscox and more. Many companies probably come to mind right away. Ask about bundling and whether you can bundle.
- Step 3: Shop around. Don’t choose the first insurance company you land on. Get bids from at least three different insurance brokers or agents so you can adequately compare rates and coverage levels. Go through each policy by inputting higher liability limits. See how those higher limits impact the premium (monthly payment) you pay.
- Step 4: Reassess every year. You don’t want to go a single year without shopping around for business insurance. Your business may change over time. For example, what once only covered you on your own might need to expand to cover you and 10 employees! When your business changes, your insurance needs also change. Notify your agent or insurer right away when something changes. Give your agent or broker time to gather information and come up with the best solution for your coverages or limits.
Ready to get small business insurance for your business? Great! Keep in the back of your mind that you don’t have to stick with the same small business insurer forever. Insurers themselves change over time and may no longer meet your needs. Your business simply might outgrow the insurance company or maybe the quality of customer care goes down. It’s your money that pays them, so make sure to get exactly what you need.
Melissa Brock spent 12 years in college admission and is the founder of College Money Tips and the Money editor at Benzinga. She writes tons of financial content and loves helping families navigate the college search process. Check out her essential timeline and checklist for the college search!