The world of business poses many risks—some are obvious, while others are less so. A business owner needs to know how to handle risk for their business to survive. One of the highly recommended ways to manage risk is having business insurance.
Knowing what it is and what your options are will help you make informed decisions for your business. Find free business insurance resources to educate yourself further and avoid being caught unaware when risks rear their ugly head.
What Is Business Insurance?
In general, insurance is a financial system developed to protect people from risks and hazards that they face daily. Business insurance is just one type of insurance that was developed. It’s used to safeguard businesses of all sizes from foreseen risks and hazards.
Why Do Business Owners Need Business Insurance?
Business insurance is necessary because there are certain forms of disastrous and catastrophic situations that can adversely affect a business. A business owner whose business suffered losses from such risks and hazards may be able to rebuild what was lost and regain profitability through their insurance benefits.
How Can a Business Owner Save Money When Buying Business Insurance?
Here’s what you need to know if you’re looking to save money when buying business insurance.
1. Take note of your business needs first
Ask yourself how big you want to grow your business. The size of your business directly affects how much insurance coverage you could get. This is because you’ll need to know:
- How many employees there will be
- How many machines you need to buy
- How many vehicles your company will need
- How many facilities you need for the actual business operations
Since every insurance payment will be coming from the business, you should also find out the size of profits you’ll need to afford the premiums.
2. Ask your insurance advisor what kind of business insurance you’d need
There are several kinds of insurance needed to protect a business financially. These are:
- Professional liability insurance – In some places, professional liability insurance is simply called Errors & Omissions Insurance. It covers the business in case someone is harmed through the negligence or mistakes of a professional while the latter is practicing their profession or craft. A good example of a professional who needs professional liability insurance is a financial planner. A client can be directly harmed if the financial planner gives wrong advice regarding the use of financial tools.
- Property insurance – This provides coverage for equipment, furniture, inventory and signage in case of damage or loss due to theft, storm, or fire. Remember, most of the time, earthquakes and floods are not covered by this.
- Key person insurance – This protects either the owner or an important executive in the business should they come down with an illness or disability which prevents them from going to work.
- Worker’s compensation insurance – This helps you avoid paying large amounts if your employee has a work-related injury, or dies in the line of duty. It covers work-related disability expenses such as medical treatment, including benefits in case of death of the employee.
- Disability insurance – This pays your workers a certain amount should they suffer illness or disability on the job.
- Unemployment insurance – Your workers get coverage, in case they become unemployed.
- Homebased business insurance – Like its name suggests, this is coverage for small business owners who operate out of their home. It covers cost of inventory and equipment, basically. However, you should double check if your current homeowners’ insurance provides some coverage too.
- Product liability insurance – If your business manufactures products which are tangible and can harm someone physically, you may need this kind of insurance. This helps protect the business from lawsuits when an end user of the product suffers some kind of injury or loss reportedly due to its use.
- Vehicle insurance – This offers protection to your business in case one of your company vehicles gets into an accident. Take note that your employee should have been using the company vehicle for official purpose, and not for a private errand. If the employee is using a vehicle for a private task, their personal insurance coverage applies instead.
- Business interruption Insurance – This type of insurance provides protection from loss of income by the business, not for specific employee losses of income. It protects a business in case there’s an event or situation when the business operations cannot continue without incurring even bigger losses.
Each form of insurance offers a specific kind of coverage to a business. It’s important that a business owner get adequate insurance coverage asap so that the business will not suffer irreversible damage when risks and hazards hit it.
3. Ask your insurance advisor how much it would cost to insure your business
Since there are several types of insurance for a business, you may need to have your insurance advisor manually compute the cost of being covered by each of those. That can be quite costly for the business to support. But one way around that problem is to have custom insurance coverage instead.
For custom insurance coverage, your advisor will bring in a team of insurance specialists who will confer with you regarding the special risks your business faces. They’ll put together a business insurance policy for you. This means you’d only be paying one premium per year for coverage that encompasses the scope of those previously-mentioned types of business insurance. It reduces the hassle of trying to pay for extensive coverage through several different policies. You save more money this way.
You should also be prepared in case your business can’t accommodate paying the computed amount of premiums. This can happen to anyone, even those with significant profits and are already established in their industry. If you can’t afford the premium quoted, your insurance advisor may have to scale down the coverage to a level you can comfortably pay for. When you’re already very profitable, you and your advisor can then consider increasing the coverage— meaning the premium would be higher.
4. Shop around
Knowing that all businesses face risks at all points of the business cycle, getting business insurance right from the start is a good idea. It’s good if you and your insurance advisor are able to foresee most, if not all, the risks. But people can lack foresight to see what may really happen in the future. Even your advisor might not be able to predict all the possible risks your business will face. If this sounds like your situation, you’ll have to do additional research about the risks.
Whether you believe in luck or not, it’s true that some businesses seem to be more prepared for crises than others. You’d do well to study their history and see what crises hit their operations. Then check what they did to get out of the crises. Select stories of companies that are in the same or similar industry as yourself. If possible, try to find the name of the business insurance provider that they used. Learn what kind of business insurance they were able to get. And, of course, check the effects of the insurance in prolonging the company’s survival.
If you can’t find this kind of information, your next best option is to shop around for different coverage from a handful of reputable insurance providers. You can rely on your social and business contacts to find these insurance agencies. Ask them to give quotes for their business insurance, and study the fine print of their terms and conditions. Take your time doing this, since some clauses might be confusing or might not apply to your business. Some insurance providers may also be more generous when it comes to the benefits they offer.
5. “Don’t buy if you don’t know why”
It goes without saying that you aren’t obligated to purchase the very first business insurance policy offered to you. Yes, it would make your insurance provider very happy to have you sign up right away for a policy. But are you satisfied with the terms and conditions of that policy? Or are you just settling? Ideally, you should ask your insurance advisor any questions you may have about the policy. There may be clauses or terms in the policy that are vague, or even disadvantageous, to you. If you’re confused or just want some clarification, speak up and let the advisor know your concerns.
If you dislike the terms and conditions, you can always ask for a better policy. The important thing is to communicate directly with the advisor sent to you so there’s no confusion. Take note, some insurance advisors are actually more experienced than others. This means, if your present advisor can’t answer your questions, they can ask their insurance manager to meet with you. Usually, the more experienced advisors will be more knowledgeable about the policy terms and conditions than a young and inexperienced, but eager insurance agent.
6. If you can, pay annual rather than monthly, quarterly or semi-annual premiums.
It’s usually better to pay the annual premiums since they cost less compared to the monthly, quarterly or semi-annual payment options. If you want your business to save significantly in the long run, annual payment is the ideal way to go.
However, if your business doesn’t have that much profits yet, it might be a hardship to pay annual right away. So, check if you can pay semi-annual or even quarterly while money is still tight. You’ll have to judge how much your business can support as far as premiums is concerned at the moment. If business picks up in the next year, you can request to shift to a larger premium, which means jumping to semi-annual, and then to annual as profits go up year after year.
Some insurance providers do give discounts if you pay annual right away. Some may offer you a lock-in period (i.e. paying an annual premium for 10 years straight). Though you’d have to shoulder the annual premium for that length of time, this can result in more savings for your business. It also gives you a clear financial goal to aim for. In addition, it also clears the air between you and your advisor so they know you’re serious about doing business with them for the long term.
7. Get feedback from your management team
In a fairy-tale world, everything you discussed with your insurance advisor about business insurance would be all roses, milk, and honey. You’d just pay your premium and everything will fall into place. However, that wouldn’t hold true during a crisis.
You need to meet up with your management team to discuss insurance options in private. Present to them the offers you have received from different business insurance providers. Focus in particular on the benefits that each company has stipulated. Ask your team to give comments about each policy. Take note of their negative comments, criticisms, and insights to gain a different perspective.
If you’re the final decision-maker, be clear with your management team which policy you favor. Ask them directly if they agree with you. After all, they’re the ones who will be helping you run the company so they know if there are aspects to the policies which aren’t realistic. It isn’t all about money only. They may point out clauses that are not applicable to your business situation as well.
It’s hard to imagine a world without business insurance. Generally, insurance of any kind is meant to protect human life, and that holds true for business insurance as well. If you want your company to survive and thrive, it pays to invest in the right kind of business insurance. This will protect you, your staff, your employees and, of course, your customers and end users in the event that something avoidable will negatively impact you and them.
Having business insurance means you’ll be protected in case something happens that is really out of your immediate control. You’ll then be able to pick up the pieces and resume your business activities because your business survived that terrible event.