Thursday, August 7, 2014

Business Insurance – The Ultimate Guide For Small Businesses

Need business insurance for your company but not sure where to start? In this guide we will explain the available options, how to go about purchasing business insurance, and give you the questions you should be asking to make sure you get the right insurance package for your business.
Start By Protecting Your Personal Assets
If you do not operate your business under the correct legal structure, and you get sued, your personal assets are likely at risk.

If you have not done so already, we recommend forming a Limited Liability Company (LLC) for your business. One of the primary functions of an LLC is to separate your personal assets from your business assets. Once you have setup your LLC, your personal assets are protected under most scenarios from things that go wrong in your business.

You don’t have to be a new business to form an LLC and it can be done online for a few hundred dollars. You can read more about business structures here, and learn how to setup an LLC with LegalZoom here.

Types of Business Insurance

If you can think of a risk that is associated with your business, there is likely an insurance package available to protect your business from that risk.

Below is an overview of the primary types of business insurance. Once you understand the options available, the insurance companies will mix and match the different packages to offer a customized solution for your business.

Workers Compensation Insurance:

Workers compensation insurance replaces an employee’s wages if they are injured on the job. If you have employees then it’s often a legal requirement. You can see laws specific to your state here.
Who’s it For?: All Businesses

Commercial General Liability Insurance (CGL):

Pays the costs associated with your business being sued for injuring someone, damaging property, slander (personal injury), or false advertising. This normally includes the cost of defending your business against the lawsuit.
Who’s it for?: All Businesses

Commercial Property Insurance:

Pays the costs associated with damages or theft at your place of business, equipment, or other property associated with your business.
Who’s it for?: Businesses that own or rent their place of business and/or have other valuable property such as equipment.

Commercial Flood Insurance:

Pays for damages caused by flooding that are not covered under your commercial property insurance.
Who’s it for?: Businesses that have a risk of flooding.

Business Income Insurance:

Also known as business interruption or business continuation insurance. The purpose is to replace your income if your business is temporarily shut down due to unexpected events.
Who’s it for?: Businesses who would suffer if their place of business became unusable for an extended period of time.

Professional Liability Insurance:

Being sued for mistakes made while rendering a professional service is not covered under most general liability policies.
Who’s it for?: Businesses that provide a professional service such as Dr.’s, Lawyer’s, Realtors etc.

Commercial Auto Insurance:

Pays the costs associated with damages to your companies automobiles and injuries associated with accidents caused by you or your employees.
Who’s it for: Businesses that have automobiles.

Directors and Officers Insurance:

Pays for the costs (including legal defense) associated with one of your company’s directors or officers being singled out with a lawsuit as a direct result of something they did while on the job.
Who’s it for: Larger businesses.

Employment Practices Liability Insurance:

Pays for the costs (including legal defense) associated with your company being sued for things such as workplace discrimination, wrongful termination, and lack of compliance with the federal Family and Medical Leave Act (FMLA).
Who’s it for: Larger businesses

Commercial Umbrella Insurance:

Pays for costs that exceed the maximum payout of other policies you hold. Because umbrella insurance only pays out if your other insurance maxes out, it is generally not very costly to add a large amount of additional coverage.
Who’s it for?: Any Business

The Business Owners Policy

Business owners policies combine commercial general liability and property insurance into one plan. Depending on the provider and your situation you may be able to bundle other options into this one policy as well. In addition to keeping things simple, this will also generally save you money since you are buying all your insurance from one place.


Business Insurance Costs

How much business insurance costs depends on several factors, including:
  • business type
  • size of business
  • industry, products and services
  • risks (do you operate heavy machinery, a store or an office?)
  • employee work duties
  • business property and assets
Ultimately how much different types of insurance cost are going to depend on how often businesses that fit the same profile as you are sued, and how much the insurance company has to pay out when they are.
A business whose employees operate heavy machinery will likely pay more for commercial liability insurance than those who sit in an office all day. Similarly, all else being equal, larger companies will likely pay more than smaller companies.

While several companies that we contacted would not give even sample premium rates or examples, Tech Insurance does provide pricing samples for different types of companies, though you need to contact them for exact quotes.

According to this site, a sample small consulting firm with 0 to 2 staff and revenue between $250,000 and $1,000,000 can access a plan with the following details:
  • Commercial General Liability
  • Includes: General Liability and Property Coverage
  • Annual premiums between $500 and $900 per year
  • $500 property claim deductible
Additional coverage for this scenario includes:
  • Add Umbrella Coverage to General Liability for $450.00/year for an extra $1,000,000 in coverage
  • Add Worker’s Compensation for $2,441.00/year
  • Add Professional Liability for $2,500 to $4,500/year.
As discussed above, companies where workers are more likely to be injured on the job, where property damage is more likely to occur, or costly mistakes happen often will pay significantly higher premiums.

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