Navigating insurance for a small business isn't exactly straight forward. There are many options and not every policy is necessary for every business. Here are some of the most common questions asked about insurance for small businesses. If you're brand new to the business world, check out our guide designed to help you choose what policies you need and how to navigate the entire process.
1. Does my small business really need insurance?
Yes. Your business needs insurance, even if you don't live in an earthquake zone, aren't at risk for flooding, and don't even have a office building. An employee could have an accident on the job, a customer could sue you, or a bad storm could destroy the warehouse you rely on for supplies. In some cases, having insurance won't even be your choice. Your landlord will require it, your state require's worker's compensation, or insurance is required for a license you need. You may not be as large as some corporate offices, but the environmental hazards, the lawsuits, and lady luck will all apply to you regardless of your size.
2. What if I can't afford insurance?
Many small business owners think they can't afford insurance. The sad reality is that this misconception leads to many businesses going under. The Federal Management Agency reports that 40% of businesses don't reopen after a disaster. Of those that are able to reopen, less than 30% are still in business two years later. Annual premiums may seem expensive, but the likelihood of losing your livelihood if something goes wrong is high. If you remember one thing from this FAQ list, remember that insurance is worth the cost.
There are affordable options out there. Shopping around and looking into multiple insurance companies is always a smart idea (this is something we do for you!). A smart choice for many is a Business Owner's Policy, which packages multiple policies together to lower costs.
3. Do I need workers' compensation?
Probably. Employers have a legal responsibility to their employees to make the workplace safe. Workers' comp protects employers from lawsuits resulting from workplace accidents and provides medical care and compensation for lost income to employees hurt in workplace accidents. In almost every state, businesses are required to buy workers' compensation insurance. Even in non-mandatory states, if you have many employees or if they are engaged in hazardous activities, it is highly recommended.
Each state has different laws governing the amount and duration of lost income benefits, the provision of medical and rehabilitation services and how the system is administered. For example, in most states there are regulations that cover whether the worker or employer can choose the doctor who treats the injuries and how disputes about benefits are resolved.
Massachusetts laws about workers' compensation
New Hampshire's workers' compensation laws
4. How can I save money on my insurance?
Keep the number of claims you have as low as possible. The more claims you make, the higher your annual premium. Claims signal to your insurance that you're not responsible or are taking too many risks, making you more expensive to insure.
Ask your agent if there are specific things you can do to lower your premium, such as installing sprinklers in your building or a surveillance system. Is a certain product you produce more risky than all of your others and particularly expensive to insure? There may be steps you can take to lower your risks and therefore your costs. Sitting down with your insurance agent and having an honest conversation about your needs and what you can afford is worthwhile.
Just like you bundle your home and auto insurance to save money, bundling works in commercial insurance too. Choose a Business Owner's Policy, which combines multiple policies into one package.
5. What other types of policies should I potentially consider?
Some less common, but potentially important types of insurance include employment practices liability insurance (protects against claims by employees that their legal rights have been violated), business income coverage (covers income loss suffered when damage to the premises by a covered cause of loss results in a slowdown or suspension of operations), director's and officer's insurance (liability insurance for directors and officers protecting against claims made against them), cyber liability insurance (covers business' liability for data breaches that involve customer information), inland marine insurance (covers equipment materials, and products when they are transported over land or while they are temporarily housed by another party), and business interruption insurance (covers the loss of income that a business suffers after a disaster).
One of the best ways to determine if you need any of these coverages is to read over the policies you already have. What exclusions are there? Is there anything worrying you about limits or etc.? Remember, any questions you have or any terms you don't understand, you should always be able to ask your insurance agent for help. It is their job to guide you through the process.
P.S. Don't feel comfortable with your agent? Try calling us. We love our clients and love helping them!
6. What is the difference between general liability and professional liability?
General liability pays losses arising from real or alleged bodily injury, property damage, or personal injury on your business premises or arising from your business operations. It is commonly referred to as slip and fall insurance. Professional liability pays losses arising from any financial harm your products or services cause.
7. How does errors and omission liability work and do I need it?
Errors and omission liability (E&O) is a type of liability insurance that protects you if an employee makes a mistake and a client then brings you to court for damages. It is also referred to as professional liability or malpractice insurance. If you give advice, make recommendations, or provide your clients with solutions, you should consider E&O. If a client expected a certain product or level of advice and can sue you for failing to meet their standard, E&O is a wise choice. A range of businesses may need this type of coverage. For example, accountants, advertising agencies, doctors, lawyers, engineers, wedding planners, real estate agents, IT companies, and so forth should all have E&O insurance.
8. What is the difference between a claims-made form and an occurrence form?
Liability coverage will either be provided by a claims-made form or an occurrence form. A claims-made form covers incidents that you report 1) during the active policy period (or extended reporting period) and that 2) occur after the policy's retroactive start date (both one and two must apply). The retroactive start date is the date the coverage begins.
In contrast, an occurrence form covers losses that occur during a specific coverage period, no matter when you report the incident.
9. What is Full Prior Acts coverage?
This is a type of claims-made liability policy that covers claims arising from acts that occurred prior to the inception date of the policy, meaning if you were insured under another provider, you would still be covered. Full prior acts coverage has no retroactive date, whereas prior acts coverage protects you as far back as your retroactive date.
10. Do I need to buy commercial auto insurance or can I just rely on personal auto insurance?
If a vehicle is driven for business purposes, you may need commercial auto insurance. Commercial auto insurance covers vehicles that are are solely operated for business purposes, primarily operated for business purposes, and for vehicles owned by the business. Optional coverage types can be included in commercial auto policies depending on the business' needs and how the vehicle is used. If your employees make product deliveries using their personal vehicles, employees transport a heavy amount of tools or equipment for the business, or if your vehicles tow a trailer in order to conduct business operations, you should speak with your agent about commercial auto insurance.