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Purchasing Insurance for Your Business-A Checklist

As a business owner, you wear multiple hats and have a lot on your plate. Use our step-by-step guide to make shopping for insurance easier. Whether you just started your brand new business or recently took over an established company, this guide is intended for those buying business insurance for the first time. We know insurance isn't an exciting topic. We know you dread it. That's why we created this guide; we want to save you time and make this process as smooth as possible.

Insurance is complex and nuanced, but getting it right is crucial for your business. Too many small businesses fail to sufficiently insure themselves, taking avoidable risks. Having suitable coverage minimizes the damaging impact of claims against your business.


Checklist for businesses: 1 Understand jargon, 2 Assess risks, 3 Assess assets, 4 Speak with a broker, 5 Make the best decision

Step 1-Understand the jargon

The first step is perhaps the most boring, but understanding the different types of policies is unfortunately a must-do item on this list. A good insurance agent should explain all of the terms and policies to you, but you will be better off if you start the conversation with some ideas. 

Refer to our glossary if you need to freshen up on what a deductible is or a binder is.

 

Policy

Description

Example of claim

Commercial Auto Insurance 

 

Covers liability and physical damage to business vehicles.

An employee is in a car accident while on their way to meet a client, and their personal auto won't cover damages since the driver was on business.

General Liability Insurance

 

Pays losses arising from real or alleged bodily injury, property damage, or personal injury on your business premises or arising from your operations.

A customer dumps their drink out in your parking lot and another customer slips, is injured, and sues your company.

Professional Liability Insurance

 Ensures you're safe if your services or products cause financial harm.

A client follows your advice but does not like the outcome and files a lawsuit against your company.

Workers' Compensation Insurance 

Covers workers injured on the job, whether they're hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses, provides payments to injured workers, for time lost from work, and for medical and rehabilitation services.

 An employee is injured using new equipment, has medical bills, and is unable to work for two weeks.

 Commercial Property Insurance

 Covers the costs of damage to your business property and the contents of the building due to events such as fires, hurricanes, theft, etc. Earthquakes and floods are not covered events.  The sprinklers go off in the building and damage your equipment.
 Cyber Liability Insurance Covers costs associated with data breaches and cyber attacks by an outside party. Your employees unintentionally help spread a computer virus and it costs others.
Business Owner's Policy Combines commercial property insurance, general liability insurance, and business interruption insurance into a single policy.  

  

Step 2-Assess what risks you will be exposed to

What is the crime rate like in your area? Are you in a flood zone? What is the likelihood someone could sue you for providing a poor product or advice? Are you storing any confidential client information?

Determine your risks ahead of time. This includes environmental, geographical, human, technological, and legal. Knowing what you might face will help you make smarter decisions when deciding what coverage you do and do not need. Find out what risks are most common in your industry and what trends exist. For example, vehicle cyber attacks are increasing. If your business relies on smart cars, this is a trend you would want to be aware of. 

If you are supplying clients with advice or a service, you may want coverage in case your advice causes harm and your clients decide to take you to court. The same is true if you produce a product. You will want to consider how many people use your product and how experienced your employees are. If your business is in a coastal area, you may want to take added steps to protect yourself against flooding. The risks your employees face is also something you should consider. Yes, construction is a risky business, but if your employees will be on the road a lot, they may face increased risk from driving during rush hour or at night. Talking with other business owners in related fields may help you get a handle on what you could be up against. 

When you actually start to look at policies, you may be tempted to choose the lowest limit to save money, which is why it is important to do a thorough investigation ahead of time so you can refer back later.

 

Step 3-Assess your assets

Do you have expensive equipment or tools? Could you afford to close your business for a week if repairs needed to be made to the office? How much money are you willing to pay or could you pay if someone sued you?

An estimated 36-53% of small businesses are involved in litigation per year. Twenty percent of medium-sized and small businesses will face lawsuits from their employeesIf the worst were to happen, you should have an idea of what you reasonably could afford to do. 

If you have a lot of expensive equipment that you rely on, you want to be sure that your commercial property limits are high enough to cover everything. You should also determine if you would be happy with actual cash value (insurance pays you for the cost to replace the damage item but subtracts money for depreciation) or if you need replacement costs (insurance pays you for the amount required to replace the damaged item without deducting for depreciation according to set limits).

 

Step 4- Speak with an insurance broker

Going to a broker should simplify your life. There are many policies and many companies and there is a lot to know, even if you have done your homework. A broker should know state laws, have experience in the field, and will be able to compare multiple companies for you to get the lowest quote. A good broker will also answer all of your questions and spot anything you have missed. You will have the advantage of talking to someone who has done this many times before.

You should ask your broker if they have worked with similar companies, as you may not want to work with someone who only has done this once or twice. You should also ask what their role is and how you will communicate with them. Will you work with a single person at the company or a team? Can you stop by the office any time or do you need to make an appointment? You want to find someone who knows your business and who you are comfortable working with.

Before you speak with a broker, call ahead and find out what documents and information they will need to quote you. The more your broker knows about your business, the better. If you do not know how old your building is or how many employees you have on your payroll, this may slow down the process.

Remember, your broker should look out for you and your business. If you don't feel comfortable, or if you feel like your broker is trying to sell you policies that you don't need, try someone else. 

 

Step 5- Choose the best policy for you

Review the research you have done and the options you have available, and make the decision that best fits your goal. When making your decision, you need to consider the policies, any endorsements, the limits, the exclusions, and if you would be covered for actual cash value or replacement cost. You will likely be tempted to choose low limits to save money, but make you review what you discovered in Step 2. While it might make a lot of sense to set a low limit for your commercial auto policy if your employees are rarely on the road for business, if you learned that you are at a high risk for lawsuits, make sure your liability limits are reasonable. 

If you are having trouble deciding due to costs, try asking your broker if they can bundle policies to save you money. There may also be steps you can take to lower costs, such as adding firewalls and virus protection to your computers. It never hurts to ask. 

Taking the final step and deciding what policy you need and want should be a weight off of your shoulders. Congratulations! You have now taken one of the most important steps to protecting your business and your livelihood. 

 

 Resources:

USA.gov's Start Your Own Business page

Ten Steps to Start Your Small Business from the Small Business Association

SCORE 

Small Business Development Centers

Ten Most Costliest and Common Small Business Claims from Insurance Journal

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