Introduction to Business Insurance | Wednesday December 31st, 2003 | |
How do I purchase insurance for my business? What do I need to consider?
In purchasing insurance for your small business, you will need to carefully consider your needs, liabilities and risks. After careful consideration, you will want to secure an insurance company, broker or agent who can help you draft and purchase policies for your business.
First, let’s review the basics of insurance…
What is insurance, and how can it help your business? Insurance is a system in which you, the businessperson, pay a premium (sum of money) to insure that your business is protected in case of loss, damage or theft. Insurance has been described as a “system in which winners pay losers.” This is because those people who pay premiums and never have to collect from their insurance pay for those people who pay premiums and do have to collect from their insurance. If you never have to collect from your insurance, consider yourself lucky, and consider your premium an investment to both help other businesspersons and give you financial piece of mind. If you do have to collect from your insurance, you can consider yourself fortunate because your losses are covered by the premiums of yourself and other businesspersons.
For Example: You own a pizza shop that offers delivery service. You have three delivery cars, and over a long weekend one of your cars is broken into and your radio and dispatch equipment is stolen. If you have the appropriate insurance, your loss will be covered—or paid for—after you have paid a set amount towards the loss yourself, called a deductible. Your deductible will change based upon what type of insurance you have, what sort of risks your business incurs, and the area in which you are located. You might, for instance, pay $250 towards damages incurred to your cars while using them for business. In this you’re your business insurance functions much like private health insurance; you pay a small amount towards the service or product you are receiving, and your insurance company picks up ‘the rest of the tab.’ Your insurance agent or broker should discuss both your premium and deductible with you.
You know what insurance is, but how do you pick an insurance company to cover your small business? You will need to assess what your insurance needs are before you start investigating insurance companies, brokers and agents. What sort of property insurance do you need to carry? What are your liability risks? Would it be financially beneficial for you to carry a general Business Owner’s Policy (BOP)? After you have determined what types of coverages your business will probably need, talk to other small business owners about the insurance company or agent they secure their insurance through. Pay attention to the opinions of other business owners—they have experience with insurance companies, and their input will probably be worthwhile to you.
One of the most important things you will need to discuss with your insurance agent are your policy deductibles and premiums. You may want to consider high-premium, low-deductible insurance policies if your business is particularly at risk for a certain type of loss; this way, you can pay a high one-time premium and a low deductible each time a loss occurs.
For Example:
You own a construction company that employs transient seasonal employees, and are at a high risk for loss of machinery and equipment. When setting up your insurance policy, you agree to pay a large once-a-year premium, and only a $25 deductible each time a loss occurs at your business. By setting up your policy this way, you pay a larger premium but still save money by having a low deductible for each loss. On the converse, if you are at low risk for a certain type of loss, you may want to retain insurance for which you pay a low one-time premium and high incidence deductibles. By doing this, you do not pay much for a loss you will probably not incur.
Before meeting with your insurance broker or agent, you may want to look over insurance policies of other small businessperson’s in your industry. Ask them what they have done about insurance coverage, and what they have found to be effective for their business. Make a list of any questions and concerns you might have so you can raise them with your insurance agent.
You will also need to check with county, state and federal authorities to find out what insurance coverages your business must carry. Your insurance agent or broker should be able to help you find this information. It is also worthwhile to check with any suppliers, contractors or other businesses to find out what kind of insurance coverage they require you to carry before they work with your business. When gathering this information, keep in mind the types of insurance you would like people you work with to have, and talk to your insurance agent about drafting regulations and agreements regarding this.
Finally, don’t be afraid to ask questions when you meet with an insurance broker or agent. As a small businessperson, no one will expect you to know everything about insurance, and it’s better to ask a hundred questions before you buy your policies than to buy policies you do not understand and cannot use effectively. Remember that insurance will be essential to your business, so take your time to review policies and guidelines, and talk to your agent or broker about any concerns you may have.
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