Starting and running your own small business can be a challenging and rewarding experience. However, along with the benefits come risks. If you operate a small business, you will need to acquire the right insurance coverage to protect your personal assets from unforeseen events. There are many different types of insurance for businesses, each addressing a specific risk that could negatively impact your company.
The type and amount of insurance coverage you choose will depend on your specific business operations, budgetary constraints, and risk tolerance. There is no one-size-fits-all solution when it comes to finding the right business insurance for your small business. However, by reading this guide, you will have all the information you need to make informed decisions about the different types of policies available to you as an individual or as the owner of a company.
Consider Your Business Needs and Responsibilities
The type of insurance you choose, and the amount you choose to purchase, will depend on your business needs and responsibilities. To select the right insurance, you first need to understand your business and its specific needs. This means taking a look at your current business operations and then identifying the potential problems you may face down the road. Begin by asking yourself the following questions:
- What are your business activities?
- Are you involved in product or service sourcing?
- What is your business model?
- Are there any regulatory requirements you need to adhere to?
- Are you planning on hiring employees?
- How many employees do you need and what are their roles?
- Do you work with contractors?
- What type of profit margin do you need to make?
- What are your projected sales figures?
The answers to these questions can help guide you toward some of the insurance types you’ll need.
Analyze the Risk
Once you have identified the potential problems or risks facing your business, you then need to assess the degree of risk each poses. A good way to do this is to use a risk assessment worksheet. This will help you rank the potential problems facing your business from most to least pressing. After you have identified and ranked all of the risks facing your business, you can then select the appropriate insurance to cover them. The first step in conducting this assessment is to consider the likelihood that a particular incident will occur. You can do this by assigning a probability rating to each risk. The second step is to consider the potential impact that each risk will have on your business (a.k.a. the risk consequence). Again, you can assign a rating to each risk based on the potential consequence.
Have a Pro Assess Your Business Needs
As you can see, determining the appropriate level of insurance coverage for your business can be a complex process. That’s why it’s a good idea to have a professional help you assess your coverage needs. A business insurance broker can help you determine the amount of coverage you need to adequately protect your assets while also keeping your costs in check. Brokers are also able to help you select the best insurance providers and tailor coverage to your specific needs. When it comes time to shop for business insurance, there are two types of professionals you can work with: insurance brokers and agents employed by an insurance company. The choice is up to you, but agents employed by insurance companies often receive higher commissions than independent agents, which could impact the type of advice you receive.
Decide How Comprehensive Your Coverage Should Be
After you have determined the type of insurance coverage you need, you then need to decide the amount of coverage to purchase. When purchasing business insurance, there are a few things you need to keep in mind. First, you will have to pay a premium on each type of coverage, and the amount you pay will be based on the amount of coverage you decide to purchase. Coverage amounts typically go as high as $1 million per claim. Second, you need to decide how often you will pay the premiums. There are two options for payment: annual payments made once a year or monthly payments made every month. The annual payment will provide you with a single, one-time payment that will cover your insurance coverage for the entire year. The monthly payment will spread your payment out over the year but often comes with interest or other fees.
A small business means that your personal assets may be at risk if something bad happens to your business. A single lawsuit could wipe you out. That’s why insurance is so important. It protects your assets and ensures that your business has a chance of surviving when something happens. The right coverage can make or break your business, so it’s important to take the time to assess and determine exactly which types of business insurance you need.
Bio: Anita is a freelance writer from Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing. You can follow her on Twitter @anitaginsburg.
