You have put a lot of time and money into your business, all of which could be wiped away

 

I recently completed a series of columns based on one of SCORE’s projects that was developed with the help of and in partnership with FedEx.  This project is called “Startup Roadmap” and outlines every step in starting a business.  A small business CEO reminded me that I did not go into any detail about what kind of business insurance should be considered.  So, I will focus on this question and build on and incorporate content from the Startup Roadmap project.

You have put a lot of time and money into your business, all of which could be wiped away by a disaster such as a fire or a flood, a burglary, or a lawsuit from a customer. Making sure your business is properly insured for the risks that it is most likely to face will give you peace of mind and protect your investment. 

My first suggestion is that you determine your insurance needs as a first step.  The kinds of insurance you need will depend on many factors, including your industry, your business structure, your location and whether you have employees

. Here’s a quick summary of the most common types of business insurance for your consideration. 

  • General liability insurance protects you if a customer or visitor is injured on your business property (such as a customer who slips and falls in your store), if you or an employee damage a customer’s property, or if you are sued for slander or libel. 
  • Commercial property insurance covers your business’s physical building and its contents (inventory, equipment, etc.). If you rent or lease your business location, the lease may require having a certain amount of property insurance.
  • business owner’s policy combines general liability insurance and property insurance into one plan.
  • Business interruption insurance is add-on coverage that protects you if your businesses can’t operate for an extended period due to a covered event, such as if your store is flooded and unusable for two months.
  • Professional liability insurance/errors and omissions insurance is generally used by professional service providers, such as accountants or attorneys, or anyone providing services to businesses, such as marketing consultants or website designers. This insurance protects your business if you’re sued for negligence or personal injury or if you or your employees make a mistake that causes harm to a client.
  • Cyber liability insurance supports your cybersecurity measures by protecting you in case of a data breach or other cybercrime. The coverage helps pay for the cost of notifying customers of a data breach, court costs and recovering lost data.
  • Commercial auto insurance is necessary if you plan to have salespeople, delivery drivers or other employees driving on behalf of your business in company vehicles. You can also get insurance that covers employees driving rental cars or their own cars on company business.
  • Workers’ compensation insurance is required by law in most states if your business has employees. It covers lost wages, medical treatment and legal costs for employees’ work-related injuries or illnesses.

Be aware that some events, such as floods and earthquakes, are not covered by basic business insurance policies and require buying additional coverage. There are also some very specialized types of insurance businesses that certain industries may need. For example, manufacturers, distributors, and retailers may need product liability insurance to cover claims if a product they make or sell injures people or property. Bar and restaurant owners may need liquor liability coverage to protect against damages or injury caused by an overserved customer.

The Affordable Care Act requires companies with a certain number of full-time employees to provide health insurance for employees or pay a fine. In addition, if you don’t have health insurance for yourself through a spouse or partner, you will need to obtain health insurance for yourself. 

The next step would be to choose an Insurance Agent.  Ensuring your business has the right insurance is complex, so it is best to deal with an insurance agent rather than trying to buy a policy online. To find a good agent, ask for recommendations from other businesspeople, professional or trade organizations, or family and friends. I strongly suggest that you look for an agent who is familiar with business insurance. 

Independent insurance agents sell insurance from many different companies, while captive agents sell policies from only one company. Both kinds of agents get commissions from the insurance companies. An insurance broker can be better for the complex needs of a business and can help you get a variety of different price quotes. Brokers look at a wide variety of insurance companies and products to find the best coverage at a reasonable price. 

Before selecting an insurance agent, make sure they are licensed to sell insurance in your state. You can contact your state insurance department or visit the NAIC's Consumer Information Source (CIS) to find out about licensing and see if there are any complaints. You should also check the insurer’s financial rating to make sure they are financially stable.

About the Author(s)

Dean Swanson

Dean is a Certified SCORE Mentor and former SCORE Chapter Chair, District Director, and Regional Vice President for the North West Region, and has developed and managed many businesses. The Rochester Post Bulletin publishes his weekly article on a topic geared toward the small business community. The articles here are printed in their entirety.

Certified SCORE Mentor for the Southeast Minnesota Chapter
Business Insurance and Risk Management