We hear stories on the news every day about more layoffs and unemployment claims. Right now, more Americans have been unemployed for twenty-seven weeks or longer than has ever been recorded.
More than 65 percent of families have been affected financially by the recession, according to the Northwestern Mutual Financial Realities Study published in June.
Some people are dealing with the lack of job options by breaking out on their own as a small-business owner. For those employees-turned-entrepreneurs, the business of business insurance can be tricky.
It’s hard enough to get a business off the ground, and then you have to throw in the complexities of insurance. But you’ll want to explore the cost of insurance as soon as possible so it can be factored into the pricing of your services. Insurance should be part of the cost of doing business.
Many factors affect how a business (also known as a “risk”) is underwritten. An underwriter will evaluate the specifics of your particular business and your insurance needs, but everyone can expect to provide the following information:
- Name of business
- Address of record
- Year established
- Experience in the field
- Revenues for the previous, current, and projected year
- Documentation of any claims or lawsuits
An underwriter will explore your case further by examining a profile of the clients served, a breakdown of the type of work performed, and the size and length of contracts. Some businesses or occupations are considered far more hazardous, or a greater risk, than others. For example, a roofer may have a tougher time getting insurance than a bookkeeper will.
What Kind of Business Insurance Do I Need?
You’ll want to consider several different types of insurance as you launch or grow your business:
Liability insurance protects your business in case you are held liable for any injury sustained as a result of your business operations. Types of liability policies include general liability, product liability, premises liability, and advertising injury.
Professional liability insurance protects you if you’re sued as a result of negligence during the course of duty. Accountants, architects, engineers, insurance brokers, and doctors are among those professionals who may have to have professional liability insurance.
Property insurance protects against physical damage to buildings, equipment, or contents that are vital to business operations and contribute to revenue generation. Tenants leasing commercial space may want to consider an investment in betterments and improvements to the space relevant to their business. Consult with your broker on how much it would cost to repair any damage due to a covered peril.
Business interruption insurance protects against a loss of income or revenue in the case of a covered peril. The claim must be for a circumstance that is covered by your plan. Keep in mind that without property insurance, a business cannot secure business interruption coverage. Consult with your broker if you’re contemplating self-insuring your property.
Commercial auto liability may be appropriate if you make your living driving a vehicle, especially if it is a registered commercial vehicle.
Workers’ compensation/disability insurance is important if you have hired employees or subcontractors. Discuss with your agent how workers’ compensation and disability benefits law (DBL) coverage apply to your business and how it is responsible for subcontractors. The last call you want to receive, besides one from the IRS, is the Department of Labor wanting to conduct an audit into how you’re employing people.
Employments practices liability insurance (EPLI) protects against claims by employees who think their legal rights have been violated. Unfortunately, with the high number of layoffs recently, this claim activity has increased. Protect your business practices, because even if you’re not guilty, you still have to defend the accusation.
Business Insurance: Tell Your Insurance Agent All About Your Business Operations
It’s important to give full disclosure of your business operations to your insurance agent so you get the coverage you need.
I met one of our business insurance clients at a networking event. He wasn’t sure what coverage he had, so I offered to take a look.
He was a mobile medical equipment supplier, and he conducted most of his business from an extremely expensive custom-built van. It turned out he had a commercial auto policy with increased physical damage in an attempt to cover the van, but the policy wouldn’t apply to any of the very expensive equipment installed in the van, on which his business relied.
While he had a general liability policy for an office he wasn’t really using, but nothing to over his home office where he did most of his business.
We reconfigured his company’s auto policy and the general liability policy to cover what he really needed, using an inland marine policy to cover his mobile equipment. If I had not sat down with him and asked him about his business and the services he provided, he might have continued operating with inadequate coverage.
Insurance can be viewed either as an expense or a way to protect your assets, your career, your business, and your livelihood. It takes money to start a business and maintain a business, but it also takes money to defend a business. Without insurance, a business owner can expect to shell out a lot of cash.
Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.
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