Running a small business is a gamble where, as a small business owner or manager, you try to undertake the least amount of risk you can with an eye toward reaping the greatest gain. Small business insurance is your best tool for keeping your risk level low.
Since this isn’t a game for you or your employees, small business insurance isn’t a luxury but an absolute necessity. So finding the best small business insurance coverage for your company becomes your goal.
When considering what the best coverage to have is, you need to start with the basics: general liability insurance, property insurance, and workers’ compensation. The purpose and function of the latter two are relatively straightforward.
Workers’ compensation insurance grants monetary awards to employees who are injured or disabled due to job related circumstances. This coverage is often required and may be regulated by state laws.
Property coverage for small business insurance guards against the loss of physical assets due to fire, accident, or theft. It allows you to replace or repair furniture, office equipment and supplies, inventory, and sometimes even the building itself.
This type of small business insurance may either cover your loss at the replacement value of lost items or for their depreciated cash value. The best option for you depends on the capital you have on hand.
Taking depreciated cash value coverage, also known as actual cast value (ACV), will save you money in the short term from lower premiums but will cost you valuable time in the event of an actual loss.
Additionally, the items you need to replace may not be available at the depreciated cost no matter how much time you expend searching for a comparable replacement, and you may end up with substantial out-of-pocket expense.
When possible, replacement cost small business insurance coverage is the superior alternative as it transfers a greater degree of risk to the insurance company, which is the purpose of having insurance in the first place.
General Liability small business insurance is a little more complicated. It protects you against legitimate or fraudulent lawsuits brought against your company for:
o Bodily Injury – Harm to a non-employee due to an action or inaction on the part of your company, including a fatal injury. Note that harm to an employee is covered under your small business insurance workers’ compensation plan.
o Personal Injury – Which includes, but is not limited to, libel, slander, wrongful entry, false imprisonment, and malicious prosecution carried out by your company or an agent of your company.
o Property Damage – Destruction of privately owned items or real estate by an action of your company or by the action of an employee while carrying out his or her duties for your company.
o Advertising Injury – Harm to an individual or a corporate body due to your company’s advertising activities, including character defamation, plagiarism, and unfair competition.
General liability small business insurance not only covers damages assessed against you, but also your legal fees. Even if you win a lawsuit, a court case can be quite expensive. With a general liability policy, you are compensated for attorney’s fees, court costs, witness fees, and loss of earnings while in court.
How much general liability small business insurance should you get? The simple answer is: As much as you can afford. You certainly want enough to cover the dollar amount value of your business.
One suggested baseline is a minimum of one million dollars per incident and three million aggregate, but this answer is too simplistic to cover the breadth of eventualities that comprise every small business owner’s risk. Individual cases will have different exposure and insurance needs.
Does your firm interact extensively with the public? Do you manufacture goods that could be dangerous if handled incorrectly? You should also consider recent court awards for your type of business and in your locale as well as the general liability requirements of companies you may do business with. To determine the best option for you, consult with your small business insurance agent.
In most cases, a business owners policy, or BOP, will be the most affordable option. A BOP combines property and general liability coverage, as well as other useful coverage such as vehicle coverage, into one small business insurance policy. Generally available to companies not engaged in high risk activities, a BOP is simpler for you and more efficient for the insurance company, resulting in lower premiums.
By Noah Mason