There’s nothing like the feeling of the first time you tell someone that you’re self employed. For many, it’s both a liberating and terrifying experience. It’s no secret that saying you’re self employed and staying that way are two very different things. With hard work, determination and the ability to persevere through adversity you are on the right avenue to business success. Unfortunately, many new business owners fail to fully grasp the risk they inherit when providing services or products for others.
Properly insuring a new business is just one of many administrative issues that gets overlooked in the beginning of a start up. This is often quite counter intuitive because aside from ordinary payroll, insurance premiums are usually one of the larger financial burdens that a business is faced with.
What are the basic coverages a new business should consider for insurance?
- General Liability: (aka Public Liability). Simply put, this is the portion of insurance that protects you and your entity when injury (property damage or personal and advertising injury) is caused as a result of your work or product and is intended to indemnify others on your behalf. In other words, an insurance company agree’s to either settle claims or defend you in court in the event of a covered loss up to the limits of the policy in consideration for the premium you pay. [space height=”10″]The industry standard for business liability insurance is typically $1,000,000 per occurrence and a $2,000,000 annual aggregate limit. If a business risk, i.e. general or trade contractors, warrants greater protection – an umbrella or excess liability policy can be purchased to cover damages that exceed the $1,000,000 per occurrence limit.
- Property Insurance: While commercial general liability is intended to make others whole after a loss, property insurance is the form of insurance that will pay you for covered losses sustained to your business property. Types of property that may be covered are “real” property (buildings), business personal property (contents), lost income due to direct physical damage to your property or even valuable papers, computers or money.[space height=”10″]Unlike liability, where industry standards have long dictated limits of coverage, how much you insure your “stuff” for is dictated by you. How much you pay in premium is usually a direct result of how much you want as well as other factors such as age and construction of the buildings, distance to ocean or whether you want replacement value or actual cash value. It should be pointed out that you need to insure your property to value and understand how the co-insurance clause works – intentionally under insuring your property could result in a severe penalty’s if the clause is violated.
- Workers Compensation: Workers Compensation insurance is business insurance that provides medical and disability coverage for employees who sustain job-related injuries. At the very minimum, these workers compensation insurance policies will cover an employees medical expenses and reimburse him or her for some percentage of lost wages. Most companies are required by state law to carry workers compensation insurance.[space height=”10″]Some states have developed state funds, or pools, for workers compensation insurance, but in most states, businesses must find a private carrier for this type of business insurance policy. Because it is mandatory for most companies, some small business owners think of workers compensation insurance as a burden, an expense, and a commodity product, providing only a basic level of benefits to employees. However, if you get a good workers compensation insurance quote, this burden will be significantly lessened.
- Business Automobile: A commercial automobile insurance policy is required under most circumstances when the vehicle is used for business purposes and meets certain other requirements. It is not just the registration that determines the requirement for a business automobile insurance policy. Other requirements are ownership by a corporation, use in hauling goods for hire, and gross vehicle weight of the vehicle.[space height=”10″]Some small trucks can be owned and insured under a personal automobile insurance policy under specific circumstances. Commercial automobile insurance policies are not regulated in pricing, as are private passenger policies. There is price competition between insurance companies for good commercial automobile insurance.
- Umbrella or Excess Liability: Typically business auto, general liability and workers compensation policies ‘max out’ at $1,000,000 per occurence so anything above and beyond that would likely be your responsibility. Since it’s impossible to predict the future, determining how much protection you’ll need at a later date isn’t possible. Ask yourself this, if one of your employees drives through an intersection on his way to a job site, and hits a pedestrian is a $1,000,000 enough? What if he hits a vehicle full of children? Since we can’t predict the future or who we injure or how badly, it’s recommended that you buy as much as you can afford, you won’t be able to buy it after the fact. Additionally, you should note that umbrella policy’s can also protect you for losses that aren’t covered on the “underlying” policies.[space height=”10″]In addition to generating added layers of protection over your auto, general liability and workers compensation – umbrellas can also provide coverage for losses over employee benefits and liquor liability among others. Surprisingly, umbrellas and excess liability policies are usually quite affordable and usually much less than many people think. Talk to your agent about how your business can be protected against losses exceeding your policy limits, how the coverage applies and if it could cover any losses that wouldn’t normally be covered on your other liability insurance policies.[/list]
The most important decision you can make when selecting business insurance is to know the qualifications of the agents that represent you and the financial strength of the carriers that write your policies. When selecting an insurance program, ask your agent about their experience in your particular business field as well as the A.M. Best status of the carrier. A.M. best is the gold standard when determining the financial strength of a particular insurance company.
While this is by no means an exhaustive list of insurance products or recommended insurance policy’s, it’s a good place to start when considering what types of insurance coverages are available and necessary to keep your business afloat in the event of a liability or property loss.