Being a business owner can be an amazing thing to experience. You get to run and operate your business just the way you want to while making money and providing for yourself and your family. Doing that all on your own can leave you with a feeling of accomplishment.
And while you always want to try to save money when it comes to your expenses, certain ones are necessary. Insurance is one of the most necessary expenses that you will have to endure as a business owner. After all, you want to protect your business, and ultimately yourself, from any lawsuits or other related losses.
When you are a business owner it is important than you understand any requirements that may be placed upon you. Many insurance policies will be required if you enter into any kind of contract with another party. This is often the case if you are renting equipment, leasing a space, or agreeing to do work for another company. Make sure that your insurance policies will be able to satisfy these requirements before you sign them. This means checking to make sure your limits are adequate and any necessary endorsements, like additional insured, can be added or are already on the policy.
While most insurance policies will not be required by law, most states do require that you carry Workers Compensation insurance if you have employees. Some states will require it if you have 3 or more, while others don’t specify a number. Workers Compensation insurance may even be required by a contract so be sure to not only read your contracts but understand the laws within the state in which you do business. And if you are unsure, ask an experienced insurance advisor.
Starting a new business can be very stressful but also exciting. Having an idea for something that you want to grow is a great feeling. You must invest in the right insurance to get you started. At a minimum, you should have the following insurance policies when you first start your business.
General Liability – The main insurance that most businesses start with is General Liability. It protects your business from claims alleging bodily injury or property damage. It is an essential insurance coverage regardless of the type of business you operate. For example, if a customer comes to your business’ premises and slips on ice or spilled liquid and is injured, they can and probably will sue your business for the injury. Or, if you are in a customers’ home and damage something while performing your work, they could sue you for the damage. A big expense that no business, especially a new one, wants to pay for is defense costs. Luckily, this is also covered by a General Liability policy.
Property – If you own the premises on which you operate your business or any stuff inside if you lease, you will want to insure that as well in case of things like fire, theft, wind, etc. A Commercial Property insurance policy can cover a building, business personal property, and sometimes equipment. Be sure to read any lease agreements carefully so you understand if you are responsible for insuring any part of the building that you are leasing.
BOP – A great way to save money as a new business is bundling together any insurance policies that you can. A BOP, or business owner's insurance policy, is a bundle that has General Liability and Commercial Property coverage and is almost always cheaper than having separate policies. A BOP is also a great way to obtain a lot of extra coverages for no extra premium. Almost always included in a BOP is Business Interruption coverage which provides you with lost income due to a covered claim. For example, if there is a fire and a portion of the building is damaged and you have to close for a while, the policy will pay for the loss of income during the time you are closed. This is a great way to continue to be able to pay your expenses and keep good employees. Keep in mind that a BOP is meant for more of a smaller business like a retail shop, barber, or contractor. As you grow, you may need to reevaluate.
Auto – Your business may need vehicles to operate if you are going to job sites, making deliveries, or visiting customers. If this is the case then you will need a Commercial Auto policy. Even if you already have the cars or trucks insured on a Personal Auto policy, you will need to move them to a Commercial one as there will be no coverage on the Personal for a business-related vehicle. Additionally, you can have Hired and Non-Owned auto liability if employees use their vehicles for work purposes, or if you ever rent a vehicle.
As your business grows, your risks can change so you must reevaluate your insurance needs. While you may have needed the following insurance policies before growing, they are important to think about in the growth stage of your business.
Commercial Package – As you are already aware, a BOP is made for smaller businesses. As you grow, it may not be enough coverage to meet your needs any longer. A Commercial Package policy is available for these situations. Like a BOP, it has both Commercial Property and General Liability but can be more customized to your needs. It is more piecemeal than a BOP, which is always standard. A Commercial Package insurance policy is a great option for a unique business that doesn’t fit the typical mold.
Workers Compensation – If you have employees now, you should have Workers Compensation insurance. Not only is it probably a requirement either from the state or a contract, but it is just part of being a decent business owner. If one of your employees is injured or becomes ill due to a work-related incident, you would want them to be able to get back to work quickly and still support themselves, right? Workers Compensation will pay for their lost wages and medical expenses.
Cyber Liability – The ever-growing industry of technology is great and probably helps your business, but the reality is that there is a huge risk as well. If you do business on the internet, store customer information, or take payments then there is a risk of a cyber-attack or data breach, so you must have a Cyber Liability policy to cover the ridiculously high expenses associated with such an event.
EPLI – Employees help to grow your business and hopefully bring in more money, but they can present a risk to your business as well. EPLI, or Employment Practices Liability insurance, is available to protect your business against claims of sexual harassment, wage discrimination, wrongful termination, and discrimination among other things. Unfortunately, these allegations can be very damaging even if they are untrue, so protect your business by having this critical insurance coverage.
D&O – Directors and Officers Liability insurance is crucial for any business that has a board of directors. While you may not start with one, you will likely have one in the growth stage or the future. If this is the case, you will want to protect their assets in case of allegations of mismanagement of funds or other unforeseen incidents. Often, you can also purchase Directors and Officers Liability and Employment Practices Liability as a bundle as well. Be sure to pay attention to any retention that may be on the policy, which is like a deductible.
Umbrella – As you grow, your liability does too. A General Liability insurance policy usually has limits of $1,000,000 per occurrence and $2,000,000 per aggregate. With lawsuits growing in popularity and numbers, these limits just may not be enough. A Commercial Umbrella policy is recommended for all businesses. It is a separate limit of liability that will sit on top of your other liability policies, even auto and employers’. Another great thing about an Umbrella Liability policy is that it may cover gaps that may be hiding in the underlying policies. While all exclusions are listed in each policy, you may overlook one or not realize it even applies to your business. An Umbrella is just a great way to add an extra layer of protection to your business.
As your business grows and changes, the risks and needs of your business do as well. You may take on more liability risks, purchase more property that should be insured, hire more employees, or even start a completely different operation. Many insurance policies are based on your operation, so if you start doing something new and don’t notify the insurance company you may be at a risk for having a claim denied. It is a great idea to review your insurance portfolio at least annually to make sure you are covered adequately.