Nobody launches a small business to become an insurance expert. But the reality is that the prospects of even the most promising business venture can be derailed by failing to protect against unseen risks with the right small business insurance portfolio.
Some new small business owners believe they are fully protected by establishing their firm as a limited liability company (LLC) or corporation. While that is necessary for safeguarding personal property and wealth from business-related lawsuits, more is needed to protect a small business from a long list of natural and outside risks.
Here’s how the U.S. Small Business Administration (SBA) explains the rationale for adding business insurance as a necessary step in forming any new company. “Business insurance protects you from the unexpected costs of running a business. Accidents, natural disasters, and lawsuits could run you out of business if you’re not protected with the right insurance,” says the SBA in its 10 Steps to Start Your Business guide. “As a general rule, you should insure against things you wouldn’t be able to pay for on your own.”
Despite the importance of adequate insurance coverage, 90% of small business owners aren’t confident they are appropriately covered. That feeling of unease is understandable in 2024 as more small businesses question whether they are protected against rising threats, including cyberattacks and extreme weather.
An abundance of choice can breed confusion
One simple reason why so many small business owners lack confidence about their insurance coverage is because so many types of insurance are available. As a start, it’s essential to understand that some insurance is required. For example, the federal government mandates that small businesses with employees have workers’ compensation, unemployment and disability insurance. Some states require additional insurance coverage, so it’s a good idea to investigate what insurance is mandatory.
Making sure you have government-required insurance is just the beginning. When you launch and grow your business, you need to do a clear-eyed assessment of the risks from its operations. That assessment should be the basis for assembling an insurance portfolio. For example, will you have a physical store where you will need to protect against the possibility that a customer will fall and suffer an injury? Is your business primarily digital and vulnerable to the growing risk of cyberattacks? Will you make a product that, if defective, could injure a customer? If there’s a risk, there’s likely insurance to protect against it.
Here are some common types of small business insurance.
General liability: As the name indicates, general liability insurance provides umbrella-like coverage for things like property damage, medical expenses and instances when a business needs to defend itself against a lawsuit.
Commercial property: If your small business has real estate in the form of a storefront or warehouse, commercial property insurance covers damage that can occur because of natural disasters and vandalism.
Professional and product liability: Some small businesses make products while others provide expertise and services. Product liability insurance protects against the possibility that one of your company’s products injures someone, while professional liability insurance shields a company from harm due to errors or negligence.
Home-based business: Many Americans operate businesses out of their home. A home-based business insurance rider can be added to homeowner’s insurance to cover computers and other equipment as well as the possibility of someone suffering an injury while visiting your home for a business-related matter.
A to-do list for selecting small business insurance
Sorting through the many small business insurance options can be overwhelming, especially for an owner with a long to-do list. But there are some basic steps to follow that can make assembling the insurance your company needs easier and more efficient, including:
Understand your company’s unique risks. Every industry has unique perils that insurance can protect against. Tax preparation firms, for example, need the protection that professional liability insurance offers to mitigate against lawsuits due to errors or mistakes made on a tax return. Product liability insurance is more suited to covering the risk that your innovative new product unexpectedly harms a customer. Fully comprehending the risks facing your company will help you make strategic choices about insurance.
Compare costs. Every small business owner is focused on keeping costs low. Finding insurance at an affordable price is part of that mission, though it’s essential to keep in mind some of the nuances of insurance pricing. For example, policies with low premiums are understandably attractive. But those low prices often mean your deductible—the amount you must pay before the insurance company starts covering the costs—will be high. Low-priced insurance policies can sometimes provide limited coverage, exposing you financially. Also, remember that insurance premiums are tax deductible, so getting insurance with a lower deductible and more expansive coverage may be more affordable than you imagine.
Prioritize financially strong insurance companies. Like all companies, insurance providers are of varying quality and financial health. As a small business owner, you want to work with an insurance company that can reliably pay its claims. Choosing a reliable insurance provider doesn’t have to be guesswork. In fact, several third-party organizations provide ratings of companies offering small business insurance, including selections for the insurers that provide the best overall coverage, the best home-based business coverage, the best commercial auto coverage and other policy options.
Seek expert guidance. As you work hard to launch your business and establish a foundation for its long-term success, acquiring business insurance is an important step. In the same way that you rely on legal experts to incorporate your business and technology pros to outfit your company with the right software, you should also tap the expertise of independent insurance professionals to guide your decisions. Insurance brokers and consultants often have expert knowledge about insurance needs and options that will be relevant to your industry. The best business decisions are made when owners fully grasp their needs, risks, obligations and options. Working with an expert can help guide you to the insurance that will allow your business to flourish.
At Byline, we take the time to get to know your business. Whether you’d like to improve cash flow, expand operations or update equipment, our team can customize financing and treasury solutions to help. Get in touch.
