Business Insurance Guide: What You Need to Know Before Buying Business Insurance

Buying business insurance can be confusing and overwhelming. With so much information to process and so many different types of business insurance available, it can be difficult for business owners to know exactly what coverage they need. Business insurance isn’t something that just any small-time entrepreneur should think about buying. If you own a business, you have a responsibility to protect its assets from risks like loss due to fire, theft or natural disaster. Businesses are high-risk investments because risk costs money to hedge and monitor. Nevertheless, buying the right business insurance coverage is essential for starting or growing your small business—no matter how remote your operation or how little capital you have available for covering risk. Therefore, before you dive into finding coverage as an individual owner operator of a small-to-medium sized business (SME) or as an incorporated entity with employees, here are some key things you need to know about getting the right business insurance coverage in the first place:

What is the difference between business insurance and personal insurance?

In the early stages of business formation, many entrepreneurs have a personal policy, sometimes called a “house policy,” to cover items like property damage and medical expenses. Many insurance providers will offer a special rate for a business owner to switch over to a business policy. However, if you’re based in a small office, the volumes of claims aren’t high enough to justify the cost difference between the two types of insurance. Even if you’re a high volume business, you may find that the added costs of an individual business policy are worth the peace of mind they provide if you ever have to file a claim or make a lawsuit claim.

Business Insurance 101

There are a number of types of business insurance available. Each has its own set of benefits and drawbacks. Understanding the differences between them can help you choose the most suitable policy for your business. 

– Employer’s Liability: This type of liability insurance protects your business from claims that employees have injured others or caused property damage. 

– Professional Liability: If you’re in business as a medical doctor, lawyer, accountant or other professional, you should have professional liability insurance. This protects your business from claims that your services have caused injury or damage to others. 

– Property Damage: If you own or operate a business, you are exposed to the risk of property damage. This type of coverage protects your business from claims that damage to your property has occurred.

How to purchase a business insurance policy

This is one area where you can save money with a business policy by switching over to a small insurance provider. As a new business owner or operator, you can get coverage through your personal auto insurance or homeowner’s policy. To receive a lower rate on business insurance coverage, you can simply ask your current insurance agent to switch you over to a business policy. Depending on where you purchase your policy, the firm you select may or may not have special binders of business policies to choose from. In those instances, you may want to consider shopping around to see what other providers are available. You may also want to consider purchasing a policy through a broker or financial institution, as they often have access to a wider array of business policies than standard insurance providers do.

Getting an insurance broker for your small business company

Many small business owners are surprised to learn that they can purchase commercial insurance directly from an insurance provider such as State Farm or Allstate—without a broker. So why pay a premium to have an insurance agent shop for you? That’s because brokers have access to a wide array of business insurance policies from different sources and can compare rates and benefits. Typically, a broker will charge a small amount of commission for each policy they sell on your behalf. However, it’s important to remember that brokers are not underwriters, so they aren’t required to evaluate policy benefits and determine if they’re appropriate for your needs.

Which type of commercial coverage do you need?

Most people think that all commercial insurance is the same. That’s not the case. It’s important to understand what commercial coverage you need based on the risk exposure of your business. The three most common types of commercial coverage are property insurance, business interruption insurance and personal accident insurance. 

– Property insurance protects your buildings and other property you own, such as equipment and inventory. This is often referred to as “buildings and inventory.”

 – Business interruption insurance protects your business from damage or loss caused by disasters like earthquakes, tornadoes, hurricanes or floods. This is often referred to as “catastrophe.” 

– Personal accident insurance protects your business from injuries to employees and others. This is often referred to as “casualty.”

Bottom line

Commercial insurance is a business owner’s responsibility. The sooner you start protecting your assets, the better. In most cases, you can start with the minimum amount of coverage and add as your business grows—as long as it’s within your budget. Now that you know what you need, how to get it and what type of coverage to choose, get started on protecting your business.