If you’ve never bought business insurance or consider it a burden rather than a benefit, you may be wondering how to buy the correct type of insurance for your small business.
While insurance premiums may seem like sending money into the abyss, the reality is that they, like rent, training, or upgrading your infrastructure, are an investment in the longevity of your company.
Most companies operate on a delicate wire, balancing costs in opposition to revenue and business insurance, and when purchased with pragmatism and judiciousness, can provide a healthy support system in a time of crisis.
The fact that you are considering buying insurance or looking to deepen your understanding of its costs and benefits indicates that you are dedicated to developing and expanding your firm.
Not every business owner has this determination, so you are to be commended for your curiosity and practicality.
While some argue that business owners are better off taking the money they’d pay in premiums and putting it in a rainy day fund, the reality is that your $1,000 per year for twenty years will be worth much less than what a successful, durable business will be worth in twenty years.
Some consider insurance to be smoke and mirrors, but it is in fact a safety net and no one needs that kind of backing more than an entrepreneur facing an emergency.
Related Article: The 8 Types of Insurance Your Business Actually Needs
Tips on Finding Appropriate Business Insurance
Your Agent Matters
So how can you ensure that you have business insurance coverage that matches the challenges your company may face?
First, understand that all agents are not created equal. Some agents are “captive” agents, which means that they can only provide coverage from a single carrier, whereas independent agents (a.k.a. brokers) can offer business insurance policies from many carriers.
Captive agents may not get paid by commission, but they are limited to the types of policies offered by the provider.
Independent agents usually work with many providers to get customized coverage that provides protection which will match your firm’s exact needs.
Related Article: To File or Not to File: A Business Insurance Claim
Provide Accurate Information
Once you find an agent or broker that you trust, you need to provide thorough information regarding your business.
This is an opportunity to go deep into the full particulars of your company. If you rarely balance your ledger and don’t know your profits and expenses, this can be intimidating, but your business will have difficulty finding long-term success if you avoid this rigorous attention to detail.
On the other hand, you may have extensive records, but feel uncomfortable sharing the inner workings of your enterprise. Your agent isn’t here to judge.
They merely want to get insight on how your company operates, so they can help you select the best combination of policies to protect your hard work and investment.
Ask Yourself Hard Questions
If you're risk averse, you may overbuy insurance. If you’re more uninhibited, you might be forgoing necessary coverage.
This is the time to run some “what-if?” scenarios about how your company might deal with common situations such as damage to your premises or equipment, claims of injury or damage to someone else’s property and assess, which types of business insurance might ensure the continuance of your business through challenges like these.
While some operations are so small that a month or three of lost income would hurt less than a stubbed toe, if your business generates enough income to sustain your family, you may need to reconsider and seek business interruption insurance.
Keep an Eye on the Bottom Line, but Don't Undermine It
Shopping for business insurance is not like shopping for toner or copy paper. There are times when it’s appropriate and pragmatic to shop for the lowest rates and cheapest costs, but make sure you understand what you’re sacrificing when you opt for the bargain premium.
For example, when shopping for liability insurance you might have noticed an appreciable price difference for “occurrence” versus "claims made” coverage.
When you consider the difference in coverage, the pragmatic choice is to select “occurrence” because this type of policy offers coverage no matter when the claim is made, whereas claims made coverage only covers claims made in the coverage period.
As with every other business decision, it’s important to have all the facts before you commit to a course of action.
Business insurance offers substantial protection and reassurance in dire times, so it’s best to educate yourself and make your decision based on knowledge rather than bias or fear.