Money is almost always tight among startups. Amazon was in business for about a decade before it finally turned a profit. Many owners believe that insurance is a good place to trim expenses. They often reason that with few customers and little business, they simply do not need it.
This attitude is usually a mistake. Insurance companies for risk profiles, in part, based on your number of claims. So, if there is little risk, it’s a good time to buy insurance. Getting into the game later usually means higher premiums. Moreover, many insurance companies have waiting periods. Switching on coverage may not be as simple as switching on a light.
It’s always important to be an informed consumer. So, when considering coverage, policy limits, and so forth, go through this brief assessment.
Assess your Risk
Insurance protects against unlikely yet foreseeable incidents. An alien invasion from Mars is both unlikely and unforeseeable. On the other hand, a slip-and-fall at a small barber shop may be unlikely, but it is also foreseeable (possible).
Your financial situation is another element of risk. Many businesses could probably not pay a $3,000 or $4,000 claim and survive. If your cash reserve is much higher, like Amazon’s was in those early years, your appetite for risk may be a little higher. You still need insurance, but you could perhaps go with a higher deductible.
Know the Types of Insurance
Many states will not license uninsured businesses. Many others impose hefty fines for uninsured or underinsured enterprises. Regulators impose these fines whether or not your business faces a claim. Typically, the mandatory types of business insurance are:
- Workers’ compensation (rules vary by state in terms of the number of employees required),
- Unemployment insurance, and
- Disability insurance.
Unemployment insurance is mandatory in all states. Only a few jurisdictions require disability insurance, which is basically a workers’ compensation supplement.
Other types of business insurance are legally optional but commercially mandatory. Over the long term, most businesses cannot survive without things like:
- Business Insurance: Small business general liability insurance usually covers losses related to bodily injury (falls and other physical injuries), personal injury (mostly defamation claims), and property damage (fire and other accidental losses).
- Commercial Auto Insurance: If you use your personal vehicle for work and cause an accident, most auto insurance companies will not pay the claim unless you have a commercial or business rider.
- Data Breach: Companies big and small that move information electronically or accept electronic payments need cyber liability insurance. Companies which handle PII (personal identifying information), like Social Security numbers, need lots of cyber liability insurance.
- Errors and Omissions: E&O policies pay for damage claims related to the discretionary actions of company officers.
Many owners purchase umbrella BOPs (business owner policies) which are customized to their particular needs.
Find a Good Agent
Obviously, buying insurance is a rather complicated matter. A good agent or broker helps simplify the process. That conserves both money and time. For many new businesses, both these resources are equally scarce. Bear in mind that most agents and brokers work on a commission basis. Be sure that the one you chose has your best interests at heart.
It’s usually best to either work with an agent who’s unaffiliated with a particular company or at least work with multiple agents. Prices and coverage amounts vary significantly among different insurance firms.
Reassess Your Needs Annually
Your business needs will most likely change a lot over the months. Be sure your policy reflects these changes. Many companies offer significant renewal discounts, so it’s usually best to find a good company and develop a long-term relationship.