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Small Business Insurance: A Complete Guide

Your small business is your life. After all, you’re doing what you love to do while creating jobs and growth for your community. Almost every small business owner will tell you that their business is a dream come true, despite the headaches you sometimes get when running a business. Therefore, it’s no surprise that so many small business owners are interested in protecting their investment and livelihood. One of the best ways to protect your small business is with small business insurance.

Small business insurance is an important part of any operating plan for a small business. However, there are many different types of small business insurance. Moreover, different small businesses need different kinds of insurance depending on the industry they operate in. We’ll explain the different types of small business insurance and help you understand what the advantages are for each type. We’ll then go over how to select the best small business insurance policies for your particular needs.

Types and Benefits of Small Business Insurance

Small business insurance works in a broadly similar way to other kinds of insurance. You pay a premium to the insurance company. The company then pays out any claims against the specific type of harm or liability they insure you for. However, there are many different potential liabilities for small businesses. Moreover, there are other types of insurance to protect your most important assets: your employees. Understanding the different types of insurance companies offer to small businesses is the first step in making sure your business is protected.

Understanding Small Business General Liability Insurance

Small business general liability insurance is the most common type of insurance. General liability covers most things that happen in and around your place of business. Some general small business insurance policies include other types of insurance in them, so it’s important to closely compare the details of different plans you might get from a small business insurance broker.

Benefits of Small Business General Liability Insurance

There are many benefits to general liability for small businesses. General liability insurance covers the vast majority of different issues and liabilities that your company may face. This includes damage done to someone else’s property by you or an employee, slander and libel claims against your company, slip and fall cases involving clients and customers, and more.

In short, general liability insurance protects you against events where you are sued and have a judgement issued against you. Most general liability policies for small businesses cover the cost of attorney’s fees and other associated expenses. GLI for small businesses is one of the most important insurance policies you can buy. Many states and jurisdictions require that all businesses have a certain level of liability insurance. Even if insurance isn’t required for all small businesses in your state, every state requires a certain level of insurance for businesses once certain qualifications are met, like size, number of employees, and so on. You should talk with a lawyer or certified insurance professional to get more details regarding what’s required in your state.

Understanding Small Business Worker’s Compensation Insurance

Worker’s compensation insurance is a special type of policy designed to help small businesses deal with worker’s compensation claims. It’s unfortunate, but sometimes people get hurt on the job. There is a special process when this happens, and if you are found to be at fault for your employee’s injury then you will be liable to pay worker’s compensation benefits. These benefits can stretch as long as the lifetime of the employee. Therefore, they can represent a significant hit to your books and slow down or even undermine your small business’s growth.

Worker’s compensation insurance covers the cost of these payouts. It also covers medical care and short-term payments. Moreover, the insurance company provides investigative resources to ensure that the worker’s compensation claim is legitimate, and not a fraudulent attempt to scam you out of money. Many states require some kind of worker’s compensation insurance.

Benefits of Small Business Worker’s Compensation Insurance

The wide range of different circumstances that can result in a worker’s compensation claim, along with the huge amounts of money that these claims can involve, mean that worker’s compensation insurance protects your business from going under due to worker’s compensation claims.

Worker’s compensation insurance companies will tell you what kind of information you need to post, and where it needs to be posted so you can meet state and federal rules. Moreover, small business worker’s compensation insurance has expert lawyers, investigators, and medical professionals to determine the correct amount of compensation. These individuals and groups can also check to make sure any worker’s compensation claim is a legitimate injury or illness, which protects you from fraudulent claims.

Understanding Small Business Umbrella Insurance

Umbrella insurance for small businesses is an increasingly popular product. It’s used to cover anything that your other insurance products don’t cover. Moreover, it offers a level of protection above what other standard insurance policies offer. For example, if your general liability insurance covers up to $1,000,000 in damages, your small business umbrella insurance might cover damages from $1,000,001 to $5,000,000.

Benefits of Small Business Umbrella Insurance

Small business umbrella insurance is a great way to protect yourself if you deal in high-value trade or provide a series of flexible services and/or products and need lots of coverage for potentially unpredictable situations. Umbrella insurance can shore up gaps in your other coverages. It covers the same things as general liability, automobile, and employer’s liability, but at a much higher rate of coverage. Umbrella insurance is usually offered at a much lower premium because it is rarely used. However, when it is used it can be a business saver.

Understanding Small Business Health Insurance

Employees and workers are the primary asset for many small businesses. Therefore, it’s in the company’s best interest to ensure that these individuals are as productive as possible. That’s where small business health insurance comes into play. Just like individual health insurance, small business health insurance offers workers protections and discounts on things like doctor’s visits, hospital admittance, surgery, prescription medicine, and other costs associated with keeping your employees and workers healthy and productive.

However, small business health insurance works a bit differently than individual health insurance plans. That’s because businesses insure many people, and so they get to use economies of scale to generate discounts on the individual insurance policies. After all, the way insurance companies make a profit is through the assumption that more people will not need to use the full extent of their insurance than will. That logic means that the more people your small business provides insurance for, the cheaper that insurance will be for each person.

Moreover, there are different regulations at the local, state, and federal level regarding what kind of insurance employers must offer. If your small business employees more than a certain number of full-time workers, then you may be required to provide health insurance for them. Therefore, it’s important to make sure you’re aware of the different regulations and laws governing your small business when you consider health insurance for small business owners.

Benefits of Small Business Health Insurance

Health insurance, for small business owners, is something of a controversial topic. However, there are several benefits that small business owners gain when they provide health insurance for their workers. The most important benefit is that health insurance helps keep your workers healthy and productive. An employee who misses work because of accident or injury isn’t contributing to the growth of your business. Additionally, workers who have insurance and do get sick or injured will be able to get the appropriate care. That gets them back to work faster so they can continue to contribute to your company’s growth.

Additionally, health insurance is an incredibly valuable benefit for workers. Therefore, offering health insurance, even when it isn’t required, is a great way to attract the best and highest qualified employees in the niches you’re trying to fill. Furthermore, workers are often willing to work at a lower salary or hourly rate if they’re offered health insurance for themselves and their families. As a result, the costs of health insurance can more than pay for themselves by justifying a lower salary as well as increasing productivity and reducing sick time.

Finally, health insurance for self employed small business is almost essential. After all, if you’re the only person running your business and you get sick or injured, then your business’s productivity will drop to almost zero. Therefore, it’s important to do everything you can to ensure that you’ll be able to continue to execute vital business tasks, make new deals and contracts, and provide the goods and/or services your clients expect.

Understanding Small Business Auto Insurance

Small business auto insurance, or small business car insurance, is often referred to as fleet insurance. These types of insurance policies protect the vehicles your business owns. Moreover, fleet insurance for small businesses can provide additional liability coverage if you or an employee causes some kind of injury or damage while using a company car for company business.

Even if your small business doesn’t operate an entire fleet of vehicles, you can get small business auto insurance for the vehicles you do have. This might include your car, as the owner, if your car is purchased in your business’s name. Small business owners also purchase car insurance to protect individual cars or trucks used by the business, and this can be done without requiring a policy covering an entire fleet.

Benefits of Small Business Auto Insurance

Vehicles are some of the most valuable assets to any small business, both in terms of the capital invested in them as well as in terms of the amount of value they generate. Therefore, having small business auto insurance is a great way to protect these valuable investments. Auto insurance policies for small businesses cover the costs of repairs to a vehicle if it’s in an accident. Additionally, they cover the value of the vehicle if it would cost more to fix than the vehicle is worth. As a result, you can get a replacement vehicle to keep your business moving without having to worry about raising all of the capital you need or diverting it from other projects.

Small business auto insurance also usually covers the cost of renting a vehicle while yours is being repaired. Moreover, auto insurance policies provide greater and more specific protection from damages to other people’s property caused by an accident you or your employee is at fault for. Having auto insurance can also reduce the rate you pay for general liability insurance, and can help lower costs for things like rental cars if you have employees who must travel frequently to do their jobs.

Small Businesses and Self Insuring

There are a few different options when it comes to deciding how to insure a small business. Most people choose to use insurance companies to get the protection they need and/or are required to have. Many insurance companies offer more than one kind of small business insurance. Therefore, you can look to different small business insurance plans and see how comprehensive the different coverage options are.

However, in many states, small business owners have the option of self-insuring. Self-insuring can be an effective way to give your small business the insurance that it needs, but it comes with many drawbacks. Therefore, you should think twice before you decide that self-insuring is the best option for your small business.

Self-insured businesses must put aside a substantial quantity of capital to have the resources they need to provide their own insurance. Moreover, this process frequently requires hiring a third-party administrator to deal with evaluating and paying out on claims. Self-insured businesses lack access to the other resources that small business insurance covers, like the medical, negotiation, and investigative expertise you get with worker’s compensation insurance companies.

As a result, you’ll have to pay an outside firm to administer your claims, so there will still be outside expenses for your business. Moreover, restrictions on this capital can prevent it from being used to grow or expand your small business. You have to cover your own attorney costs for any lawsuits you face. Finally, because you’re paying on claims directly, large claims or judgements against your business can seriously undermine or even eliminate your ability to operate. Therefore, you’re putting your livelihood and that of your employees at risk when you self-insure. Given these realities, it’s not surprising that small businesses only self-insure in specific circumstances when the business decides that it’s to their benefit to do so. Most small businesses will want to avoid this option.  

Picking the Best Small Business Insurance

If you decide to avoid the hassles and costs of self-insuring, then you’ll need to select insurance policies for your small business. There are a tremendous number of insurance options for small businesses on the market today. Therefore, you may find yourself overwhelmed when it comes to selecting the best insurance policy for your small business. However, this process can be simplified by breaking down the different aspects of small business insurance policies to determine the overall cost/value ratio of the various options. This ratio will be different for each business dependent on its particular needs and circumstances, but there is a broad process you can follow to determine what small business insurance options are ideal for you.

Evaluate Coverage

The first thing you should do is closely evaluate the coverage offered by a given insurance policy. You should never take for granted that something will be covered under your policy. Closely checking the terms and conditions of the different policy options is essential to ensuring you’re paying for the benefits you need.

You should ask questions and posit hypothetical scenarios that can happen in the course of your business operations. Make sure these scenarios cover everything from the likely/common events, like someone spraining an ankle on stairs entering your store, to the unlikely but costly events that you’ll probably (hopefully) never deal with, but that could be devastating if they do occur.

Evaluate Coverage Limits

All insurance policies have limits on their coverage. Otherwise the insurance company can’t protect itself from claims and may wind up going out of business. You should check your small business insurance policy options and make sure that you’re looking at policies that provide a high enough limit to cover the liability you might face.

For example, if you run a limousine service you’ll want an automotive insurance policy to cover your cars. A policy that limits payments on claims to $30,000 won’t work for you, as each of your vehicles costs much more than that, and those vehicles are the core of your business operations. However, if you are a self-employed small business owner and you drive your car to meet clients, then a $30,000 policy might be more than enough for you.

Small business umbrella insurance is always an option if you can’t find a policy that offers the level of protection that you feel you need. After all, most claims won’t be catastrophic, so standard levels of coverage will be sufficient. Obtaining a reasonable amount of coverage from your small business insurance and using umbrella insurance to protect yourself from the worst scenarios you can imagine is a smart move for most small business owners. 

Evaluate Premiums

The next thing you should check out when researching different small business insurance coverage choices is the premiums for the various policies. Premiums are carefully thought out by insurance companies. They need to make a profit on your plan in order to function as a business. Therefore, if your business has more risk for the insurance company, then you should expect the premiums to be higher. However, you should make sure that higher premiums come with higher coverage limits or a greater number of events that are covered.

Additionally, you should take into account how much coverage you’re getting for your premium. Not only will this help you understand if you’re getting a good deal on your insurance policy for a small business, but it will also help you determine the best way to combine different policies to get your business the most coverage for the least investment.

In addition to evaluating the initial premiums, you should also inquire as to how claims against the insurance will affect the premium. This is especially true for small businesses engaged in manufacturing or other industries where some injuries and liabilities are essentially inevitable. After all, if your premium spikes by 30% after you file a small claim, then your calculations to get the most value from your insurance are entirely thrown off. Therefore, understanding how claims affect the premium is essential to good business planning.

Evaluate Bundling

Finally, you should investigate different ways to bundle your insurance policies, or determine if bundling is the best option for you. Many companies offer more than one kind of insurance. These companies are usually willing to give you a lower price on your insurance products if you sign up for more than one type of product. This is analogous to the way that a cable company will charge you less for internet, cable, and phone service if you sign up for all three with the company. In these situations you can frequently come out ahead by grouping all of the services together, as you get a lower price per service, and the company makes more selling you many services at a reduced price than they would selling you one service at full price.

However, bundling is not always the best option, so it’s important to carefully evaluate your needs. Sometimes you can find yourself with extra policy coverage that you don’t need. Moreover, there are companies that offer insurance for specific types of liability in specific industries. These companies usually have a good idea how much it costs to provide the services they offer. As a result, you might get a lower price by using multiple different companies, each one specializing in a particular type of insurance product.