Insurance often seems like a complicated topic, especially for a new business owner. However, at its core, it’s really simple. In this post, we will cover all the basics before you buy business insurance online or meet an agent.
Here’s an example of how different business insurance policies work using a single scenario. Let’s assume there is a fire in a shop that has two employees.
Business property insurance will compensate the shop owner based on the amount of damage. In other words, it will pay for rebuilding the establishment and restock the inventory.
Business interruption insurance will also come into play. It will cover the cost of lost income that happened due to the temporary closure of the business. If the business remained closed for a month, the business interruption insurance will pay for the salary of the two staff members as well as the cover the lost revenue. It will also pay for utility bills and other expenses.
If any of those two employees got hurt during the fire, workers’ compensation insurance policy will pay their medical costs.
If the fire ends up hurting customers inside the shop, general liability insurance will help compensate any claims or fight lawsuits if required.
Now in this particular scenario, the best business insurance would be a BOP or Business Owner’s Policy. This is a type of business insurance designed specifically for small to medium-sized businesses. It’s a policy that bundles different types of insurance policies together. Typically a BOP includes property insurance with fire coverage, general liability coverage, and business interruption coverage. The only thing that isn’t typically included is workers’ compensation, which needs to be bought separately.
5 Tips on Choosing the Best Small Business Insurance Policy
Now that you understand how different business insurance policies work, it’s time to buy a business insurance package that suits your needs.
Before we reveal the 5 tips to buy the best business insurance, here are some basics.
When buying the insurance you need to ensure the coverage amount is optimum. Notice we used the word “optimum”. Buying an insurance package with a huge coverage is a waste if you have limited assets. Similarly, a measly coverage amount can leave you without cash if it doesn’t match your business asset size. Speak to an insurance specialist to calculate the coverage amounts for each insurance type you are aiming to buy.
Prioritize Reliability Over Price: A cheaper premium can be alluring for most small business owners. However, when picking an insurance provider reputation and reliability is more important than price. A reliable provider will quickly honor legitimate claims, have proper licenses, and will always be ready to answer customer queries.
Check Customer Reviews and Ratings: A good measure of how an insurance provider operates is honest customer ratings and reviews. BBB ratings are a great starting point. You can also check out an independent business listing sites for reviews.
Find out If the Policy Covers Natural Disasters: A lot of property insurance packages do not cover natural disasters. You need to add riders to protect your business from certain types of natural calamities. The cost of these add-ons depends on the risk factor. A business located in a flood-prone area would need to spend more to buy a rider that covers flood damages.
Evaluate the Need for Business Interruption Coverage: As explained earlier, business interruption coverage pays for the lost income if a business is temporarily closed. However, not all businesses need interruption coverage. A business that can be operated from any location and can be easily relocated could use without business interruption coverage. A shop, on the other hand, cannot be easily relocated and its revenue is dependent on the location. This is why almost all shops need business interruption coverage.
Compare Coverage Amount, Exclusion, and Premium: The best way to compare business insurance is by creating a worksheet and comparing policies based on type, coverage amount, exclusions, and premiums. Make sure to select reputed insurance providers with a proven track record when making this comparison.