As we continue to struggle in this tumultuous labor market, many people have turned to self employment to earn a living for their families. With job opportunities being slim and with salaries being flat for three years now, indeed, many have embarked on small business ventures to give them an income stream…in some cases, for the very first time in their lives.
Starting a business is no easy task to be sure. Forming an entity, securing capital, obtaining licenses, and creating business plans merely scratch the surface as to what’s involved with getting a business off the ground. Another important factor of course, is obtaining commercial insurance for your business. Unfortunately, many people think of commercial insurance as a nuisance when it should be thought of as a necessity, which it very much is.
Why the Need?
Whether you are starting a sole proprietorship or a small business entity with employees, being in business means being at risk of a lawsuit. The exposures one may have will vary depending on the size of your organization, what role you serve in the industry, and the activities you are engaged in with your business.
As your business grows, the last thing you want to have happen is having your company’s financial assets ripped away after suffering a loss due to an act of negligence by you or one of your employees. This is why commercial insurance is needed…to transfer that risk to an insurance company. Of course, if you can afford to self-insure against a loss (paying completely out of pocket), then commercial insurance is not necessary obviously.
Understanding Your Exposures
For new business owners that do not have the financial means to self insure against a loss, the first step you want to take is understanding your set of risks. Again, this will most always be unique in nature so you should not use someone else’s policy as a reference to the coverage you need. Thus, you may have all or some of the following liability exposures depending on your particular situation:
-General Liability – for those engaged in the business selling of products, the manufacturing of products (Products Liability), or services
-Professional Liability – for those engaged in the business of selling advice (e.g. architects, financial service representatives, etc.)
-Commercial Auto/Trucking Liability – for businesses that have company owned vehicles or vehicle fleets
-Hired/Non-Owned Auto Liability – for businesses that rent or use non-owned automobiles for business purposes
-Commercial Property Liability – for businesses that own commercial buildings
-Business Personal Property – the items you have contained within the space of your operations (e.g. furniture, computer equipment, etc.)
-Cyber Liability – for those engaged in the business of selling digital products and/or services
-Inland Marine Liability – for those businesses that have high price tag items to cover such as construction equipment, medical equipment…any expensive piece of gear that is essential to the operations of your business
-Fire Legal Liability – for those businesses that run the risk of damaging the property of others
-Ocean Marine Liability – for those businesses that operate or conduct business on the open seas or on a body of water
-Workers Compensation – for businesses that have at least one employee on their books
How Much Coverage Will I Need?
In short, you need as much coverage as what you stand to lose in the event of a loss. But in addition to this, many times there will be minimum coverage limits (most notably with general liability insurance) that you must carry as required either by your building/unit landlord, the county in which your business is domiciled, your clients, your general contractor, or other certificate holder. Before you start the process of obtaining business insurance, make certain that you determine the required coverage limits (if any) needed for your policy.
What Will The Coverage Cost My Business?
As you can see, your newly proposed business entity will almost certainly be totally unique depending on the exposures you have. Plus, how much business volume you do (or how much that you THINK you will do in your first year of operation) also plays a role as to how much a business insurance policy package will cost you.
Another price factor is that some business risks have higher chances of suffering a loss than others. Meaning, many insurance companies will write (at generally less expensive prices) coverage for an auto body shop or a small tuxedo rental retail store. However, fewer insurance companies will write a policy for a large-scale, event services company, or a company that is located in or near a flood zone. As your exposures for a loss increase, the fewer the companies there will be to write you a policy, which (as you may have guessed) drives up the price.
As a result, there is no “ball park” figure when it comes to the premium amount for these policies unfortunately. Your cost for coverage will be based on a fully underwritten quote proposal with an insurance company through an independent insurance broker.
If you want a “general idea” of what to expect to pay for commercial insurance, use an internet search tool to find a discussion group (based on your business type) to see what others are paying for coverage. Just remember, what THEY pay will most likely different than what YOU will pay for insurance.
How and When To Obtain Business Insurance?
Like everything else in life, take one step at a time when creating your new business venture. Once you have registered your new business name, DBA, or corporate entity in your county & state, you will then be ready to obtain a formalized quote for coverage with a carrier.
To assist you in this effort, seek out a reputable insurance broker, who will go over all of your proposed business exposures. Once reviewed, your broker will obtain for you a set of coverage’s with an insurance company that is best suited for your business at a competitive price. Your broker will have access to many different insurance markets to obtain a good balance of needed coverage, company financial stability, claims service, and price for your new endeavor.