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Small Business Insurance 101: Everything You Need to Know

If you've avoided getting small business insurance because you're not really sure you need it – or just don't know what coverage to buy – you're not alone. Insurance for small businesses can seem complicated, but that's no reason to leave your company uninsured against risk. Here's what you need to know about how to insure your small business and help safeguard your investment.

What type of coverage do you really need?

A lot of variables go into determining exactly what kind of small business insurance you need. For example, a business engaged in manufacturing or construction has completely different needs from a home-based professional services business. Similarly, a company with 10 employees may have needs that a self-employed web designer won't have to consider.
Before you meet with an insurance agent, ask yourself the following questions:

  • Do you work in a geographic area subject to natural disasters such as earthquakes, storms or floods that might damage your business and interfere with your ability to work?
  • Do you have a physical location outside of your home? Are there ever employees or customers in your business?
  • Are you subject to any state laws regarding workers' compensation?
  • Are you required to provide health coverage under federal law?
  • Does your business have a sizable online footprint or accept online payments? Do you electronically handle or store sensitive employee or customer data?
  • Do you use your personal vehicle for business activities? Have you leased or purchased any commercial vehicles?
  • Are you in a high-risk industry like construction or one with exposure to professional liability such as healthcare?

The answers to these questions will help you determine the framework for a standard businessowner's policy, or BOP, which covers general liability, business property and business interruptions due to unexpected events such as storms. Beyond that, you might also benefit from optional coverages such as cyber liability or employment practices liability insurance (EPLI).
Don't make the mistake of assuming that your personal homeowner's coverage will protect your home-based business or your personal auto policy will pay for damages that happen when you're using your car for business. Most personal policies exclude losses related to business use of your home or vehicle.
Remember to pay close attention to the workers' comp laws in your state; many new business owners are surprised to learn that they need this type of insurance, even if they use only contract labor.
How much should you pay for small business insurance?
It pays to be smart before you actually buy insurance for your small business. Once you have a good idea of the coverage you really need, spend some time doing research to compare costs for different policies from companies you trust. Look for prepackaged BOP products that let you save on premiums by bundling and customizing your coverage. It's always best to get quotes from companies that specialize in offering insurance for small business clients, because these are substantially different from the insurance products a large corporation needs.
Talk to colleagues in your industry to see what type of coverage they have and what they pay in premiums. Depending on the type of business you own and the number of employees you have, you might spend between 20 and 30% of your gross annual revenue for comprehensive insurance protection, including health and life insurance for employees. This is only an average range, however; how much you budget for insurance should be primarily driven by your unique business requirements and risks.
Finally, check the fine print before you sign on the dotted line. Make sure you understand any contractual premium obligations and you know exactly what is covered – and what is not – and applicable policy limits before you buy.

Having the right insurance isn't a luxury in today's business climate – it's a necessity. For small businesses, which often struggle to recover from an unexpected loss, insurance coverage is especially critical. Take the time to evaluate your needs, and then call us to discuss how we can help you design a small business insurance package that covers what you've worked so hard to build. 

The opinions expressed here by columnists are their own, not those of The opinions expressed herein by columnists are their own, not those of AmVenture Insurance Agency, Inc., its subsidiaries, or affiliates.