Carrying small business insurance is not just a legal requirement in most US states — it’s also essential to protect and grow your company. There are a lot of types of insurance to choose from, and there are key moments in a business’s growth trajectory where a particular type of insurance is no longer the right choice.
The key to getting the best business insurance is this:
Small business owners need to know how and when to choose the right insurance policies at the right time, as commercial insurance needs can change over time.
When your small business is new: Insure it right away
- Purchase insurance policies right from the beginning. Think of it this way: When you own your own business, one single claim can result in substantial financial losses due to legal fees and other expenses. Worse, it can force your business to shut down. But if you carry insurance coverage right from the start, you are protected against losing a lot of money.
At this point, the key is to know the potential risks in the industry so you can determine which types of insurance you will need to keep the operations running smoothly. As a startup owner, you should consider purchasing general liability insurance, commercial property insurance, cyber liability insurance, and worker’s compensation insurance.
As your small business grows: Add or change insurance policies
- Assess which types of business insurance meet the specific requirements of the business. Every growth milestone or significant change comes with various risks. As the number of employees goes up, you’ll need additional coverage.
Purchasing a company vehicle means you’ll need auto insurance. Open a new office or facility, introduce new products or services, and . . . you guessed it, you’ll need to look into more commercial property coverage, different liability coverage, and so on.
You’ll realize that the insurance policies you’ve purchased when you’re just starting the operations will not be enough to cover these welcome changes. It’s essential to stay updated on the different needs of the business so you can address them by purchasing the right policies. In this way, you can minimize the risks of losing financial resources from claims.
At this stage in your company’s growth it’s essential not to let all that hard work go to waste. Yes, purchasing more insurance will mean spending more, but remember, business insurance is an investment in your business. The risk of not having insurance could mean losing significant income, far more than the cost of your premiums.
Aside from the initial insurance products that you’ve purchased at the start of the business, you will soon need more policies to meet the needs of your growing company. Eventually, you will employ directors or executives who will oversee your operations. Just like your employees and physical assets, your higher-level members will need protection against claims associated with a breach of fiduciary responsibilities, wrongful acts, or misconduct. Protect them with directors and officers insurance..This type of insurance policy will pay for the expenses incurred due to claims from a third party.
Not only does business insurance keep your bank account protect from lawsuits, but having the right coverage makes your small business more attractive to investors. It shows your diligence not only in adhering to state regulations but also in making sure that your employees, clients, and customers are protected against personal injury or property damage. When you have the right insurance policies in place, investors will be more confident in allocating funds to your business.
To help you decide which types of insurance to buy, it’s good to do some research into various insurance providers or hire a reputable broker who has the knowledge and expertise in assessing small business needs. Shop around for brokers — get a few insurance quotes.
Once your small business is really growing: Look into setting up a captive entity
- Setting up a captive can speed income growth. In simple terms, a captive refers to an insurance company you set up and run for your own company.
Setting up a captive starts with establishing an entity. After that, you will earmark funds for the captive so it can handle all the claims, if any. As long as the policies cover the claims, all the necessary payments will come from the captive. In short, by moving out of the traditional realm of insurance, you’re no longer writing a check to a carrier or broker since you control the pricing.
As the self-insured, you are able to access any underwriting profits, typically through liquidation or dividends; those profits can also see favorable tax deductions. Forbes found that a successful captive can save a business over $2 million on its yearly tax bill. Over time, a successful captive will see an increase in equity balance. But keep in mind that enough funds must always be allocated so the captive will be able to manage all claims, if any.
Keep your small business’s insurance policies current
- Stay on top of your insurance policies. Take advantage of your existing coverage by knowing all the possible risks that your business will encounter.
A growing business means facing more challenges that may be a lot more difficult than what you’ve surpassed in the first few months of your operations. It also entails a lot of hard work and foresight on what can happen in the next few months or years.
Address the varying needs of the business by keeping your insurance policies updated. Make sure that each insurance is enough to protect the different aspects of the company.
Staying on top of your insurance policies means understanding the inclusions and exclusions, as well as knowing what to do in case of a claim. It’s crucial to keep your insurance broker or provider in the loop when it comes to the varying requirements of the business to avoid any inconvenience later on. It takes a lot of time and effort, but you’ll reap significant rewards.
The idea of constantly upgrading your business insurance policies may be overwhelming, especially with numerous insurance carriers and coverage options to choose from. Do your research and weigh the pros and cons of different types of insurance from various brokers. It’s best to consult an insurance agent who is knowledgeable and skilled in assessing your business requirements and recommending policies that suit those needs. Fellow business owners in the industry will likewise be able to you help you in choosing the right insurance. In the end, it’s all about making sure that your company has the protection it needs to ensure continuous revenue growth.
By Emily Lazration, CoverWallet
Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy, and manage commercial insurance online.