Let’s talk budgeting. From inventory-destroying floods to business-crippling cyber attacks, small businesses today face many risks. For a small company, where cash is king and so much is on the line, having the right small business insurance protection can mean the difference between weathering the unexpected and closing your doors.
Still, all too many owners underestimate their risk exposure and put off creating an insurance budget for their small business. If you haven't considered how you'll manage if the unimaginable happens to your company, here's what you should know about how to budget for small business insurance.
Start with the Basics
Today's small business owners really can't afford to overlook the coverage in a standard businessowner's policy
, or BOP. This policy protects you against many of the troubles a business could potentially face, such as:
- General liability against covered damages resulting from actions taken by you or your employees. This covers you against lawsuits resulting from injuries on your property or as a result of your products or services.
- Business property insurance, designed to safeguard your business from losses to your business assets, including furniture, equipment and real estate. Here at AmVenture Insurance Agency, Inc., we can help you understand which specific perils are covered, since most property insurance policies are "named-peril," meaning only the events specifically listed in your policy are covered.
- Business interruption insurance, designed to provide income to keep your business open while you recover from an unforeseen event such as storm damage.
If you use your personal vehicle for business purposes, you may also need commercial automobile insurance, because most personal car insurance policies don't cover damages incurred while a personal vehicle is engaged in business activities. Of course, if you lease or purchase any commercial vehicles, you will definitely need commercial auto insurance.
Unless you are in the state Texas, you will also need worker's compensation coverage if you employ a minimum number of people – typically between three and five depending on where you are located.
Consider Specialized and Optional Protection
Depending on the type of business you're engaged in, you may need more specific coverage, including:
How to Budget for Small Business Insurance
- Employment practices liability insurance, or EPLI, covers your business for claims of discrimination, wrongful termination or harassment by current or former employees. This coverage generally applies to every type of employee, including contract, part-time, temporary and seasonal, so even if you don't have a lot of permanent staff, you may want this optional policy.
- Cyber liability insurance is essential for businesses that take payments online or require the storage and transmission of sensitive customer data. If you're unsure, contact us to evaluate your risk exposure.
- Health insurance is another option many small business owners consider. Depending on your staffing level and structure, you may be subject to coverage requirements.
- Professional liability, also called Errors and Omissions or E&O, is especially important in certain professional services industries such as healthcare.
Most industry experts suggest that you allocate between 20 and 30% of your gross annual sales toward your insurance coverage, including health and life insurance for employees. This figure may be lower for many home-based businesses, consultant practices, and businesses that do not offer health, life and disability insurance. On the other hand, businesses engaged in high-risk industries such as construction may need to allocate even more for coverage.
If you have room in your budget or are in an industry where extra protection is needed, consider allocating additional amounts for optional coverages like the ones described above.
Watch Out for Common Mistakes
Choosing the right insurance protection is an important decision, so avoid these common pitfalls:
- Assuming your personal insurance also covers your business. Chances are, it won't.
- Failing to secure adequate or state-required workers' compensation insurance.
- Choosing the wrong company to craft your business insurance package. Look for one who focuses on coverage for small businesses, so you can get coverage designed for businesses like yours without spending more than you need.
If you have put off buying small business insurance, take the time now to consider what type of coverage you need. If you have questions, contact us
! We're here to help, because we know the worst mistake small businesses can make is waiting to buy coverage until after it's too late.
The opinions expressed here by AmVenture.com columnists are their own, not those of AmVenture.com.