3 Things Every Small Business Owner Should Know about Insurance

I recently taught an online class to my women small business owners group about insurance. And one attendee said that she was feeling inspired to go get insurance for her rapidly growing business STAT!

If business insurance isn’t something you already (or even if it is and you’d like some tips for shopping at next renewal time), I’d like to share a few important concepts that can help you: 1) understand why it matters and what it protects; and 2) how to start shopping for it.

Insurance may seem onerous, scary, or even like an invitation to get sued (I’ve heard the “superstitious” concern more than once). But it is one of the most valuable tools to protect your personal assets in case anything unexpected happens. Even more so than a formal corporate entity….

What does insurance really do?

Insurance allows you to manage risks by creating a safety net in case anything goes wrong and so you can focus on what you do best - run your business. As a lawyer, I often get asked “Can so-and-so sue me for such-and-such?” And the answer is - anyone can sue anyone else for anything.

Whether they win is another matter, but if you do not have the right kind of insurance in place to defend a claim, then you will be paying by the hour, out of pocket to defend yourself and your business. Even if you win, it WILL be expensive, time consuming, and probably emotionally draining and disruptive of your business.

Having insurance in place allows you to sleep at night knowing that your legal expenses are covered and – if the worst case scenario happens and a judgment is entered against you for something covered by your policy – it will be paid by your insurance.

Added bonus – a lot of insurance companies also offer risk management or loss control education programs and materials. This can be an invaluable resource for certain industries. If you have business insurance already, ask your agent if you have access to any such tools.

Relationships with Third Parties

When I worked in the insurance industry, managing risks related to events and third parties was a frequent issue. This topic is one I’ll write about in greater depth soon, but please be careful about signing agreements with other parties (especially when it comes to events) that attempt to shift or allocate risk. Agreements often state whose insurance policy is on the hook if anything happens and it’s important to make sure your insurance company is aware of and approves of such agreements. Otherwise, you may not be covered.

More than once, I saw situations where parties were asked to assume liability for things over which they had no control, yet their insurance was on the line. Get those agreements reviewed by your own lawyer before signing off and asking for a certificate of insurance later.

How to Shop for Insurance

Start by getting referrals for an agent from other business owners, lawyers, or accountants you know, like, and trust. I strongly recommend using someone local that you can connect with easily. The best agents have been around for awhile and are people you trust to look out for you and guide you through the process if you ever need your insurance to work – even if you’re generating only a small premium.

Having said that, if there are insurance programs out there that are super specialized and tailored for your business (the ski and timber industries come to mind), you may be best off going directly to the insurer to get a quote and secure coverage, rather than using an independent agent. The in-house sales team will know all the ins and outs of their products, the types of coverage available (things you may not even know exist), and will easily be able to make sure you land in the right place if you need to use your policy.

Wherever you go, be sure to ask about all available coverage options. You may not want (or be able to afford) the full Cadillac package if you’re just starting out, but it is good to know what your choices are. Perhaps you will want to add on coverages down the road.

For example, getting basic business insurance in place will typically cover things like a slip and fall in your business. But it may not cover things like the following, unless you ask (and pay) for them:

Cyber security breaches

Employee drivers

Serving of alcohol at events

Employment practices

Sexual abuse and molestation

Company vehicles

Floods

Prior acts (from before the date of your current policy)

Equipment breakdown

Business Interruption (this one can be a HUGE life saver if you ever need it)

When it comes time to fill out the application, it’s important to be complete, accurate, and thorough – especially when listing property your business owns. In the event something catastrophic happens, you’ll be tied to that property listing and you won’t get reimbursed for anything that isn’t on the list. You’ll also be tied to the values you put in there – so if you’re not sure what something is worth, pin it down before you write just anything down. If you’re not sure how to do that, talk to the agent you’re working with.

Once the quotes come in, if you don’t like the premium options offered, ask your agent about adjusting the limits, deductible, or any other factors that may impact the premium. It is usually helpful to have that conversation at the get go, before submitting the completed application, and an experienced agent is likely going to talk with you about the things to expect and ask for in that process. But lots of factors can impact the price of your premium (because who knows what happens in underwriting – that’s like the land of mystery!), so understanding what variables you can control or ask them to adjust will help you get the right coverage at the right price.

Last, but not least – DON’T GO CHEAP. The cheapest carrier is often not the best carrier to work with if you ever have to file a claim. The whole purpose of insurance is to have it there if you need it, and when you need it – well, you need it. The lowest cost carriers are lowest cost for reason. And you don’t want to find out the hard way that it is because they fight with insureds when paying claims.

When it comes to insurance, lawyers, and bed sheets, you generally get what you pay for.