You have done your homework and are ready to start your small business – congratulations! But before you get started, or soon after you do, it is vital that you give your insurance needs careful consideration. Many small business owners neglect the need to determine what their insurance needs are, then regretting that oversight down the road. Rather than putting yourself and your business in dire financial straits, consider your top insurance needs and avoid these 7 mistakes.
1. Assuming your Homeowner’s Insurance will Suffice
Many small business owners operate out of their homes, at least part of the time. This might be a great way for you to make an income and a way to save money on overhead, but you will need a separate insurance policy as your homeowner’s insurance eliminates coverage for any business that takes place in a home. What does this mean for you? For example, if a customer was to come to your door to have a consultation with you and they slipped and fell on the snow in your driveway, suffering damages, your homeowner’s insurance would not cover the damages because it was a business event.
2. Avoiding the Need for Liability Insurance
Many small businesses make the mistake of assuming that their status of LLP (Limited Liability Partnership) or LLC (Limited Liability Company) will protect their assets enough that they do not need liability insurance. These methods of structuring your company do provide some protection, but they do not guard you against all liabilities, putting your finances at risk in the long run. Liability insurance is a must for every business, no matter their industry or size. You are able to adjust the amount of coverage and type of coverage as needed, but having this insurance is vital.
3. Neglecting the Need for Cybersecurity Insurance
Cybersecurity is becoming an ever-growing need for small businesses in particular. The small staff, minimal experience, and low budget create the perfect recipe for experienced hackers. These professionals know where they can attack and where it will hurt the most and that is whom they target. General liability insurance will typically not cover tech disasters – they mostly cover issues with slander or libel towards the company. Bringing your company to its knees by hacking into the system is most often covered by cybersecurity insurance.
4. Paying too Much for Worker’s Compensation Insurance
Every business with employees needs worker’s compensation insurance. This protects you from financial disaster in the event that an employee is hurt on the job. Even though every company should have this insurance there is no reason to overpay for it. This typically occurs by coding your employees wrong in the system. Worker’s compensation is based on the risk level of the job. For example, if you have a data entry specialist working for you, the risk is fairly low that he/she will get hurt on the job. On the other hand, if you have an electrician installing stereo systems for you, the risks are higher for injury; therefore the insurance will be more expensive.
5. Not Purchasing Life Insurance
Life insurance is crucial for the small business owner in most cases because that income is what the family depends on and if the business owner is no longer alive, the business will not likely thrive. Now, if you have many key employees that you know could pick up the pieces and keep the business running, you may not have as large of a need for life insurance; each individual needs to gauge the risk that would occur should they not be around to take care of business any longer.
6. Not Determining the Risk for Errors and Omissions
If your line of work directly impacts others, meaning you provide a direct service that you are paid for by the client, you need errors and omissions insurance. This coverage protects you against issues that come up that affect the outcome of what you provide your clients. The type and amount of this insurance will vary from business to business, depending on what you offer. For example, if you offer wedding services, your insurance needs will be vastly different than an electrician’s insurance would be.
7. Avoiding the Need for Disability Insurance
We all like to think that we are invincible and no harm will come our way, but no one can predict the future. If you are dependent on your income from the business, disability insurance is crucial. The right type of disability insurance is even more crucial. You need coverage that protects you in the event that you are rendered unable to work in your specific position, not just in any job. If you have coverage that is not specific enough, the adjuster could claim that you could work in a profession other than that of your business and still make an income, leaving you without payment for your disability.
All insurance is expensive, but there are ways to keep your costs down. Don’t assume that you need to over-insure yourself and purchase every policy that is available to you. Take the time to do your research and talk with experienced agents. You don’t have to purchase every insurance policy that is out there, but you will need a few quality policies. Talk with the experts and see what your business needs are in order to protect you, your employees, and your business in order for you to succeed.