One of the biggest fears of any business owner is the lack of reliable, consistent clientele. You may have spent many a sleepless night pondering a boogeyman that might never pay you a visit. Yet other dangers are lurking out there that could knock you or your business down for the count. A major weather event, a fire, accidents in the workplace or catastrophic illness for you or another principal are a few of the setbacks that could dramatically impact your company. That’s where insurance plays a role.
But how do you choose the right insurance for your company? How would you know what coverage you might need and who is the best provider who won't be throwing sticks under your feet as you claim damages?
Here we have assembled a couple of notes on how to protect yourself with the right insurance.
Consider All the Possible Scenarios
Although you might be tempted to lessen your overhead expenses by passing on certain types of insurance, most business groups like the Small Business Administration believe that a sensible business insurance policy can relieve a lot of headaches and help you avert disaster.
The U.S. Small Business Administration (SBA) is a US government agency that provides support to entrepreneurs and small businesses. The mission of the SBA is to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters. The agency's activities have been summarized as the "3 Cs" of capital, contracts and counselling.
Learn more about this agency helping SME in the US here.
Some types of insurance may be mandated by law. If you have paid employees, for instance, the state will require you to carry worker’s compensation coverage. Several states also dictate that you carry disability insurance. Even if this is not required, many companies offer this type of insurance as a benefit.
Business insurance can cover acts of God, malpractice and other general liability issues. You could be sued for instance, if a product you sell causes injury, a customer has a serious accident on your property or, in the case of the medical profession, you prescribe the wrong medication. You say I can control that, but can you control a major earthquake or a massive flood that could decimate a large portion of your inventory?
Ensure Your Consistent Income
You may have property insurance that covers certain damages to your business, but it does not compensate you for lost profits. That’s where business interruption insurance comes into the picture, reimbursing you for lost sales until your business is operating at full strength again after a human or natural disaster. Even if you have disability insurance that pays you a percentage of your income should you become sidelined for some reason, you may find that you need additional types of coverage to pay overhead expenses like inventory, supplies and utilities.
Theft, both internally or from external forces, can be a major problem for certain types of businesses. New office equipment pulls in good money from unwitting buyers at pawn shops, and your inventory might also be susceptible to clever thieves. This is where replacement insurance can be a valuable addition to any practical insurance plan.
In the case of accidents or malpractice, many companies obtain liability waivers to safeguard them from lawsuits. Unfortunately, these waivers never really cover you entirely. In fact, some states do not allow the use of waivers for business liability protection. So it’s usually best to opt for full coverage in that area.
Weigh Value and Vulnerability
The amount of insurance that you should carry depends upon the type of business that you run and the value of the assets at risk. Other factors might include whether you own or lease your building and the geographic area where it is located.
Whatever amount you choose to purchase, you usually will fare best when obtaining all of your insurance from a single company. If you feel totally comfortable with the coverage that you presently have, then you are in an enviable position. Since situations can change, it never hurts to conduct a risk-management audit from time to time, in order to evaluate what an accident or certain losses might cost you. When you do this, be sure to contact a licensed agent that is familiar with your type of business.
The old adage of better safe than sorry especially applies to the business arena, where your livelihood and that of others is at stake. Make sure you have the financial protection you need to move forward with certainty.
Don't Overpay
Yes, now many of us would get running to the first insurance group to get ourselves insured from A to Z, from inventory to employee salary, from the health of CEO to energy outages. But is it really all worthy?
The answer to this question is it depends. That is because not all risks are the same severe for us, and some risks are simply cheaper left unchecked.
For instance imagine you make and sell handcrafted wooden toys, each of them crafted from the soften wooden pieces manual assembled, where you use electric energy just in one step of the process, where you cut planks into pieces so you can start your manual process. Is it worthy then to pay often a hefty premium for electricity going down for a few hours? Most likely no, as these few hours you will most likely manage without it.
Always see if the premium isn't more expenses than covering damages caused by the event you are insuring.
The formula for the maximum premium worth for you is
chance of an event happening x potential damage = maximum premium
In other words, if there is a practically non-existent chance that event will happen (say you will be struck by lightning while being eaten by a shark, or, even less likely scenario that you will win the lottery (no, this isn't an error. winning a lottery really has a lower chance than being struck by lightning while being eaten by a shark)) or the potential damage of this happening is practically non-existent, it's most likely not worth paying any premium at all.
The only hard part in estimating if the premium is worthy for you is that it will be super hard to tell in most cases what is the chance of an event happening. How likely are you to be hit by a car? That you were never hit by a car? Is a chance of being hit a 0 then? That you know people are being hit all the time? Exactly!
It is a really uneasy task to determine this and therefore you would do best to either go from your best experience, consult people from the same industry with more experience or consult a specialist in the field to help you decide.
