(The simplified guide to finding the right coverage)
Maggie Tiede |January 24, 2019
So maybe you’re a seasoned business pro looking to switch your business protection, or maybe you’re covered in that new entrepreneur smell and this whole process gives you cold sweats.
Either way, getting set up with the right business insurance doesn’t have to be painful. In fact, we’ve gone ahead and boiled the whole thing down to just seven and a half simple steps.
Go ahead, give it a quick read. And once you’re ready to make a move, our independent insurance agents will help you take it the rest of the way, answering any questions you have and making sure you’re paired up with the right insurance for your biz.
So How Does Business Insurance Work?
Simply put, business insurance is a contract between you and an insurance company. You pay them monthly, quarterly or yearly (these payments are called “premiums”) and in exchange, they’ll cover costs in certain kinds of emergencies (what they agree to cover is called “coverage”).
Business insurance can cover everything from damage from fires and natural disasters, to theft, to legal costs. And each package can be tailored to your business’s exact needs.
Most insurance companies will ask you to pay a certain amount of damages before their coverage kicks in. This amount is called a “deductible.” Generally speaking, lower deductibles are good and higher deductibles are bad, but a lower deductible does mean you’ll pay more in premiums.
We’ll get into the finer points later. But now, let’s talk shopping—step by step.
Step 1: Have a Reason to Buy Business Insurance
There are two main reasons to have business insurance: It covers your backside in an emergency, and it helps your business grow. That means whether you’re flipping houses, selling quilted holiday potholders, or taking your friends’ grad pics in your spare time, business insurance is for you.
That said, there are times when having business insurance is especially necessary. Here’s a breakdown of common signs that you need business insurance, STAT:
You’re selling a risky product or service: In short, does your business open you up to a lawsuit? Food service, personal care products (like homemade soap), construction and car repair are all examples of niches where unhappy or injured customers can cost you thousands or millions in court.
Your business is a primary source of income: When your side hustle becomes a serious-dough-hustle, you need business insurance. If a fire or theft wipes out your business, you could be worse than SOL—luckily, an insurance payout protects you.
You operate a storefront or workspace, or own expensive equipment: Similar to the above, if your business owns or leases anything that’s worth serious money (including cameras, for all you photogs out there), you need insurance. Banks and landlords will often require you to have insurance before you buy or rent property, anyway.
You have employees: This is for two reasons. Your employees will depend on the paychecks you write them, so you should protect your business from emergencies. And because if they get hurt on the job, you could be on the hook. Workers' comp is a type of business insurance specifically designed for your employees. More on that later.
Step 2: Decide What Kind of Business Insurance You Need
Business insurance is never just business insurance. It’s an umbrella term for many different kinds of insurance, just designed for commercial use instead of personal use. (This is why the topic is so mind-boggling and confusing to the uninitiated.)
Some types of business insurance are important to all businesses, while some are only necessary for a few. Here’s a breakdown of common kinds of business insurance and what you need to know about them:
Commercial property insurance: This covers damage to your business’s physical assets, from buildings to inventory to your customers’ personal items. Fire insurance is its most common component, but it can also cover theft, natural disasters, riots and more.
Commercial liability insurance: This covers legal costs and expenses. It’s actually the most critical component of business insurance, though commercial property insurance is better known. Even if your business is tiny and has little property to speak of, you can benefit from liability insurance.
Commercial auto insurance: If your business owns delivery vehicles, catering trucks or any other kind of business vehicles, you need commercial auto insurance. The key is that your business needs to own the vehicles, not you. If it’s your personal vehicle, your personal auto insurance should cover it.
Workers’ compensation: This type of insurance is relatively cheap and has a big payoff. If an employee gets injured on the job, it pays their medical expenses and covers disability-related expenses. It’s both a good thing to do for your employees and a smart business decision. Otherwise, you could be liable for those costs yourself, depending on the injury.
“Bonded” insurance: When a business bills itself as “bonded and insured,” it means that it has liability coverage in case its employees steal or damage something. This is very common for custodial and security services to carry.
You don’t need to parse this yourself. Business insurance (especially small business insurance) is often sold in packages designed for certain types of businesses, from wedding photographers to RV sales lots. Your agent can help you look for a package that you can tailor to your needs as you grow.
Step 3: Fill Out an Application
Now it’s time for the nitty gritty of how to get small business insurance. Business insurance is based on a giant math problem. Companies make an educated guess about how likely your business is to get into a scrape based on its niche, size, fire risk, location and a bunch of other things.
To do this math, companies need your info. Fill out an application online or in person (if you’re old-school like that) so they can figure out what insurance to offer you. Not sure what to put down? An insurance agent can help, and they will often offer to fill out the application for you.
Step 4: Research Insurance Companies
Once you’ve decided what types of insurance you want, you’ll still likely have to choose among a few different insurance companies (or “carriers”). Qualities to compare between carriers include:
Business insurance discounts: Discounts lower your premiums. Carriers offer all sorts of discounts, from common ones like military and veteran discounts to more niche ones like discounts for fire safety. Don’t be shy about asking what discounts a company offers and which discounts have already been applied to your quote.
Company size: Would you prefer a mom ‘n’ pop shop on Main Street or a sleek high-tech corporation? There’s no right answer, just your preference, but be sure to factor it into your decision.
After-hours support: Check out a carrier’s website to feel out their hours and claims support options. Many business insurance companies offer 24/7 claims reporting, but their hours for regular customer support with your bill or policy may be much more restrictive.
Step 5: Compare Business Insurance Prices
Before you make it official, double-check that you’re paying a fair price. Things that push costs higher include flammability, liability and size. If you run a large carpentry shop that exclusively makes baby furniture, you’ll likely pay a lot! On the other hand, simpler, smaller businesses will typically pay less.
Small business insurance costs start at a few hundred dollars per year for tiny businesses, and can go up into the thousands or tens of thousands for riskier, larger businesses. And mega-corp business insurance costs range into the millions.
Remember that your business insurance premiums are an investment in your business’s safety. It’s easy to begrudge that monthly or yearly cost until a lawsuit, hurricane or other disaster strikes. That’s when your insurance gets to step into the spotlight and strut its stuff.
Step 6: Seal the Deal
Once you’ve picked a quote, finalizing your insurance is as simple as dotting the i’s and crossing the t’s on your signature. Congrats! You did the thing. Whether you simply changed insurance companies or bought insurance for the first time, we salute you.
Step 7: Cancel Your Old Policy, If You Had One
Starry-eyed over your brand-new, super-awesome policy? Enjoy the honeymoon, but don’t forget to break it off with your old beau, too. Luckily, your new insurance agent can deal with it for you. You’ll usually be required to put the cancellation in writing for legal reasons. Once that’s done, you’re free.
Step 7.5: Install Safety Features—It Can Save You Money
Did you know that installing sprinklers, security cameras, and more can save you money on premiums?
This kind of business insurance discount can be explicit or subtle, but the safer you make your business, the lower your costs can go. Your insurance company doesn’t want a disaster and neither do you, so your interests align.
The Benefits of an Independent Insurance Agent
Independent insurance agents are the super-duper, not-so-secret life hack for buying business insurance. They work for you, not the insurance companies, so they can find the right company with the right prices for you. They’ll also help you with the boring parts of the application process.
Their help doesn’t stop there, either. If disaster strikes and you need to make a claim, they’ll help you meet deadlines and file paperwork so you can maximize the benefits you’re entitled to.