Knowing how much insurance you will need as a small business owner can be a challenging endeavor. Nevertheless, having the appropriate insurance policy can save a small business a lot of money.
Needs analysis can give you a better idea of what kind and how much insurance would be the optimum for your business. Of course, buying liability, property and health insurance, in addition to Workmen’s Compensation, can be quite expensive, so assessing your business’ needs and what kind and how much insurance can be crucial.
Evaluating Your Business
The first consideration when using needs analysis for deciding on an insurance policy for your small business consists of accurately analyzing the different liabilities and assets which directly affect the business. These include:
Property — this includes equipment, real estate and other assets.
Business Volume — the amount of accounts receivable and the average cash flow of the business.
Salaries — how much you pay yourself and however many employees the company has.
Overhead — the cost of running the business including rent, utilities and other miscellaneous expenses.
Future Trends and the Local Economy — how future trends and the state of the local economy will affect the business in the future.
You can then better determine your company’s insurance objectives and what type of insurance plan would be optimal for your business by keeping the above factors in mind.
The second consideration for your insurance needs involves estimating your business’s potential for losses. This includes fire, theft, property damage, an employee’s legal action or losses due to economic hardship.
Getting the Right Amount of Insurance
Once you have evaluated your assets and liabilities, you will be much better prepared to determine how much insurance your company will need. You will want adequate coverage for your assets so make an accurate assessment of potential risks to your property to get adequate coverage.
Remember, a high premium will provide a higher amount of coverage so be aware of potential risks and make sure your business is covered for any high risk factors. Also, if you choose a higher deductible, you will probably pay less for your policy. Make sure you get the right amount of insurance depending on what your company can afford.
By law, your business will need Workers’ Compensation insurance. Consult with your company’s lawyer or advisor on how much your company may need and what type of package would be optimal for you and your employees.
Comprehensive coverage might be optimal for your business if you have several employees and own the business property. Group health and life insurance along with disability, property, flood and fire insurance can often be included in your policy.
Choose a Reliable Carrier
A reliable insurance company and an experienced agent can be an important element to obtaining the right amount of insurance for your business. A knowledgeable agent can help you perform your needs analysis, and can sometimes speed up the claim process, if you need to make one.
Also, choosing an insurance company with a good reputation and solid finances will give you greater peace of mind if any unfortunate event befalls your business. The last thing you need if you have to make a claim is an insolvent insurance carrier.
Finally, have your business appraised periodically to gauge how much insurance you will need on an ongoing basis. Since business finances and assets change over time, the amount of insurance you might need can also change.
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.
Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.
AGAINST ALL RISKS — AAR
FINITE RISK INSURANCE
BREAKING DOWN ‘Insurance’
There are a multitude of different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them, for a price. The most common types of personal insurance policies are auto, health, homeowners, and life. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.
Businesses require special types of insurance policies that insure against specific types of risks faced by the particular business. For example, a fast food restaurant needs a policy that covers damage or injury that occurs as a result of cooking with a deep fryer. An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives. There are also insurance policies available for very specific needs, such as kidnap and ransom (K&R), medical malpractice, and professional liability insurance, also known as errors and omissions insurance.
Insurance Policy Components
When choosing a policy, it is important to understand how insurance works. Three important components of insurance policies are the premium, policy limit, and deductible. A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs.
A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness. For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies; so, finding the price that is right for you requires some legwork.
The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a general life insurance policy, the maximum amount the insurer will pay is referred to as the face value, which is the amount paid to a beneficiary upon the death of the insured.
The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy.
Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims. In regards to health insurance, people who have chronic health issues or need regular medical attention should look for policies with lower deductibles. Though the annual premium is higher than a comparable policy with a higher deductible, less expensive access to medical care throughout the year may be worth the trade-off.