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If you're starting a business or working for yourself, you might not think that you need business insurance -- but given today's risks, insurance is an area that every small business operator or sole proprietor should be concerned about.
Just what are the risks and what types of insurance should you be considering?
"The insurance that you need depends upon the type of business that you operate," said Mike Barton, president of US business insurance for Allstate Insurance.
For example, a contract software developer who works on-site at her client's will have different risks than a day care center operator who runs a business out of her home, or the owner of a courier service that delivers 24/7 to locations throughout a large metro area.
"Regardless of the business that you're in, a general liability insurance policy is a good place to start," said Kevin Hayward, an Olympia, Washington-based agent for State Farm Insurance.
A general liability policy provides a robust protective foundation for your business. "If you're hosting a house party for the sale of cosmetics and someone slips and falls, this won't be covered on your homeowner policy," said Hayward, "But a business general liability policy does cover these incidents."
Or take a hairdresser who works out of her home: The plumbing in her home salon springs a leak and part of her home is destroyed. "This is an activity that occurred as part of the business, so it wouldn't be covered under a home insurance policy," said Barton. It would be covered under general liability insurance for the business.
Types of business insurance
"By law, we are required to carry malpractice insurance, but I also carry workers compensation insurance, general liability that protects against incidents such as a patient slipping and falling and disability insurance that protects me if for some reason I become disabled and cannot work," said Dr. Mark Eberle, a New York rheumatologist.
Randy Foster, president of The Artisan Group, a construction and design firm in the Pacific Northwest, agrees that general liability and workers' compensation policies are critical. "We also carry an automotive policy since we are in the field, in addition to an errors and omissions policy that covers any professional liability for the design work we do," said Foster.
Both Eberle and Foster said that when they started their businesses, they just called around to find out about insurance. Since then, they have learned more about it and are in a better position to tailor the insurance that they buy to fit their needs. "That was the key," said Eberle, "Understanding your business and what types of coverage you really needed."
Besides general liability, other types of insurance that small business operators should consider are:
Business property insurance
"Dentist offices are one example where personal property insurance can be very important," said Barton. "Four or five dentist chairs, artwork and X-ray machines are very expensive to replace. This is why you want coverage."
Income loss insurance
If a tree falls through your shop and your business is interrupted, income could stop while the building is being repaired. Commercial business insurance companies offer income loss insurance that can typically range from one to six months of income in duration.
Errors and omission insurance
"For lawyers, accountants and insurance agents, commercial liability policies are not going to cover you if you make an error or omission in your work for a client," said Hayward.
Data compromise insurance
"We've all seen small businesses use micro card swipes in their offices or keep client records on their desktops," said Barton. "What if that data is stolen or compromised? Large companies pay tens of millions of dollars to protect their client data. Companies with only 20 clients have the same exposure."
"You might not need cyber insurance if your business is baking and selling cupcakes, but if you do research or carry digital records of your customers and your computer is hijacked by ransomware, you have exposure," said Hayward.
The best value
Both Barton and Hayward recommend that small business owners shop for a business insurance policy "package" that can cover most of their insurance needs if they want to get best value for their money.
"The premium you pay for the package depends upon your business, but for many small business owners, the premium cost is no more than $500 a year," said Hayward.
These business insurance packages include general liability and also BOP (business owner personal liability) protections. "The package gives purchasers a set of robust coverages that cover a wide range of risk and is highly affordable," said Hayward.
Mistakes to avoid
What mistakes do businesses make when they shop for insurance?
"Undervaluing personal property and inventory that is used in the business and that would not be covered in your home insurance policy is a mistake that many business operators make," said Barton. "When you undervalue inventory and personal business property, you create exposure for yourself if something happens."
"Finding an insurance agent who understands your business and what you are trying to do is important," said Hayward. "If you have a good working relationship with your agent, you have someone who's on top of the market and who can clue you in on new coverages and coverage changes that could be helpful. It is also important to see your agent annually to ensure that all of your policies are updated for your business."
A person you can trust
According to Allstate's Barton, one-third of the American workforce is in the small-business sector. "This was never the case before, when most people worked for larger companies, but there has been a definite shift," he said.
These small business owners must do everything -- from making products, selling and performing customer service to keeping the books and securing the right types of insurance. Most small business owners have no "backups." They operate lean, and there are only so many hours in a day that they can work.
This makes it easy to miss or skip insurance that is important for your business.
"Regardless of your business, it is up to you to evaluate the risks," said Hayward. "A knowledgeable insurance agent who understands your business can help with this, which makes it important to find a person you can trust."
One good way to find a knowledgeable insurance agent is to ask others that are in your business for recommendations. Another option for small business owners is to shop for business insurance online.
There are online business insurance quote portals, like TechInsurance, that you can use to compare insurance offerings and rates.
The caveat is that you must first do your own research into your business and what its business insurance needs are, because it will be you who will be making the choice as to what insurance coverage you will have.