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Basics of Business 9: Insuring Your Business
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February 9, 2023
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Before starting your business you should thoroughly investigate business insurance. Often, small businesses ignore the importance and necessity of insurance until they have suffered a major loss. A sound insurance plan protects you and your business by minimizing the risks and reducing the uncertainties of your business.

In selecting an insurance plan, it is important that the business has all the right coverage for its specific needs at the best rates. There are many insurance companies to choose from, each with their own plans and rates. Most of them provide package deals that combine several coverages in one policy. A good insurance broker can be essential in helping select an insurance plan that is right for the business. It is preferable to have a single insurance broker who is familiar with the business for all the insurance needs.

Critical factors of selecting an insurance plan:

  • Identifying risks that need to be covered.
  • Determining the amount of loss from each risk.
  • Obtaining coverage for largest potential loss first.
  • Avoiding duplicate coverage.

Types of Insurance

There are a variety of coverages available from different companies, with differing premiums and deductions. There are, however, five major types of insurance that are considered to be essential for most businesses: key man life, liability, property, workers compensation, and vehicle.

Key Man Life Insurance A sole proprietor or a partnership should consider obtaining a key man life insurance policy at least in the amount of financing to be obtained to start the business. The insurance will protect the business in the event of death of a principal owner. This is especially appropriate in a business partnership to provide for business continuity.

Liability Insurance Liability insurance is considered one of the most important types of insurance for a business. It protects the business from financial loss due to bodily injury or property damage caused by negligence or business operations (which may include acts of the owner, acts of the employees on the job, business conditions, or defective products of the business). In some cases, businesses may be subject to damage claims even when "reasonable care" was used. Several examples of liability policies available include the following coverages: owner, product, contractor accidents, or personal injury (which includes libel and slander).

Property Insurance.  Property insurance provides protection to the owner from damage to, or loss of, property. Property losses which can be covered (some for an additional premium), include the following:

  • Equipment and inventory
  • Fire, windstorm, flood
  • Theft, vandalism
  • Explosion, riot
  • Employee dishonesty
  • Business interruption

In determining property insurance rates, insurance companies take into consideration several factors concerning the property and building, such as: location of the property and building; construction of the building; and smoke, sprinkler, and burglar alarm systems. If an automatic sprinkler system is installed, risk will be reduced, and fire insurance rates lowered.  If the building is rented, you should determine, and include in the lease documents, such coverage as the landlord furnishes then provide such additional insurance as desired.

Workers Compensation Insurance.  Workers compensation insurance provides compensation benefits to employees injured on the job. Employers failing to provide safe working conditions are liable for damage suits brought by the employee suffering injury. Employers are required by law to carry workers compensation for all employees. Premiums are determined by the state, and will vary according to the occupation of the employees and the injury history of the business. Workers compensation insurance is available from the state as well as private insurance companies.

For further information and specific requirements on workers compensation insurance, contact:

California Department of Industrial Relations
www.dir.ca.gov
or
State Compensation Insurance Fund 
www.scif.com

State Disability Insurance, which covers non-occupational disabilities, should not be confused with workers compensation insurance, which relates to work-related injury or illness. However, if the weekly benefit rate for a workers’ compensation claim is less than that which would be payable under disability insurance coverage, disability benefits may be used to pay the difference.

Automobile Insurance. Automobile insurance provides both property and liability coverage for vehicles owned by the business or vehicles used for business purposes. Several types of property insurance covering the vehicles are: collision, theft, and glass breakage. Vehicle liability insurance protects the employer from losses resulting from an employee's injuring people or damaging other people's property while operating a company owned vehicle. Non-owned vehicle liability insurance is available to the employer for employees driving their own vehicles on company business. Rates are determined by the type and usage of the vehicle, as well as the driving record of the operators.

Additional Comments With whatever insurance policy you decide to buy, make sure you have a complete understanding of what your policy entails. There shouldn't be any question marks when it comes to your policy and how to file claims. Make sure the insurance company has helped you evaluate the risks of your businesses, and has clearly outlined solutions for you. The more you know, the better your insurance company can provide for your small business. Depending on the type of business and situation, other insurance coverages, such as surety insurance, employee health and life insurance, and credit insurance can add great value and security to the business. Employee health and life insurance protects employees at times when they are most vulnerable. Employee insurance packages can include dental, vision and hearing coverage. You should consult your insurance agent regarding these special circumstances.

Here are other types of insurance that small businesses could consider:

  • Health Insurance for yourself and employees: Medical, Dental, Vision
  • Life Insurance
  • Warranties on Equipment + Appliances
  • Business Disruption or Interruption Insurance
  • Cybersecurity Insurance
  • Errors and Omissions

Health Insurance Medical, dental, and vision coverages for employees - should be at the top of the list for a small business. No matter how small a company, employees want to have coverages that take care of unexpected or unplanned life events. By offering health insurance, small businesses can take care of employees and attract quality talent. To get started on offering health insurance, I’d recommend a small business owner get in touch with an employee benefits broker to help navigate the process.

Life Insurance Small business owners should consider life insurance on multiple fronts. First off, life insurance may be a good idea for small business owners who want to see their success continue with business continuation coverage. For small businesses looking to attract top talent, group life insurance is increasingly becoming a benefit that matters to employees. Whether the perspective is from the owner or employee, life insurance is a must-have policy for a small business. 

Warranties on Equipment and Appliances Small businesses can protect themselves and their assets by knowing about their warranties and what protections they have if something goes wrong.
Small businesses see their fair share of appliances and equipment that have stopped working as intended far before their life expectancy date

Commercial Umbrella Insurance Policy Commercial umbrella insurance complements your other liability coverages by taking over when your other liability coverage limits have been reached.

Business Disruption or Interruption Insurance This type of insurance is particularly important for small businesses especially in uncertain times like ours. Businesses have been adversely affected by the lockdown and the social distancing guidelines. Business operations have either slowed down or ground to a halt. With a business interruption insurance policy, entrepreneurs can rest assured that their businesses will be shielded from force majeure of every kind. With such a policy, small businesses can manufacture products, provide services, and so on. If a lawsuit is brought against your small business because you failed to complete a project, this insurance will defend your enterprise, thereby saving you time and money

Cybersecurity Insurance Regardless of size, every business needs to have some type of cybersecurity insurance. Don’t think 'it can't happen to me'. Cyber attacks, particularly email phishing scams, happen every day to businesses of all sizes. It’s important to remember no business is too small or too big to become a victim of business email compromise that leads to a data breach and ransomware attack.

Errors and Omissions Errors and omissions insurance (E&O) is a type of professional insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions.  Anyone who provides a service requires E&O insurance including financial services, insurance agents, doctors, lawyers, and wedding planners.

Choosing an Insurance Company

The best insurance for small businesses is with an insurance company that is a small business themselves! Large corporate insurance companies are everywhere. They outsource, sell generic policies, and often don’t provide all the information the clients need to know. This can lead small business owners to feel uninformed and possibly incorrectly insured. Going through a small, independent insurance company ensures that you get a personalized policy and agents that will cater to you and your unique business needs. Make sure to check reviews before proceeding with a company. There are many ways to review an insurance company before proceeding with a policy. Review sites, Google reviews, Glassdoor, BBB reviews, and more are all online destinations where you can get a more transparent look at the inner workings of an insurance company

Check the Company Reviews There are many ways to review an insurance company before proceeding with a policy. Review sites, Google reviews, Glassdoor, BBB reviews, and more are all online destinations where you can get a more transparent look at the inner workings of an insurance company. 

Comprehensiveness Matters -The insurance company doesn’t matter as much as the comprehensiveness of your insurance plan. As the owner of a small business, there is a lot of weight on your shoulders. You want to make sure that your employees and company are fully protected so you don’t have any worry

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Basics of Business 10: Attracting, Hiring, and Keeping Google People

Your business is only as good as the people that you attract and keep. Therefore, it’s important you take the time necessary to find the right people; it will save you frustration and valuable time in the long run.

Think of the people you will hire as an investment. When you choose employees, carefully consider they will be with you for a long time and will be an essential ingredient in your success. Look for people who complement your strengths and lessen your weaknesses. Choose those with a record of success. Become familiar with the employment history of potential employees, as people

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Basics of Business 11: Location, Location

Choosing the best location for your new business is a critical decision not to be made in haste. Your first consideration for convenience and cost factors is to contemplate the possibility of running your startup company from home. With the rising number of virtual companies, it’s easier than ever to work remotely and take advantage of some home-office tax deductions at the same time. If the home-based option won’t work for you, finding a location for your small business requires doing due diligence.

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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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