Assembling the Solopreneur’s Team of Advisors, Part 3: The Insurance Expert

The following is adapted from The Aspiring Solopreneur: Your Business Startup Bible.

Welcome to part three of four in our series on finding the right team of advisors for your solopreneur journey. We’ve looked at the accountant and attorney.

Today, it’s all about the insurance expert. Insurance can be more expensive than most people realize, potentially consuming up to 30 percent of revenue or more when all the types of insurance a business owner needs are taken into account.

Of course, the insurance you need depends on the type of business you are in. Insurance costs are something that many solopreneurs don’t take into account.

Sure, sometimes insurance is just a blip on the radar, but other times it has a major impact. If you’re not prepared, you may have to drastically raise your prices to cover your insurance costs. Identifying your insurance requirements can be a key step in determining the financial viability of your solopreneur endeavor.

The challenge is that there are many different types of insurance. As a solopreneur you can choose not to purchase some of these types, but it really takes a trusted advisor to help you figure out the pros, cons, and risks involved. Let’s walk through the different types of insurance, see how to select what you need, and see home questions you should ask of insurance experts before you decide to hire one.

Types of Insurance

All solopreneurs can expect to purchase some type of insurance. What type will depend on the type of business you’re getting into and your individual appetite for risk.

For example, you may need insurance to replace what you had before as an employee, like auto and health insurance. If you get an office or retail space, your lease may define insurance you have to get. You may need liability insurance if you drive a business vehicle, or you may need errors and omissions insurance. The list goes on!

And unfortunately, a lack of insurance can present expensive challenges. Here are several types of insurance you may need to carry. Remember, the policies themselves can be very complicated. It’s difficult to understand what’s cover and not covered in each policy, so having an agent you can trust is important.

Errors and Omissions Insurance

We live in a litigious environment where you can be sued without necessarily having done anything wrong. Also called professional liability insurance, this type protects you in the event of an issue that wasn’t your fault, or you made an honest mistake. Having a discussion with a professional to see if this applies to you is important.

Most professional service solopreneurs have errors and omissions insurance and it can help cover when someone goes to sue a solopreneur directly for work they have done. In the event there is a loss, the insurance companies have their own attorneys and it’s not uncommon for them to sue everyone associated with the incident—right or wrong. If you don’t have insurance, this legal jousting can be very costly and time-consuming. If you do have insurance, their attorneys will get on the field and bat for you.

In most business environments, errors and omissions is not very expensive unless you’ve had to make multiple claims, or work in a high-risk industry. Ultimately the decision may come down to what you have to lose. If you’re young with student loans and hardly two pennies to your name, suing you won’t amount to much of anything and you may choose but don’t necessarily need insurance.

However, if you own a home, have a 401(k), and have money set aside for your kids’ college funds, you wouldn’t want to risk losing that and will likely invest in insurance.

Commercial Auto Insurance

If you drive a car for business purposes and have an accident, technically your business may be held liable because you were driving for a business-related activity. If you are deemed to have been working, the business can be liable for damages related to the accident. Make sure that your auto insurance matches the needs of your business.

General Liability Insurance

General liability insurance typically helps protect in instances of accidents, such as when a customer slips and falls on the premises. Depending on your coverage, this insurance can help cover anything that arises out of the work you do, or at your premises, that is out of your control. Talk with your insurance agent to clearly define exactly what you’re looking for and what you need.

Business Interruption Insurance

Many people don’t take this into account, but you may want to consider business interruption insurance. If you are the family’s sole breadwinner, what happens if you get hit by a bus? What happens if you are suddenly disabled? Your clients, the bank, and other institutions may or may not care, but you still may have loans and other payments to make. This insurance can help pay those bills. The types of business interruption insurance can vary from policy to policy, but they are intended to keep you afloat as the sole breadwinner in your family. Like all insurance, you hope you never need it!

Worker’s Compensation

Worker’s compensation is intended to help reimburse an employee for any injury that they sustain during the course of their employment, including any permanent disabilities and lost wages. It can be costly in certain higher-risk industries.

I realize as a solopreneur you will not have employees. In many cases you may choose to opt out of getting this type of insurance, however, depending on the business structure you set up, you may choose to be an “employee” of the business entity that you establish. As such, you may choose to pay for this type of insurance in the instance you potentially get hurt. Put on your investor and manager hat, talk to an insurance expert, and determine if you need to cover the technician.

Health Insurance

Health insurance can be a moving target, especially when self-employed. I have seen my own personal health insurance premium increase by 200 percent in two years and our deductible increase by $5,000 to over $13,000 annually. Covering your own health insurance is difficult but not insurmountable. You will need to factor it into your business expenses and do your research ahead of time before you jump ship. There are counties in some states where you can’t even get independent insurance unless you are part of a larger organization, so be sure to investigate what health insurance is available.

As a solopreneur, it’s important to be aware of health insurance rules and to stay on top of regulation changes. Communicate with trade associations and ask all of your advisors, “How would you recommend I handle my personal health insurance?”

Health insurance can often be used as a tax write-off—meaning you can pay for the insurance as an expense before paying income taxes on that income—but you still need the business to be profitable to pay for it. Cheaper plans make your deductibles extremely high and you will have to be prepared for that additional expense if you need it. You may be healthy and think that you will never require hospitalization.

Great! Stay healthy, but you should still be prepared for the worst.

Determine Your Insurance Needs and Find the Right Expert

Add the best possible insurance person to your advisory team. As with the other experts, when you’re on your search for your agent, you will want to ask if they have experience with your industry and have current clients buying this type of coverage.

Ask who else you should speak with and what you should be looking out for. Ask if they work with small businesses. They may not, in which case you can ask for a referral to someone who does work with small enterprises. I know a fair number of insurance agents who would prefer not to take certain small businesses on as clients, and that’s OK. Make sure to find the right agent who fits with you and shares your values—like every other business advisor on your team.

Most insurance agents are, at the heart of it all, helping people. As you meet with prospective agents, the good ones will know their product and also be focused on business development. They will also likely be great salespeople, which means that they’re natural connectors. Ask them who you should be talking to and connecting with.

As you build your advisory team, you will start to understand the components necessary to build and operate your business. Insurance will be a part of the big picture, and you must look at all the applicable costs. Figure out your need to haves, should haves, and nice to haves in terms of coverage for your particular field. Need to have could be insurance that the government, a landlord, a leasing agency, or a bank requires of you. Should have could be the errors and omissions insurance. Nice to have could be the disruption of work insurance mentioned above.

Insurance agents can be like attorneys in that they’ve seen everything that can go wrong. Always begin by asking, “What is the minimum coverage that I absolutely must have that is required by law?” If it is required by law, ask what it is and how much it costs. Can you opt out of any of them, and if so, what are the ramifications? You can build from here based on your comfort level and needs.

Questions to Ask When Interviewing an Insurance Expert

When you find insurance experts you’d like to interview, you can use these questions as a starting point. Make sure to include any questions you’ve developed from talking to other business professionals, potential clients, and advisors:

• How many of your clients are sole proprietors or solopreneurs?
• How many of your clients are in my industry?
• If you were in my shoes, what would you be asking?
• What should I look for in an insurance agent?
• What do you see as the challenges or pitfalls that I need to avoid?
• How do you get paid?
• What should I budget for insurance fees—startup costs and ongoing expenses?
• Do you know anybody in my industry that I should talk to?
• Do you know anybody looking for more of this type of work that I could talk to?
• Who else should I talk to?
• What other questions should I be asking?

Three Down, One to Go

We’ve now looked at three advisors for your all-star team: the accountant, the attorney, and now the insurance expert. Our final article will focus on the banker—stay tuned!

For more advice on finding your team of advisors, you can find The Aspiring Solopreneur: Your Business Startup Bible on Amazon.

Kris Kluver is a seasoned solopreneur who started his first company at age nineteen in Omaha, Nebraska. Since then, he has been directly involved in the creation, operation, growth, and occasional sale of more than twenty successful businesses ranging from commercial real estate development and management to content marketing and daily social media operations. A former business broker and mentor, Kris has seen the inner workings of hundreds of businesses, some good, some ugly, all interesting. Through his many experiences he has gained a unique understanding, appreciation, and love of solopreneurship.