Insurance Strategies for Small Business Owners: Protecting a Company’s Future

· Learn about the right mix of insurance policies for your business, including safeguarding against emerging risks

· Sufficient insurance can be a cornerstone of growth, instilling confidence across stakeholder groups

· Find out how to save money when shopping around for plans and why a risk management strategy is critical in today’s economy

Do you know about that thing called the “success” tax? No, it’s not some new law struck on Capitol Hill or a would-be estate planning nightmare. It is the reality that you as a profitable small business owner must face. What I’m talking about here is insurance – protecting against all kinds of knowns and unknowns that can sneak up and essentially steal what you’ve worked so many years to earn.

Safeguarding your business and mitigating against liabilities becomes increasingly important the bigger your net worth grows, and the same goes for your company. Let’s roll through the insurance policies you should consider purchasing to protect your business and keep you on the path toward thriving over the long haul. We’ll wrap up with actionable tips when seeking various policies.

1. General Liability Insurance

Most long-standing companies have this one covered, but if you are new to the scene or have been operating a solo practice with limited services, perhaps you haven’t bothered with general liability insurance. Just about every client-facing business should have it and even firms with modest physical demands need it.

A general liability policy covers claims of bodily injury, property damage, and personal injury that come about during daily operations – areas that can devastate a business’s financials and even your personal wealth. This is the foundational insurance coverage type to thwart the risk of lawsuits and costly accidents. Ensure the policy you choose is large enough to cover any reasonable potential claims.

2. Property Insurance

Another area high on the protection pecking order is your company’s physical assets. If you own or lease space then property insurance reduces the risk of losses due to fire, theft, natural disasters, and more. For busy small companies, a temporary production halt due to breakdowns or other events can have dire impacts, even resulting in customers losing confidence, and then opting to go elsewhere.

You should also consider business interruption insurance to help replace lost income if you are forced to shutter for a time due to events outside of your control.

3. Workers’ Compensation

Workers’ comp is often not a choice – it’s mandated by state law if you have employees. Still, ensure that those on your payroll are classified correctly to avoid overpaying or underinsuring. For background, workers’ comp covers medical expenses and lost wages in case any employee is injured on the job.

You can go a step further, though. Check into return-to-work programs aimed at getting employees back in business sooner. Such a provision can reduce long-term costs too.

4. Professional Liability Insurance

This is another key policy entrepreneurs in the services industry should procure. Also known as errors and omissions (E&O) insurance, professional liability coverage protects you from a mistake or oversight that does material financial harm to a client. It offers financial support to cover any legal defense expenses and adverse settlements.

All white-collar small business owners must carefully assess their E&O coverage needs. Accountants, lawyers, real estate agents, consultants, and others with advisory roles should have this protection. Many contract-based roles require professional liability, so not having it can even prevent you from landing new business.

5. Cyber Liability Insurance

It’s a reality that financial fraud is on the rise. Would-be scammers continue to conjure up new ways to steal from successful small businesses lacking proper protection. Cyber liability insurance is a shield against data breaches, payment fraud, and even reputational risks. A robust policy pays for cybersecurity alerts, and legal fees; some even go so far as to support public relations campaigns to restore a business’s name.

For specific coverage options, you can purchase first-party insurance that protects against financial losses from a data breach or a third-party policy that covers claims made by clients or business partners affected by a hack.

6. Commercial Auto Insurance

Companies with significant physical assets and transportation obligations should have ample commercial auto insurance coverage to protect their vehicle fleet. Solvency can be in jeopardy due to just one accident on the road or job site.

The coverage scope is important – ensure your policy covers employees who use a vehicle for work. Moreover, if you have many vehicles to insure, then opting for more comprehensive fleet insurance might make more sense.

7. Business Owner’s Policy (BOP)

Rather than piecing together a range of policies, you can combine them into a single insurance plan. A Business Owner’s Policy typically includes general liability, property insurance, and business interruption coverage. Taking the bundling approach might save you a few bucks and it streamlines insurance needs so that you don’t have a litany of policies to always update.

What’s also ideal about BOP insurance is that many carriers allow small business owners to tack on unique riders and endorsements geared toward their situations. It’s something to consider as your company’s responsibilities and liabilities grow.

8. Key Person Insurance

This is all about you, the business owner (and maybe a few others within your company). I work with many entrepreneurs running highly profitable businesses who prefer to be hands-on, but relying on a single person across the enterprise presents its own risks. Key person insurance is often needed when an individual (usually the founder or a partner) is so vital to the firm’s success that it would be in financial peril without them.

Key person insurance pays out if a critical member of your team passes away or becomes incapacitated. It is used to cover lost income, recruit a replacement, or provide an income stream during a leadership transition. While key person insurance can make sense, taking measures to diversify the business from relying so much on a few folks helps foster better odds of long-run success.

The Why Behind Insurance

Financial protection is not something most aspiring small business owners think about first when building their empire, but seasoned CEOs know that limiting downside risk is often priority one. Sufficient insurance coverage not only delivers a layer of financial security but also helps entrepreneurs sleep easier at night knowing that a single mishap or external shock won’t lead to financial ruin.

Also realize that many jurisdictions and industries now require baseline insurance policies, and not having them can damage your credibility in your field. Thus, all stakeholders – you, your clients, your workers (and their families), and potential lenders – benefit in some way from your company having adequate insurance coverage.

Cost-Saving Strategies for Small Business Insurance

Stacking policies is no small or inexpensive task. The good news is that there are several ways to bring down the total bill:

· Bundle policies: Combining policies within a BOP may result in a discount.

· Shop around: Don’t rely on a single provider but get quotes from multiple insurers and compare rates. Teaming with an independent insurance agent might help.

· Raise deductibles: Lifting deductibles reduces premiums and might make the most sense if you only seek to protect against catastrophic events and are willing to foot the bills for small to moderate incidents.

· Craft a risk management plan: Dedicate part of your business to improving workplace safety and fostering an environment of prudence and industry knowledge, such as making sure that all employees are in the know about the latest cybersecurity threats.

· Review and update: As the business grows, so do your risks. Make it an annual task to look at your policies with a fresh set of eyes and make necessary adjustments.

The Bottom Line

No two businesses are the same, but most small-company owners face a similar set of risks that require protection against. While nuances exist by industry, location, size, and business structure, there are certain must-have policies. The ideal mix of insurance plans not only provides financial security but can also support business growth and help you retain quality talent. They say defense wins championships, and executing the right insurance strategy can help you run up the financial score in your favor.