Guest Post :: Starting and operating a business can feel like navigating a minefield. Risks are almost always underfoot, even when things are going well, and they can be difficult to spot before it’s too late. Couple that with the amount of time and money you have to pour into your business, especially in the early stages, and the whole ordeal can feel like you’re walking a pretty fine line between success and failure. Finding just the right insurance policy can help you secure your business and mitigate the unavoidable risks associated with starting a business.
Purchasing insurance can make just about anyone break out into a cold sweat, but there’s nothing riskier than entering into business without protecting your financial future. This, of course, begs the question: How can you be sure you’re actually purchasing the right insurance policy for your business? We’ve laid out 5 questions to help you make a more informed decision when searching for the right insurance policies:
1. How do you interact with customers?
Consider in what ways your business connects with customers. On the highest level, this involves the basics of how you conduct business (e.g., physical store, online store, etc.), but it can extend beyond just how you make sales. Do you have a social media presence for your business? Do you collect customer data for remarketing purposes? These are all methods of interacting with customers and potential customers, and all things to consider when determining which insurance policy you should purchase.
General Liability and Business Owners Policies are some of the most commonly purchased types of insurance, since they’re designed, in part, to mitigate risks related to “third-party claims.” General Liability insurance primarily covers claims related to third-party personal injury (bodily injury or property damage,) while a BOP combines these benefits with Commercial Property coverage to help protect your physical property from loss events. So, while a BOP may be key for business owners with a storefront or valuable equipment, a General Liability policy may be more appropriate for those working from home.
For example, if you interact or engage with your customers physically, such as through selling baked goods from a corner store, someone may claim they received an injury while inside your store or an illness because of your products. This is certainly not an unlikely scenario. Remember the hot coffee incident that McDonald’s had to deal with in the early 1990’s? A jury initially awarded the burned customer $2.9 million.
Undoubtedly, McDonald’s had insurance policy. However, this should also be a warning to those who own an online business — you many not be fully safe from such claims either, especially if you sell physical items.
2. Do you have a storefront?
If you utilize a physical store to conduct business, you should strongly consider one of two coverage options: a Business Owners Policy, or the combination of a General Liability policy with a Commercial Property policy. As stated earlier, a BOP will combine the benefits of General Liability and Commercial Property coverages.
Commercial Property coverage is designed to protect your physical assets. When you possess a physical storefront or operating space, your property risks increase. This includes the risk of theft, damage from fires or other loss events unique to having a physical store. In the case that you don’t own the property your business utilizes, you’ll want to check whether your lease requires a minimum level of coverage, as this is a common contract feature. In addition, you should note that certain events are not usually considered to be covered, such as earthquakes or floods. If you operate from a location that’s prone to these sorts of risks, you’ll want to explore additional coverage.
Perhaps one of the least known benefits of a Commercial Property policy is its coverage of more than just the building you work in. Equipment needed for your business is included as well. Even the tables and chairs you use for your business can be covered under this insurance policy, assuming there was damage from a covered incident.
3. How many employees do you have?
As your new business grows, you may need additional employees in order to make your business run efficiently, or you may begin hiring in order to drive growth. Workers Compensation is particularly important to consider in these cases, especially if you run a business where your employees may be taking on tasks that involve physical risks. Any business can purchase a Workers Compensation policy, although some businesses may be required to purchase one by state law (depending on the states you operate in). Although the requirement is often determined by the number of employees you have, some states require sole proprietors to carry this coverage. It’s important to check your state’s requirements to stay in good standing with the law.
Workers Compensation insurance helps mitigate the financial risks that occur when a worker is injured on the job. Without this insurance policy, an injured employee may sue your business for lost wages and medical expenses, something your business may not be able to afford out-of-pocket.
4. Do you use a vehicle for your business?
If you run an online business that operates completely out of your home, or a physical property that only accepts deliveries but never makes them, you most likely won’t need a Commercial Auto insurance policy. However, if you ever find yourself using a vehicle for business purposes you’ll want to consider purchasing this coverage. A personal auto insurance policy is generally insufficient when a vehicle is used for business purposes as, if you get into an accident while using the vehicle for your company’s tasks, a personal auto insurance policy may not cover the damages.
Whether you’re making deliveries, transporting products, traveling to see customers or any other business-related activities that require you to travel by vehicle, you’ll want to consider Commercial Auto coverage to insure against any risks involved.
5. Are you collecting personal information from customers?
It’s hard to operate a successful business these days without having an online presence. If your company operates an online store, you may have merchant accounts from integrated payment gateways that allow you to collect credit card data and other personal information. If this is your situation, or even if you store customer personal information digitally, you’ll want to consider carrying Cyber Liability insurance policy.
Cyber Liability insurance policy is designed to protect your business in the case you’re the victim of a cyber attack. Small businesses are at a high risk of such cyber threats, partly because many small businesses with online sites tend to have less security than larger organizations. Common threats generally include cyber attacks in which credit card data and other personally identifiable information is compromised.
A majority of businesses go out of business within 6 months of a cyber attack and, unfortunately, many businesses incorrectly believe that their other insurance policy protect them against these types of online threats. If you maintain an online presence for your business and/or store detailed information on users and employees, Cyber Liability insurance should be a consideration to help cover the very expensive cost of a data breach.
Educating and assisting shoppers with financial products has been Maxime Rieman’s focus, which led her to joining CoverWallet, a startup dedicated to simplifying insurance for small businesses. Previously, she launched the personal insurance team at NerdWallet, and helped create an innovative brokerage comparison product.