According to reports, 75% of small businesses in the U.S. are underinsured by 40% or more. This means that only 25% of small businesses have the recommended level of coverage. Adequate small business insurance is essential for protecting your business, yourself, your clients, and your employees.
Without the right coverage, you run the risk of facing potential business failure—not to mention personal bankruptcy. So why is it that 44% of U.S. businesses have no coverage what so ever? Why are so many business owners running this risk?
One of the reasons for this is that many business owners don’t know the importance of insurance. Another is they feel at sea in the insurance shopping process.
What coverage should I take out? Is cheap coverage enough? Am I required by law to have insurance—and if so, which type?
If you’re on the hunt for business insurance coverage and want to know the answers to these questions, then keep reading. We are about to do a deep dive into the top 6 reasons why you should buy small business insurance (as well as one bonus tip), so don’t go anywhere.
1. Why Get Small Business Insurance?
One of the first considerations around small business insurance is, why get it? What are the reasons for taking out business insurance, and what are the benefits.
To start, business insurance protects your business from the unexpected. Business insurance is designed to help you manage your business’s risks. These include things like:
- Legal disputes
- Employee claims
- Business interruption
- Property damage (such as fire, theft, floods, etc.)
- Business vehicle damage
- Equipment loss
These are just a few of the main risks that business insurance can provide coverage for. All of the above risks have the potential to land your company in hot water.
Small Business Insurance and the Financial Picture
In many cases, the financial implications of things like legal disputes, employee claims, business interruption, etc., can be so large that you might not be able to cover them. This can leave both you and your business in serious trouble. In some cases, you may be forced to close; in others, to file for bankruptcy.
Even if you can cover the loss, damage, or claim—your business will still be facing unplanned costs, which could negatively influence operations. Besides keeping your business safe from disaster, small business insurance can also help you grow your company.
For one, having insurance will help when and if you look for a business loan. It’s often much easier to qualify for things like a business line of credit, equipment financing, or a long-term loan if you have insurance. Having insurance shows lenders that your business is covered against risk, and therefore has a better chance of surviving and repaying its loan obligations.
Besides helping you with being approved for financing, business insurance can also win you more clients. With many types of businesses, it’s in the client’s interest that the company they pick is fully licensed, insured, and bonded. For instance, if you run a general contractor business, having third party insurance assures clients that should any mishaps occur on the job, they won’t be the ones left paying the bill.
2. What Insurance Am I Legally Required to Have?
Another important consideration when looking into business insurance is what types you are legally required to have?
To start, federal law requires all businesses that have employees to have:
- Workers’ compensation coverage
- Unemployment insurance
- Disability insurance
Besides these basic coverage types, your state might also require that you take out additional insurance. The best way to check what the insurance requirements are, is to visit your state’s website. You can find a list of state websites here.
3. What Type of Small Business Insurance Should I Get?
Besides figuring out what small business insurance coverage you’re required to have by law, you also want to find out what other coverage your business needs to limit its exposure.
The term “business insurance” is a broad one and encompasses a wide range of coverage options designed for different needs. You need to find out which coverages are the most important ones for your business. Some of your options include:
- General liability insurance
- Commercial property insurance
- Professional liability insurance
- Product liability insurance
- Fire and theft insurance
- Equipment insurance
Depending on the type of business you own and the industry you’re in, you may need one or more of these coverages. General liability coverage is a great place to start, as it covers things such as legal disputes, third party damage, second party property damage, slander suits, etc.
However, depending on what’s required, you might also want to take out coverage that protects your business’s commercial real estate, equipment, etc. In some cases, you may want to take out a bundled insurance option, such as a business owner’s policy.
4. Are Package Policies Worth It?
Package policies consist of various small business insurance coverages rolled into one package. Business owner’s policies are an example of bundled packages.
If you need multiple types of coverage (as many businesses do), package policies are often the most cost-effective option. By taking a bundled option, you will typically pay less per coverage type than you would if you took them out individually.
The only drawback to bundled policies is that you need to do a lot of research to make sure you pick the package that’s right for you. Otherwise, you might end up with too little coverage in some areas or paying more than you should because the package includes coverage you don’t really need.
5. Do I Need Small Business Insurance if I Own an LLC?
A common question among business owners is, “Do I need small business insurance if I own an LLC?”
Limited liability companies offer a level of personal protection should your business run into trouble. This is because the business’s finances are separated from the owner’s, and it is considered a separate entity. However, this does not mean that your LLC shouldn’t have insurance.
As outlined above, small business insurance protects your company from risk due to unforeseen events. While an LLC will offer protection for your personal assets, without insurance, your business will still be at risk.
What’s more, an LLC won’t protect you on a personal level from things like non-deposits of withheld employee taxes (even if it’s by accident). It also won’t protect you if a customer suffers an accident while on your property or if you have mixed your company’s finances with your personal finances.
In addition, an LLC does not protect business owners if they have acted negligently or committed a fraud. In short, having an LLC doesn’t mean that you don’t need small business insurance. If you want personal protection, you should look into personal liability insurance coverage.
6. How Much Should I Spend?
Lastly—how much should you be spending on insurance for your business?
Unfortunately, there is no one-size-fits-all solution to this question. The amount you need to spend will ultimately depend on your business’s size, how many employees it has, the industry you are in, where you are located, etc.
For instance, if you are located in Florida, you will definitely want to take out flood and hurricane coverage. However, your premium payments for this might be considerably higher than for a business located in Utah. In fact, you can expect to pay 10-20 times more in a high-risk hurricane and flood area such as Florida.
Bonus Tip: Always Compare Prices
As you can see from the above example, it’s impossible to determine exactly what you should be paying for small business insurance. There are many factors that influence what adequate coverage for your business’s needs is going to cost.
However, while you can’t easily say what you will need to pay—you can compare options to see where you can get the most value for your money. The best way to do this is to obtain insurance quotes from a variety of providers.
You will then need to compare what is included, the coverage levels, and the costs. Take note that cheaper usually isn’t better. Instead, you should be focusing on value and what’s best for you and your company.
Are You Looking for Affordable Small Business Insurance?
Having sufficient small business insurance is vital for any business’s ongoing success. It doesn’t matter how well your business is doing; if you hit an unexpected lawsuit, employee claim, or property loss, this could easily bankrupt both you and your company.
Have you been putting off finding coverage because you’re afraid of what it costs? If so, we have some good news. Providing you know where and how to look, it is possible to find comprehensive small business insurance coverage that’s affordable.
The best way to find a solution that fits your needs is to compare multiple insurance quotes. However, this can be time-consuming and complicated. If you want a fast and an easy way to compare multiple competing insurance quotes that are targeted to your business’s needs, you’ve come to the right place.
Here at Your FundingTree, we specialize in helping businesses find the solutions they need, whether it be reliable insurance or affordable business financing. Simply fill out our free application, and you will be matched with competing insurance providers.
Then, you can easily compare insurance quotes to determine which is the best fit for your business. Have any questions? If you do, feel free to get in touch, and one of our representatives will be happy to help.