Insurance. Just hearing the word sends many people reeling with thoughts of premiums and deductibles and policy details and any number of other considerations. For the average person, insurance is something to be purchased only when absolutely necessary. But for those starting a small business, insurance is something that comes up early in the process. To insure or not to insure? That is indeed the question for the small business owner.
Does a small business need to be insured?
This is the million-dollar question, and in the simplest of terms, yes, a small business does need to be insured. Those owners who forgo insurance put their organization at great risk. Many small business proprietors are working with limited budgets so they often cut corners, figuring they don’t really need to pay to cover damage that may or may not occur.
But a person doesn’t need to look far in the world of small business in order to find a story about an owner who lost his or her entire organization because of a fire, theft, employee accident or lawsuit. And oftentimes lack of insurance doesn’t just kill the business; unforeseen emergencies can eat at the owner’s personal assets as well.
Affordable business insurance
Telling someone to buy insurance is all well and good, but this doesn’t do much for the small business owner working with a meager budget who feels he or she can’t afford the insurance. Indeed, according to a study by the Insurance Information Institute, 40% of small businesses lack the requisite insurance. Forgetting for a moment the fact that not having insurance can end up costing significantly more than actually having insurance, a business policy doesn’t have to be as expensive as most owners would believe. There are affordable options out there.
One way to obtain reduced-cost insurance is through packaging. Business owner’s policies (BOPs) bundle basic coverage – for things like property and risk — in order to be able to sell policies at reasonable rates. Those who can’t afford a BOP should contact an insurance company and inquire about their various pricing plans. For example, some insurers allow for lower premiums if the business owner agrees to pay a higher deductible.
Curbing rising insurance rates
Insurance companies calculate their rates via a method called “risk analysis” – and this is a system any small business owner who wants to pay the lowest premiums possible should consider implementing. Risk analysis deals in probabilities to determine where an organization is vulnerable. The small business owner can utilize this method to ensure they don’t overpay for – or under-buy – insurance.
Some tips for proper risk analysis include:
1. Pinpoint all sources of potential loss in the organization. This includes everything from injury and fraud to casualty and theft.
2. Identify the maximum frequency in which the incident may occur and evaluate how damaging these incidents would be.
3. Eliminate the risk entirely or determine the cost of transferring the risk to an insurance provider.
These are just a few things the small business owner should bear in mind when considering how best to insure their organization. With the principal question, “should I get insurance for my small business?” being answered in the affirmative, the business owner should try to focus as much as possible on mitigating risk in order to pay lower premiums.
About The Author:
Sarah McWilliams, founder of Elite Contractors Insurance Services, offers a variety of coverage options including California contractor bonds