How to Choose the Right Small Business Insurance

December 18, 2012

Thousands of small businesses are launched each year, but many of them don’t think about the kinds of threats they could run into.

In our DNA of an Entrepreneur study, 28% of the small business execs we surveyed admitted they bought only essential coverage, while just 19% said they were insured for any mistake that might lead to them being sued. That’s a shame, because having a the right small business insurance is often the only thing that helps keep your business in business. Profits at many small firms are slim at the moment, and they have little spare capital. So, if a problem occurs they are unlikely to have the money to fix it themselves or have the cash on hand to tide them over until they’re able to get back to business full time.

Therefore, it’s important to have the right insurance coverage, because it can provide a safety net for a fledgling firm that hits unexpected trouble. No two small businesses are the same, so, not surprisingly, their insurance needs won’t be identical either. Small business insurance today is now so flexible that it’s possible to get pretty much exactly the coverage you want for your firm. The one-size-fits-all coverage, which was a feature of the past, has been replaced by the made-to-measure policy, in which clients are offered the ability to customize their insurance to suit their needs. Many start-ups are choosing to add employment practices liability insurance to their standard small business insurance policies. This ensures firms’ defense costs are insured if employees sue them claiming negligence, harassment, discrimination or wrongful dismissal.

Business Interruption insurance (BI insurance) is another popular optional addition to a basic insurance policy. It’s probably one of the most valuable things that small business owners can buy. But most entrepreneurs aren’t aware that when disaster strikes it’s not the cost of the physical damage to their business that will really hurt their company, but the amount of income they lose because they’re out of action. Having BI can help a business survive a serious disaster that causes them to close their doors. As many as 40% of small businesses do not reopen following a major disaster like a flood or earthquake, says the American Red Cross. It also found that 94 percent of small business owners believe a disaster could seriously disrupt their business within the next two years. Some firms not only choose to insure their lost income through buying business interruption insurance, but they also extend that protection to pay their employees’ salaries for up to 12 months, rather than the standard period of 30 days.

Having the right small business insurance can keep your company afloat in a flood or out of court if it’s sued. It’s a silent partner when you don’t need it, but a life saver when you really do. Take a little time to do research on the best policy for your business. It could be the most valuable couple of hours you spend.