Small businesses are the lifeblood of the American economy. In fact, 99 percent of all independent enterprises in the US employ less than 500 individuals, accounting for 52 percent of the workforce.
Small business defined
In its simplest definition, a small business is a privately owned and operated company that typically holds a small number of employees. They can be corporations, partnerships, or sole proprietorships that earn less annual revenue compared to a regular-sized business.
In the US, the Small Business Administration is the federal agency tasked to define what a small business should be based on parameters such as number of employees and annual receipts. Different sectors have different set limits. (See this guide for the SBA’s Summary of Size Standards by industry sector.)
Business and risk
Although some of the world’s largest companies are in the US, this does not inhibit startups and small businesses from thriving. Opportunities abound. From sectors like mining and agriculture to retail and tech, there is talent and market in the land of the free.
But there’s more to the story than just numbers. Behind the enormous success of small business entrepreneurs is the initial struggle to launch operation – which meant having to deal with risk.
Businessmen expose themselves and their companies to risk everyday.
There’s the risk of failing to achieve a return of investment, interrupted operation, failing to find good, productive talents with the necessary skill to deliver what is expected. There is risk in employee injury, or worse, possible lawsuits.
Even with just a single thing going wrong, everything you have built for years can fall apart.
To prevent such a misfortune, a smart businessman gets protection. This is where a small business insurance plays a vital role.
Your business’s shield
A small business insurance is an essential economic shield that secures your business from the unexpected. Various types of small business insurance coverage are available based on the type of risk it is used for.
About basic business insurance
For businesses that are just starting up, there’s no need to rush and get all types of coverage at once. You may need, however, these basic coverages:
a.) General Liability Insurance. A basic liability protection secures your business against the most common risks. Also known as business liability insurance, this coverage provides protection for damages that may arise from your business’s operation. These include bodily injury, property damage, medical payments, as well as damage to premises rented to you, among others.
b.) Commercial Auto Insurance. As most personal auto insurance coverages don’t provide protection for work-related injuries and accidents, you will need a commercial auto insurance if you use a vehicle for work-related purposes. Typically, a commercial auto insurance covers physical damage, medical payments, and personal injury, etc.
Now once your business grows and your operation expands, your need for protection might also increase. Your general liability coverage might not suffice certain specific aspects of your operation, hence the need for that extra layer of protection.
Coverages packed together is collectively called a Business Owners Policy or BOP. A BOP typically includes:
i) Property coverage – your personal properties and possessions are not usually answered by your general liability coverage. This particular BOP coverage fills that gap and protects your commercial buildings and personal assets from damage.
ii) Professional liability – if your business specializes in offering professional services, a professional liability coverage protects you from negligence claims.
iii) Business interruption coverage – certain operation disruptions (most commonly disasters) can cause you to lose income. This coverage makes sure you are adequately compensated.
Insurance for Contractors
Contracting businesses vary in size and operate under a wide spectrum of risks. Some even operate independently. This makes it difficult for one blanket policy to suffice all their needs. Some may only need a stand-alone worker’s compensation, while others would require a general liability as well as a commercial auto insurance coverage. Depending on the need, contractors can get a bundle of coverages in a BOP or get only a specific coverage for the sole purpose necessary.
Contractors who should get a contractor’s insurance includes carpenters, plumbers, electricians, and many other skilled workers who are placed at great risks while on the job.
A very helpful coverage most common among skilled workers is the workers’ compensation which helps pay for medical costs and an employee’s income loss after being injured at work.
What determines the cost of my business insurance?
Different businesses, in different stages of development, have various coverage needs. Customization of BOP can greatly vary cost from business to business. Typically, the factors that your insurer will look at when determining the cost of securing your risks include:
- the nature of your business – companies that hire skilled jobs may have more risks than companies that only hire office-based clerks. The greater the risk, the more expensive is the cost.
- your business location – disaster prone locations (near a fault line, in a state that is frequented by tornadoes, an area that is at risk of being flooded) can raise the cost of your coverage
- years you’ve been in operation – this will help determine your contract history which helps insurers assess your liability. It also helps them parse the number claims you have filed which tells them of your risk as a policyholder
- number of employees – the more workers you have, the more you need a workers’ compensation; it also affects your general liability
- amount of needed coverage – the more coverage you need, especially those customized for your business’s specific operations, the more expensive your insurance will cost.
Who needs small business insurance?
Any operating small business, even when it’s only operated by five people working in a basement, should still get coverage, especially those at the very early stages of setting up. You cannot afford a loss when your primary focus at that phase is in keeping your business running.
Whether you are operating a construction business or a tech startup, getting covered is an important part of getting started. Not does it only afford you peace of mind; it also allows you to focus on the more important aspects of your business.
Speak with the InsuranceSpecialists today about your small business insurance needs.