How Much Insurance Does Your Small Business Really Need?

The insurance requirements for your company depend on many things, starting with the nature of the business. But, from the day that you open your doors, you face risks. These risks are likely to increase rapidly as you ramp up operations — and as the company begins to mature.You need to regularly watch for new risk exposures and be vigilantly aware of any insurance coverage that is required by law. Purchasing relevant small business insurance coverage can literally save your business from bankruptcy.

Business Owners Have Plenty of Insurance Options

If you have heard of Lloyd's of London, you already know that you can insure practically anything, from a performer's legs to a grain of rice. You probably do not need rice insurance, but every business faces its own unique set of risks. Here are some of the more common types of insurance that might be right for you.

Property/casualty

According to the Institute for Business & Home Safety, at least 25 percent of businesses that close following major disasters do not re-open. If you operate a business out of your home, your personal property insurance policy might coverall potential risks from property damage or liability. But, never assume. Homeowners' and renters' policies have limits.If your business owns or rents a separate facility, of course, you need property insurance that covers damage to the premises. In fact, landlords often require that tenants carry this coverage. Don't forget that property insurance also covers business assets, including expensive equipment, inventory or anything else that can sustain damage or loss.Casualty insurance is another name for liability insurance, so Limited Liability Corporation (LLC) members might assume that the company's legal structure provides full protection. This is not always true. For example, any member can still be held liable for injuries that they personally cause, even within the context of business operations.Every business needs proper protection. A trusted insurance agent can suggest what you need.

Business interruption

Tornadoes may have wiped out your building and other assets, but is coverage for those losses enough? Weeks or months may elapse before you can start generating income again. This time can represent the difference between the life and death of your business.Business interruption insurance essentially helps you recover all or a portion of earnings lost between the time that you suffer a covered loss and the time that you are ready to start earning again. It may even provide coverage when, for example, a disaster misses your workplace, but strikes the surrounding area. Flooded roads that prevent customers and employees from accessing your facility affect earnings, too.There is no hard and fast rule that dictates how much coverage your business needs, if any. The value that you choose to cover depends on many factors. These include (but are not limited to):

• The chances of sustaining damage from a covered disaster
• The length of time that the business cannot generate income
• Your typical pre-loss revenues, less ongoing expenses

Take a long look at your risk exposure and work with a trusted insurance agent to decide if you need business interruption insurance — and how much.

 Workers' Compensation

Workers' Compensation insurance laws essentially make sure that workers' on-the-job injuries are appropriately covered while generally removing liability concerns for employers or other employees. It's safe to say that, as long as sole proprietorships do not hire any employees, coverage for workplace injuries is optional anywhere in the U.S. However, if you do dangerous work, you might want to consider carrying coverage. And, don't assume that you don't have to cover contractors; it all depends on your state's definition of contractor versus employee.Every state has some form of Workers' Compensation requirements for businesses that have even one employee, and you could face stiff penalties if you fail to carry the right coverage.

Employee health insurance

As long as the Affordable Care Act (ACA) remains in force, small businesses that employ 50 or more full-time workers are generally required to carry a certain level of health insurance coverage for their employees, possibly offset by employer tax credits.Even if the ACA disappears tomorrow, any number of factors affects the coverage that you decide to provide to employees. In addition to the premiums that employees might have to contribute, state and federal laws can potentially kick in to ensure that you provide a fair level of benefits for all employees.To do it right, consult with an insurer that deals specifically with business policies.

Commercial auto

Whether your company owns or leases vehicles for conducting business, or even if you or your employees use personal vehicles for work purposes, you probably should consider purchasing a commercial auto insurance policy. For a wake-up call about the risks — and valuable safety recommendations — take a look at Guidelines for Employers to Reduce Motor Vehicle Crashes funded by the U.S. Department of Labor.

Umbrella liability

Your standard property/casualty policy probably covers your business against typical losses, but what happens when unforeseen accidents occur? Whether your losses for one incident exceed the normal policy limits, or a loss occurs outside of your normally-covered regional area, you might save money by carrying an umbrella policy for lower premiums than you might pay by expanding standard coverage.

Most Businesses Don't Need All Types of Insurance

Every business has different risks. Unless you are a medical professional, for example, you don't need medical malpractice insurance. On the other hand, some doctors can probably handle paying higher health insurance deductibles than accident-prone roofers. You definitely need to carry any coverage that is required by law, but then you need to consider your business' unique set of risks.First, take some time to think about the issues that might create losses for your company. Then, talk to a trusted insurance agent who knows how to assess your insurance needs. Of course, if you have any specific concerns, particularly those that pertain to liability or other legal issues, you might want to talk to an attorney as well.