Commercial insurance is a necessary expense for any small business. As important as it is, many business owners know very little about insurance policies for businesses and just how much coverage is enough.
With other major decisions, like your location or who you hire, you’ll be able to see pretty quickly if you’ve made the right decision. If you get the wrong insurance, it might not come back to bite you until years down the line—and often in the midst of a crisis, when it’s the last thing you want to worry about.
Doing your research can help you make the right choice from the beginning. We’re here to share our top tips for picking commercial insurance in any industry.
1: Know how much insurance you’re legally obligated to get.
Commercial insurance isn’t required for every small business, but some states and industries do require businesses to carry insurance in order to operate. Most states require workers’ compensation insurance for any business with employees, for example. Landlords often require general liability insurance for commercial spaces to protect against damage to the property or injuries that occur on-site.
Do your research into state laws and industry regulations before you start shopping for insurance plans. This will tell you the bare minimum in coverage you’re required to get by law.
2: Understand the risks you need protection against.
Each industry has their own unique challenges and likely risks. If you’re opening a convenience store, for example, you’ll likely want to get protection against property loss, since these stores are often targets of thefts and robberies.
Your industry isn’t the only factor you need to consider. Also think about risks resulting from your business’ location. Many general insurance policies don’t include coverage for damage from natural disasters. If you operate a beachside bar in Florida, this is something you’ll probably want to add if it’s not included.
Once you’ve assessed your risk, you’ll know whether general liability insurance is enough, or if you need to add extra coverage like commercial crime insurance or protection against data breaches.
3. Choose an agent who knows your industry.
Commercial insurance can be confusing. Even after doing your research, you’ll probably have some questions. A knowledgeable insurance agent can answer these for you and help you find the best price and plan for your business needs.
For most business owners, an independent agent is a better choice than a captive agent. Captive agents work for a specific insurance company and will only show you policies through them. With that said, if you’re committed to a certain insurer, a captive agent may be able to get you an “in-house” deal that independent agents don’t see. Even so, independent agents can shop around at different companies to find the one that’s best for your needs.
Interview a few agents before you decide on one. Ask about their experience with small businesses in general, as well as those in your particular niche.
4: Err on the side of being over-insured.
New business owners are always looking for places they can cut expenses. Your insurance shouldn’t be one of them. A cheaper policy might look more appealing in the short term, but they also usually have higher deductibles and lower, less thorough coverage. If something goes wrong, you’ll still have to pay thousands of dollars out of your own pocket.
It’s easy to under-estimate the financial burden of lawsuits, property damage, and other commercial insurance claims. This is another good reason to work with an agent who has experience with small business claims that give them more context for how much coverage you need.
First-time business owners often experience a bit of sticker shock when they see the price of commercial insurance, but you should avoid letting anxiety over expenses push you into buying the cheapest policy available. It’s worth it to pay a bit more each month for a good policy from a reputable provider.
5: Consider a bundle BOP.
Most small businesses need more than one type of insurance. Rather than looking for each piece of this puzzle individually, a Business Owner’s Policy (BOP) brings all the pieces together into one plan.
Most companies that offer BOPs give you some flexibility in which coverages are included. Along with being more convenient, you’ll usually save at least a few bucks a month compared to getting each kind of insurance on its own.
If a BOP doesn’t offer the coverage you need, you can still save some money by getting all your insurance through one provider and bundling them together. You’ll be happy you did if you ever need to use it, too, sparing yourself confusion over which provider(s) to file claims with.
6: Read the policy thoroughly before you buy it.
You might be surprised how many business owners have never read the full details of their insurance policy. Different carriers have different exclusions, limits, deductibles, and premiums, and you want to know what those are for your policy.
Before you sign your policy, review it in detail both on your own and with your insurance agent to make sure you understand what’s covered and what isn’t. If there are any gaps in coverage, it’s better to know that from the beginning than just before you make a claim.
7: Find a plan that can grow with your business.
As circumstances change, so do your coverage needs. If your successes lead you to hire more staff, open new locations, or expand the products and services you offer to customers, the insurance you bought when you started might not be enough anymore.
Whatever plan you buy should give you the flexibility to make changes as your business evolves. While it’s impossible to predict what will happen in the future, you should consider how your needs may shift over time when you’re shopping for policies and providers.