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As a business owner, you have many things on your plate. However, you should make it a priority to purchase insurance for your business. There are many different types of insurance that can protect you from damages to your building, vehicles, and equipment, as well as from theft, employee fraud, liabilities, and lawsuits.
This article discusses the importance of utilizing both property and liability insurance for businesses. Also included is how much insurance you need, the different kinds of insurance, and the steps to take for setting it up. Use this as a guide for each step of the insurance buying process so that you have a complete understanding.
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Why is Business Insurance Necessary?
You probably have at least one form of personal insurance such as auto insurance, homeowners’ insurance, renter’s insurance, or life insurance. However, if you have a business, did you know that business insurance is necessary as well?
While business structures like an LLC or corporation are known for providing protection for your personal property, it’s limited. You can utilize other types of business insurance to fill in any gaps in coverage. Additionally, both federal and state governments require you to purchase specific kinds of insurance, such as workers’ compensation, disability insurance, and unemployment. Purchasing property and liability insurance for your business will help mitigate any potential financial hardships in the future.
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How Much Business Insurance Do I Need?
When buying insurance for your business, it’s important to balance the need for adequate coverage with affordable premiums. The amount needed will vary between property and liability insurance, but the ultimate goal is to protect your company’s assets and your personal wealth.
In regards to property insurance, the first thing you should consider is if you own, rent or finance your establishment. Many lenders will require you to insure specific amounts as part of the agreement. However, if you own the property, you should insure its value at a minimum, but up to the total replacement cost is recommended.
There are many variables to consider when determining what adequate liability insurance coverage is for your business. Your legal structure will greatly vary how much liability insurance you need. For instance, a sole proprietorship will need more coverage than a limited liability company (LLC).
It ultimately will depend on what business you conduct, whether products or services. If you need assistance determining what suitable coverage looks like for your business, it is suggested that you seek recommendations from legal counsel or licensed insurance agents.
What Factors Affect My Premium Costs?
Here are a few factors that affect your business insurance premium costs. Knowing what they are will help you shop around for the best rates.
Whether your business is in a safe area or one that has high crime rates will affect your rate, as well as the age and up-keeping of your building.
Just like with personal insurance, your business will have higher premiums if you have made repeated claims in the past.
If your employees drive company vehicles, their driving record could have an impact on your premium. This is especially true if they have a poor driving history.
If you have a poor credit score, insurance companies could look at your company as a financial liability and increase your premiums.
If your policy lapses because you did not pay your bill, it can be difficult to get an insurance company to insure your company again.
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How Can I Save Money on Business Insurance Premiums?
Here are a few ways that you can mitigate high insurance premium costs in order to receive more affordable insurance offerings.
Select safe business locations from the beginning
Keep up with the maintenance and appearance of your business
Consider utilizing cash to cover events rather than filing an insurance claim
Hand select drivers with a good driving history
Work on building your credit score
Put your business insurance premiums on auto-pay so you never miss a payment
Buy multiple types of insurance from the same provider to receive package discounts
Only buy the insurance coverage that you need
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Business Property Insurance
Commercial Package Policy
When both property and liability coverage is combined into a single policy, it's called a multi-line policy. The advantage of policies like these are that the premiums are lower and there are fewer gaps in the overall coverage. Workers' compensation coverage and surety coverage are not part of the commercial package policy. A CPP format will include a declaration page, a policy conditions page, and two or more coverage parts or forms.
Each part of the CPP will name the covered property, additional coverages, extension of coverage, other provisions, deductibles, coinsurance, valuation provisions, optional coverages, and a cause of loss. Coverages for causes of loss are basic, broad, special, or earthquake form. A business interruption insurance may also be added. Builders risk coverage form can also be added to the CPP for buildings that are under construction.
Inland Marine Policies
Inland marine contracts cover domestic goods that are in transit, property that are held by bailees, mobile equipment and property, the property of certain dealers, and means of transportation and communication.
Business Owners Policy (BOP)
The BOP is designed to be used for the needs of small to medium-sized businesses. It covers buildings and business personal property. There are two forms: basic and special. The basic form covers perils that are listed, while the special covers all perils that are not excluded. The policy has a standard deductible of $250 and covers business liability for bodily injury and property damage.
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Business Liability Insurance
General liability is the legal liability that arises from business activities other than auto, motorized vehicles, aircraft, and employee injuries. Liability issues besides the exceptions are covered by commercial general liability policies (CGL). CGL can be written as a stand-alone policy or as a part of a commercial package policy (CPP).
Coverage A is for bodily injury, property damage, and legal defense, but it has significant exclusions. On the other hand, Coverage B is for personal and advertising injury liability, and Part C covers medical payments.
A lot of businesses are required to carry workers’ compensation insurance that will provide the following coverages: workers’ compensation insurance, employer liability insurance, and other state insurance.
Workers’ compensation insurance covers benefits that are provided by the insurer. Part 2 covers the lawsuits by employees injured during the course of the employment, but not covered by the state worker’s compensation law. Part 3 covers for the other states that are listed.
Businesses can use a commercial automobile insurance policy that would cover physical damage to property and liability insurance.
Business Liability Umbrella
Businesses can use a commercial liability umbrella policy for excess coverages on liability that is beyond the coverage that is provided by the firm’s basic liability policy.
Professional Liability Insurance
Professional liability policies give coverage for malpractice that causes harm or injury to a professional’s client. Professional liability insurance usually includes a broad coverage, and liabilities are not restricted to accidental acts and negligent acts. The policy contains a limit per incident and an aggregate limit. The professional also needs general liability insurance.
Errors and Omissions Insurance
Errors and omissions insurance gives protection against losses from negligent acts, errors, and omissions by the insured. Many professionals need errors and omissions insurance to cover negligent acts, or omissions, or failure to act in their own profession that causes a legal liability.
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Follow these Steps to Purchase Insurance For Your Business
When looking to purchase property and liability insurance for your business, there are three steps that you should take. The first is assessing your risks. You will need to determine what kind of liabilities your particular business could face - whether that be accidents, weather-related disasters, or lawsuits.
Next, you will want to find a reputable licensed insurance agent who can help match you with suitable policies to fit your needs. Just make sure that you shop around for the best deal by comparing premiums, term lengths, and any benefits.
But, buying insurance for your business doesn’t end here. As the final step, you will need to reassess your business needs each year to see if your insurance matches your growth. Keep in contact with your insurance agent as changes occur so that they can make adjustments to your policy.
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