Insurance is always essential, but it takes on new significance when you’re an entrepreneur. Striking out on your own to start a business is exciting and rewarding. It’s tempting to focus on building your venture while leaving insurance for another day, but getting the proper coverage should be part of your business plan from the beginning.
When you become your own boss, you realize how many previously built-in benefits you now have to consider. It’s up to you to work out things like paid time off and 401k plans. Insurance choices may seem overwhelming and a little expensive, but protecting yourself and your business should always be a priority.
You’ll need a mix of personal and business insurance to create the most reliable safety net. In addition to peace of mind, insurance can save you money on your tax bill and increase your legitimacy in the eyes of customers.
Types of Insurance for Self-Starters
As an entrepreneur, you’re already well-versed in the importance of productivity. There are quite a few types of insurance self-starters should consider in the process of starting a business, and not all will apply to you. For example, if you have one or more employees, you’ll need to carry more types of insurance than a freelancer who only employs themselves. Astonishingly, 75 percent of U.S. businesses are under-insured by at least 40 percent, leaving them extremely vulnerable. The following primer will give you a clearer picture of what you need.
1. Health Insurance
The search for proper health insurance starts the minute you hand in your resignation. You’re now the main engine in a business, and when your health suffers, the company does too. Even if you’re fortunate enough to enjoy generally good health, an unforeseen accident or illness can wipe out a significant chunk of assets in one fell swoop.
Freelancers and entrepreneurs without employees are eligible to apply for health care through the government Marketplace. If you have employees or make too much money to qualify for a Marketplace plan, you should consider using an insurance agency to help you find the most appropriate plan.
2. Life Insurance
Life insurance is a must to round out protections for your family. Many people think that because they are young, they can skip out on life insurance until later. For business owners, the average life insurance policy is often not enough. A $100,000 payout might be enough for someone with a house, a car and not much debt. However, you’ve likely taken on a significant amount of debt as an investment in your business.
You also need to consider how your needs will change as your business grows. Finding an agency experienced in working with entrepreneurs is essential to choosing an appropriate long-term policy plan, especially if you expect to add employees to the coverage.
3. Liability Insurance
With yourself and your family protected, you can safely turn your focus to defending your business. Liability insurance covers legal and related fees if someone sues you. A liability plan also covers fees from damages or injury if someone gets hurt using your product or while visiting your property.
You may think you’re in an industry where litigation isn’t an issue, but you’d be wrong. Unscrupulous individuals can come up with remarkably inventive ways to cause you legal woes, and once you’re in their sights, you’ll be glad to have a solid liability policy in place.
Entrepreneurs who meet with clients in their home or office absolutely need general liability coverage in case of injury. Other types of businesses that need general liability are ones that provide services. If you landscape a backyard and a kid breaks their arm from trying to climb a loose boulder, the client could sue. If you perform IT services for a company and their server crashes immediately afterward, they could sue.
The sheer number of possible litigation scenarios is overwhelming, and there are multiple forms of liability insurance to fit the needs of different businesses.
In the case of an IT professional, cyber risk insurance is a smart move. If someone provides consulting services or advice to clients, they need professional indemnity insurance. While commercial general liability (CGL) is the most common, some businesses need extra coverage specific to their industry. Professional liability insurance also covers you in case of accidental negligence, forming a vital layer of additional protection.
4. Workers’ Compensation
Worker’s comp insurance is required by law in all 50 states for businesses with at least one employee. There are some exceptions, such as when an employee is paid only on commission, but they don’t apply in all states. If your small business has an employee who isn’t an owner, you need workers’ comp.
A workers’ comp policy covers medical costs and loss of wages if an employee is injured at work. If you skip this type of insurance, you risk having to pay thousands out of pocket for the bill. You also risk heavy fines from your state.
In most cases, an insurance agency can find you the best deal on workers’ compensation insurance. However, you have to go through state-run channels to get a policy if your business operates in one of these states or U.S. territories:
- North Dakota
- West Virginia
- Puerto Rico
- The U.S. Virgin Islands
5. Renter’s or Homeowner’s Insurance
A robust renter’s or homeowner’s policy is a smart investment for entrepreneurs who operate out of their home. You likely already have one of these policies, but it deserves reconsideration when you start your business. Since your home is now your office, you have much more to lose if something should go wrong.
Shoring up your renter’s or homeowner’s policy can help you recoup critical assets like computers and equipment in the case of damage to your home.
6. Umbrella Insurance
Umbrella insurance covers you when dollar amounts for other policies run out. If your general liability policy is capped at $1 million, that’s all you can get to help cover the lawyer fees, court costs and the settlement itself. This amount may look good on paper, but the variables involved in a lawsuit can easily exceed the limits of a general liability policy.
Umbrella insurance is there to kick in once your original policy is exhausted. The typical umbrella policy for a business adds $1 million to cover extra costs. This insurance is supplemental, and you’re only eligible if you have the appropriate underlying policy. As an extra layer of protection, an umbrella policy is a crucial form of insurance for entrepreneurs.
7. Business Owners Policy (BOP)
A business owners policy rolls the major protections of other policy types into one policy specifically designed to cover the typical needs of entrepreneurs. Business owners policy coverages include:
- Property insurance: Your company’s buildings and their contents are covered in case of damage. With standard coverage, the policy insures against specific causes of loss. With special form coverage, your property is insured against anything that is not specifically excluded.
- Business interruption insurance: If your property is suddenly out of commission due to fire or other damage, your business will suffer. While health insurance may cover the cost of treatment, it doesn’t pay for the profits lost during your absence. Business interruption does just that.
- Liability protection: This critical policy is the backbone of insurance for entrepreneurs. Vigorous liability insurance is also the cornerstone of business owners policy coverages.
Five Advantages of Insurance to Entrepreneurial Businesses
Comprehensive business insurance ensures you and your company are protected in the event of a lawsuit or accident, but there are other reasons to get full coverage. Here are five lesser-known advantages of insurance to business owners.
1. Maintain Legal Compliance
Workers’ compensation and auto insurance are the only insurance required by law in all 50 states. If you’re caught without policies, you can face penalties and fines from the state. Unemployment insurance requirements vary from state to state. Businesses don’t legally have to carry property or liability insurance because you’re expected to protect your own interests.
If you hope to gain any public contracts, however, the public authority you’re working with determines the necessary level of protection. Another consideration is renting. If you rent your office space, the landlord will most likely require property insurance. You can always do the bare minimum when it comes to business insurance, but doing so may limit your opportunities.
2. Keep Your Business Running
If a disaster strikes, property insurance goes a long way toward keeping you afloat and reimbursing you for loss and damage. But what about the downtime, when repairs and recovery keep your doors closed? That lost revenue can derail a new business quickly. According to the non-profit SCORE, 40 percent of small businesses that close after a disaster never reopen.
The interruption insurance in a BOP compensates you for the loss of income but also compensates you for operating expenses like rent. For an entrepreneur, this coverage can keep a company running in the face of revenue-halting damage.
3. Get Tax Deductions
As an entrepreneur, you can generally deduct the cost of insurance. As long as it’s for your business, insurance is considered a deductible expense. Deductible items include the cost of workers’ compensation insurance and any other insurance you offer your employees, such as life or disability policies.
If you’re self-employed, you can also deduct your own health insurance premiums for yourself and your family. When you’re starting your own business, you worry about every penny. Being able to deduct the cost of most insurance makes critical coverage even more valuable.
4. Attract Top Talent
When you’re ready to add more people to your team, you want the best. To attract anyone worth your while, you need to at least comply with workers’ comp regulations. To snag the very best, you’ll need to tempt them with extras like health, life and disability insurance.
5. Establish Legitimacy
Depending on your industry and the size of your business, your level of insurance may act as an indicator of suitability to potential clients and partners.
Being properly insured shows potential business partners that you’re serious about your venture and helps preemptively alleviate worry about “what if” scenarios.
Common Questions About Business Insurance
If you still have questions about insurance for entrepreneurs, you’re not alone. Here are three of the most common questions and concerns about business insurance.
1. Do I Need Business Insurance If I Have an LLC?
Limited liability companies (LLC) offer business owners legal separation of business and personal assets, as well as some shielding from liability. But while a lawsuit may not be able to take all your personal assets, an LLC does not shield your business assets.
A limited liability company is just that — limited. If someone decides to sue you, an LLC offers your business no protection. While separating your business and personal assets with an LLC can be an excellent first step to creating a strong safety net, you need general or professional liability coverage to complete the shield for your business. In many cases, both are recommended.
2. Should I Choose Property or Liability Insurance?
Liability insurance and property insurance are must-haves for companies of any size. The more important question is how much of each you should carry. If you run a business out of your home, you will likely have less equipment and inventory to worry about than you would if your company required a warehouse to store inventory.
General liability should be a part of any business plan, and professional liability coverage covers any gaps. Small to medium-sized businesses should consider a BOP as it addresses both property and liability in a package specifically designed for entrepreneurs.
3. How Much Does Small Business Insurance Cost?
General liability, the most crucial insurance for any entrepreneur, usually costs less than $1,000 per year for a $1 million policy if you’re the only employee. Some businesses, like manufacturers and contractors, have higher average costs due to higher inherent risk. More employees also raise the price of small business insurance.
Bundling services, like you do with a BOP, is a smart way to save money on your business insurance no matter your industry. And instead of doing all the legwork of getting quotes from every insurance company, consider partnering with an insurance agency to do the hard work for you.
Business insurance is a necessary expense for any entrepreneur, but the peace of mind is more than worth the cost.
Get Informed With Gunn-Mowery
Your business is the culmination of your hard work and perseverance. You owe it to yourself to protect your investment and do everything you can to defend against risk in its future growth. Business insurance offers security in the knowledge that a bump in the road won’t spell out disaster for your venture.
You have nearly endless options when it comes to choosing business insurance, and you likely have multiple questions you need to be answered. Gunn-Mowery is the Northeast’s premier insurance agency, with the expertise to answer all your questions and a mission to provide the best service possible.
If you’re ready to learn more about types, benefits and costs of business insurance, don’t hesitate to reach out.