The Basics of Business Insurance

Simply put, insurance is designed to support your business and its employees in case of major harm or downturn.  Bearing that in mind, there are any number of insurance products that any business can use.  Some, like worker's compensation, are required by law, and other types of insurance will be required from banks, landlords and business partners. Together with your accountant and insurance broker(s), you have to decide what insurance you need and what risks you are willing to take.  And then create an insurance plan that works for your company.

Basic Types of Insurance

The most common types of business insurance include worker's compensation, health, fire, commercial property and equipment, auto, flood, general liability and business interruption.  Many insurance providers offer general business policies which can cover all but worker's compensation and health insurance.  These policies can be quite intimidating, but it will pay you to spend a good deal of time understanding your coverages.  A good policy will detail each major area of coverage and will include specific examples and, of course, the costs for these separate coverages.  A good insurance broker or provider will help you to figure out what coverages you need in this area and will tailor a policy for your needs.

Depending on your business, you may also require other types of insurance or specific riders to a general policy.  These might include "key man" life insurance, disability, fraud, employment practices, bonding and officers and directors insurance.  Like worker's compensation and health, these are specialty coverage needs for which you should look for specific insurance providers.

Know Your Risks

Depending on your business, your insurance can easily run into the thousands or tens of thousands of dollars per year.  You and your employees know your business, its assets and how the business operates.  Look at your physical surroundings and geographic or climatic conditions to know whether you need flood or other catastrophic coverages.  Spend a good deal of time analyzing your business liability needs.  If you are a service provider to businesses, for example, you will not have the same needs as someone who sells products to consumers.  A company who manufactures consumer products which might cause harm will have significant insurance needs.

There may be alternate business methods which can help to reduce your insurance needs.  In times of rapidly dropping computer equipment costs, for example, you may choose to reduce your replacement coverage for such equipment.  You may also implement extensive data backup procedures and identify temporary office locations to help mitigate business interruption losses in the event of significant damage to your physical plant.

Whatever you decide and whatever alternate programs you put into place, make sure that you are comparing apples to apples.  If you are reducing some of your commercial property coverages because equipment costs are dropping, make sure that you are  including in your risk calculation only the cost of the equipment coverages.

The Budget

Analyzing business insurance coverage and budgeting accordingly may require a level of sophistication your business does not have - or need.  Once you have established the coverage you need or risks you are willing to take, perhaps the easiest way to budget for insurance is to obtain quotes based on levels of deductibility.  Increasing the deductible - self-insuring - will lower the premium costs.  In addition, certain policies may provide you with varying deductibles for different coverages within the policy itself, depending on type of coverage and any special riders.

The Not-Just-Insurance Plan

You have analyzed the key risk areas, your business and work flows and the overall insurance needs.  Now you put together an insurance plan, one where you have analyzed acceptable risks for your business and identified the top carriers and best values.  But creating an insurance plan does not include only insurance needs and costs.  It also contains your company's plans for reducing the risks.  Sometimes, the best way to reduce the cost of insurance is to train people in safety, work flows and systems within the key risk areas.  Not only can these programs lower your insurance premiums, but they can also increase productivity and best of all, keep your employees safe and healthy.

Analyzing your insurance needs may shave sizable dollars off your operating budget.  But make sure that you include insurance costs into any hiring decisions, acquisitions of businesses or equipment purchases that are coming up.  Today's insurance may not cover tomorrow's needs.