How to Budget for Business Insurance
Dig Deeper: Buy The Right Insurance Coverage
Business Insurance Budget: How Much to Spend
Other important questions about insurance revolve around when to purchase it and how to budget for it properly. In an ideal world, you should be thinking about your business insurance options when you write your business plan, but Co says that many business owners look at options when there is an emotional turning point, or when they actually feel that it is a real business and no longer just an idea. In terms of budgeting, as a general rule, consider between 20 and 30 percent of predicted gross sales as the baseline budget for comprehensive coverage, including health and life insurance. However, this is likely too low for high-risk industries like construction and manufacturing and too high for home-based consulting and businesses not offering health insurance. Ask colleagues about their experience.
Dig Deeper: How to Start a Business Budget
Business Insurance Budget: Optional Coverage
There are plenty of add-ons you can purchase if you want to obtain comprehensive coverage. One of the most popular types of coverage is Employment Practice Liability (EPL). Depending on the type of industry you are in, the structure of your management, and what kind of risk is involved with your business, you can determine what types of insurance you may need to add, including:
- Employment Practice Liability (EPL)
- Directors and Officers (D&O)
- Business Continuation
- Fiduciary Liability and Bond
- Professional Liability (Errors & Omissions) Coverage
- Cyber Coverage
On top of that, be sure to insure your two most important assets: your people and your customers. For your own employees, health and life insurance are important, but for customers, consider liability insurance so that they are covered in the event something happens to their property (requiring Property Liability Insurance).
These types of optional coverage can be costly, but shouldn't be more than between 5 and 15 percent of your overall budget.
Dig Deeper: How to Find a Health Care Plan: Finding the Right Plan
Business Insurance Budget: Common Mistakes
Perhaps the biggest problem is realizing that you even need to purchase business insurance. Some entrepreneurs believe their personal auto or homeowners insurance policy will cover them in case of emergency or if they are sued, and they don't budget anything for insurance. But most personal insurance policies cover next to nothing for your business.
Another major mistake in the budgeting process can occur if your small business uses a lot of contract labor. In most states, you're required to have workers' compensation coverage regardless of the contractor's level of involvement. If the contractors don't have proof of coverage and workers' compensation, your company could be on the hook down the road if something were to happen.
One of the best ways to blow your budget on insurance is to choose the wrong agent to buy your insurance through. In most cases, small-business owners do not know enough about the insurance industry to put a package together themselves. Whereas big companies often have internal risk managers that put together custom coverage plans, you should rely on companies and agents that do this for a living. The most costly thing could be a mistake in the business insurance process, because if you're not covered when you thought you were, you'll end up paying more than you ever intended.
'I view the process of finding an insurance agent as very similar to finding a doctor you're comfortable with,' says Co. 'You want somebody who will ask the right questions, care about not only your business but also you as the owner, and who will interact with you the way you're looking for. They must know commercial insurance, and the best way to find them is typically via word of mouth, through a local professional organization or through a major insurance agent or carrier.'
Dig Deeper: How to Set an Annual Budget
Business Insurance Budget: How to Buy Business Insurance
The Internet has made it considerably easier for businesses to research their insurance options, determine their needs and figure out ways to get the most comprehensive coverage for the lowest cost. First, you want to study the subject and figure out ways you can save money, whether through higher deductibles or umbrella insurance. The good news is that many professional organizations and associations have group rates with insurance companies for their members. Check with your local Chamber of Commerce to see if they have any discount insurance options, and also take note of your risks to see if you can reduce them (the less risk, the lower the premium). Before you purchase business insurance, be sure to check in with the local and national Better Business Bureaus and SOHO to see which offers better business insurance discounts.
