The fine line between total loss and sustainability is a measure of the risk a business possesses.
Entrepreneurs take up business risks in expectations for future gains and rewards. This means that all companies, regardless of their industry or operational nature, are continually exposed to financial risk. Unforeseen expenditures or unaccounted financial burdens are ordinary in every small and large business.
While some industries may be less risky than others, unfortunate events are common occurrences and can have devastating consequences on one’s business.
What should business owners do to protect themselves against potential risks?
The insurance industry plays a crucial role in soaking-up the risk a business or asset owners face after charging an insurance premium and deductible. In case of unforeseen events, insurance companies cover the losses on behalf of the business. For example, suppose a company experiences a robbery worth $10,000, and the deductible amount is $2,000. In that case, the company will first pay the deductible amount, while the insurance company will cover the remaining $8,000.
However, getting business insurance may not always sound this simple. There are some key questions one should consider before investing in business insurance:
1. Why is it important to understand state laws?
Depending on your business location, there are legal frameworks that determine the types of insurance coverage liable on the business. Some states may have stringent laws, while others may be more relaxed. But generally, companies are required to carry General Liability Insurance and Worker’s Compensation Coverage.
Most businesses hire employees, making them liable to carry Worker’s Compensation Coverage such as health coverage and medical bills for employees. Suppose one wishes to learn more about state laws and how they can impact one’s business. In that case, it would be best to complete a master of business online and become familiar with the legal and regulatory environment that businesses and companies are expected to follow.
2. Why is it crucial to conduct a business’s risk analysis?
It is recommended for small businesses to dip their feet in the insurance pool by getting General Liability Insurance first. However, simply relying on GIL coverage will not be enough in the long-run as businesses generally grow in size and revenue.
Before issuing a quote, insurance companies first do their assessment of the risk levels of a business. The key here is to differentiate between the risks that can be mitigated through less-expensive solutions and only get coverage for those risks that can have detrimental consequences. For instance, risks such as petty thefts can be mitigated by installing CCTV cameras, thus bringing down the insurance premium. On the other hand, the risk of damage caused by fire should always be included in insurance coverage.
3. Why does the reputation of the insurance company matter?
Getting insurance involves a significant amount of financial transactions. Therefore, it is essential to ensure that the company offering services is reputable and known for its reliability.
Business owners should conduct their independent research and get quotes from multiple insurance providers before signing finalizing a policy. Doing this will ensure that the business can choose from after weighing quotes based on the insurance premiums, the coverage offered against those premiums, and the deductible amount. Business owners should also conduct industry analysis to identify insurance companies working with businesses of similar nature and the individual insurance plans they are offering.
4.What should you prioritize: Insurance coverage or cost?
The cheapest option doesn’t necessarily translate into the most cost-effective solution. Choosing the most affordable insurance plan might end up hurting the business simply because the coverage offered against lower premiums may not be enough to cover significant losses. Therefore, it is crucial to have a detailed discussion with the insurer to understand the type of coverage the business will require.
However, for most small businesses out there, the focus should be on the bottom-line. Business owners should calculate the insurance cost they’ll have to bear per employee and then decide if the additional insurance expense justifies the coverage it offers. A holistic and rational decision-making approach is needed instead of choosing the lowest cost option or the highest cost with the most comprehensive coverage. Businesses should look to strike the perfect balance between insurance premiums and the subsequent coverage they offer.
5. Why is it necessary to fully understand the terms and conditions?
Business owners should ask the insurer about the potential losses that the insurance policy will “not” cover. It would be best to thoroughly study the fine print to ensure there are no surprises in the future in case of unforeseen circumstances. This will save business owners from future frustration and stress, especially when they face an unexpected loss not covered by a hefty insurance policy.
Insurance can be a tricky business because it involves a lot of probability. Therefore, it would be best to review one’s insurance needs on an annual basis. Many changes tend to happen during a fiscal year. Consequently, it is better to adjust the insurance policy based on historical data instead of opting for a one-size-fits-all approach.
Final Words
The need for having business insurance is often not a choice but a necessity due to legal obligations under state law. However, the type of insurance policy businesses choose for themselves is a decision every business owner has to make independently. It is wise to consider the business’s current status, future growth potential and assess the current amount of risk. Business owners should fine-tune their insurance needs. Whenever possible, invest in mitigating unnecessary and small-times risks. But if you’re looking to hedge a significant chunk of the risk, then turn to insurance policies that provide comprehensive coverage in case of a substantial loss to justify the high insurance premium.
